Dhanya T Mallar

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ARBITRATION VS. ELECTRICITY REGULATORY COMMISSION: A TUG OF WAR

The power sector consists of complex contracts to ensure generation, transmission and distribution of electricity and such contracts involve interests of multiple private, governmental and quasi-governmental entities. Disputes arising from such contracts which demand speedy and efficient remedies.

The Electricity Act, 2003 under Section 158 provides that disputes may be referred to arbitration by the appropriate commission as prescribed in the Act and that the Arbitration and Conciliation, 1996 shall also apply.

Section 158 of the Electricity Act states that where any matter is directed to be determined by arbitration as per the Act, it shall be determined by such person or persons as the Appropriate Commission may nominate in that behalf on the application of either party; but in all other respects the arbitration shall be subject to the provisions of Arbitration and Conciliation Act, 1996. Thus, the legislation divides the electricity related disputes into two categories; arbitrable by parties and arbitrable by reference to arbitration by Appropriate Commission.

This is also evident in the model power purchase agreement published by the Ministry of Power. The long term Power Purchase Agreement model has a dispute resolution clause as following:

“17.3 Dispute Resolution

17.3.1 Where any Dispute arises from a claim made by any Party for any change in or determination of the Tariff or any matter related to Tariff or claims made by any Party which partly or wholly relate to any change in the Tariff or determination of any of such claims could result in change in the Tariff or (ii) relates to any matter agreed to be referred to the Appropriate Commission under Articles 4.7.1, 13.2, 18.1 or clause 10.1.3 of Schedule 17 hereof, such Dispute shall be submitted to adjudication by the Appropriate Commission. Appeal against the decisions of the Appropriate Commission shall be made only as per the provisions of the Electricity Act, 2003, as amended from time to time. The obligations of the Procurers under this Agreement towards the Seller shall not be affected in any manner by reason of inter-se disputes amongst the Procurers.

17.3.2 If the Dispute arises out of or in connection with any claims not covered in Article 17.3.1, such Dispute shall be resolved by arbitration under the Indian Arbitration and Conciliation Act, 1996 and the Rules of the Indian Council of Arbitration, in accordance with the process specified in this Article. In the event of such Dispute remaining unresolved as referred to in Article 17.2.3 hereof, any party to such Dispute may refer the matter to registrar under the Rules of the Indian Council of Arbitration.…….”

The model clause, also, divides the disputes into two categories – disputes pertaining to tariff and disputes which are not pertaining to tariff.

There are various issues which arise regarding the extent of applicability of Arbitration and Conciliation Act, 1996 to disputes governed under the Electricity Act, 2003. I examine only the applicability of Section 8 of the Arbitration Act, 1996.

Section 8 states that a judicial authority before which an action is brought, is bound to refer parties to arbitration if there is an arbitration agreement. The issue whether the appropriate commission are obliged to refer the parties to Arbitration if there is an agreement was recently decided in the case of Damodar Valley Corporation v. Madhya Pradesh Power Management Company Limited, MANU/CR/0185/2019 by the Central Electricity Regulatory Commission.

In the above matter, there was an arbitration clause in the Power Purchase Agreement entered between the parties. When the Petitioner approached the CERC for adjudication of dispute, the respondent challenged the maintainability of the Petition stating that the CERC is obliged to refer the dispute to Arbitration as per Section 8 of the Arbitration Act, 1996.

The Petitioner with regard to the applicability of Section 8(1) of the Arbitration Act, 1996, submitted that when the superseding provision of the 2003 Act read with Section 2(3) of the Arbitration Act,1996, the arbitral clause in the Power Purchase Agreement is not valid and the provisions of Section 8(1) will have no application. The petitioners referred to the NCDRC case of Emaar MGF LandLimited v. Aftab Singh and Ors to argue that the implication of the amended section 8(1) of the Arbitration & Conciliation Act, 1996 to the provisions of the Consumer Protection Act as considered in this case will be applicable to the instant case as well.

In Emaar MGF Land Limited v. Aftab Singh and Ors, the National Consumer Disputes Redressal Commission observed that the disputes which are to be adjudicated and governed by statutory enactments, established for specific public purpose to sub-serve a particular public policy are not arbitrable and Section 2(3) of the Arbitration Act recognizes schemes under other legislations that make disputes non-arbitrable. This view was upheld by the Honourable Supreme Court of India. The Petitioner relied upon this case to draw a parallel to the facts of the case wherein the disputes between generating company and licensee has to be adjudicated by the appropriate commission

The Respondent in above matter contended that the petition before CERC is not maintainable as the dispute has to be adjudicated/referred to an Arbitration Tribunal as per the Arbitration agreement entered into between the parties as per Section 8 of the Arbitration Act,1996. The issues are to be adjudicated by a Sole Arbitrator and the venue of Arbitration is in Kolkata. Admittedly, in the present case, there is an arbitration agreement and an action has been brought before judicial authority and the dispute is purely a contractual matter. The Respondent relied on the case of Booz Allen Hamilton v. State Bank of India Home Finance to emphasize that a purely commercial matter is capable of adjudication by arbitration and in view of Section 8 of the Arbitration & Conciliation Act, 1996, as amended, the Petitioner ought to be directed to undertake arbitration for resolution of dispute.

As per Section 5 of the said Act, it is clearly mentioned that notwithstanding anything contained in any law for the time being in force, no judicial authority shall intervene in the matter governed by the Arbitration & Conciliation Act, 1996, as amended, except where so provided under the Arbitration Act. On a bare reading of Sections 5 and 8 Arbitration & Conciliation Act,1996 the legislative intent is clear wherein it is expressly stated that notwithstanding any judgment of Supreme Court or any Court, if parties have an arbitration agreement then the judicial authority shall refer them to arbitration. The respondent cited the case of Smt. Kalliani Amma & ors and V K.Devi & ors. AIR 1996 SC 1963 in which the Hon’ble Supreme Court has explained the meaning of ‘non-obstante’ or ‘Notwithstanding’ clause and has stated that it has an ‘overriding effect’.

The respondent also submitted that Gujarat Urja Vikas Nigam Limited v. Essar Power Limited is not applicable to the facts and circumstances of the case, as the said judgment was given prior to the amendment undertaken in the Arbitration & Conciliation Act in 2015.

The CERC held that Section 2(3) of the Arbitration & Conciliation Act, 1996 which specifically provides that the arbitration process under the said Act shall not affect any law for the time being in force by virtue of which the dispute between a generating company and a licensee under the 2003 Act cannot be referred to arbitration. Hence, even if there is an arbitration agreement between the parties, in view of the statutory provisions of the 2003 Act, the bilateral arbitration clause or the agreement stands superseded, continues to be valid law notwithstanding the above amendment. The term, notwithstanding any judgment, decree or order of the Supreme Court or any Court, employed in Section 8(1) of the Arbitration & Conciliation Act, 1996, is only with intent to minimise the intervention of the judicial authority which earlier had the discretion and power to examine various aspects while exercising power under Section 8.

The 246^th Report of the Law Commission, the Statement and Objects of Bill and the notes on clauses do not indicate that the amendments to Section 8 of the Arbitration & Conciliation Act, 1996 were made for overriding the special/ additional remedies provided under different statutes.[1] It has also observed that the amendment to Section 8(1) cannot be given such expansive meaning and intent so as to inundate the entire regime of special legislations where such disputes were held to be not arbitrable. In cases where specific/special remedies are provided for in the statute and which are opted by an aggrieved person that judicial authority can refuse to relegate the parties to the arbitration.

Thus, the CERC concluded that the 2003 Act is a special legislation, the notwithstanding clause used in Section 8 (1) does not in our view, oust the adjudicatory provisions of the 2003 Act. The submissions of the Respondent MPPMCL are, therefore, rejected. The adjudicatory provisions of the 2003 Act have a superseding effect over the Arbitration & Conciliation Act, 1996 and will govern the resolution of disputes between the generating company and the distribution licensee. In this premise, the Commission has the jurisdiction to adjudicate the dispute in terms of Section 79(1)(f) reads with Section 79(1)(a) of the 2003 Act.

Conclusion

The judicial interpretation of Section 79(1) (f) and Section 86(1) (f) of The Electricity Act. 2003 has limited party autonomy, which lies at the core of Arbitration and the right to refer disputes to arbitration, thus, making certain disputes in power purchase agreements exclusive to adjudication by appropriate commission and statutory arbitration at the discretion of the appropriate commission. Such an interpretation of the provisions of law may be due to the fact impact of such disputes relating to tariff of electricity has wide reaching effect on the public.

In addition, legislative changes are proposed to the Electricity Act, 2003 which will impact the scope of arbitration of electricity disputes in India. The proposed bill proposes to constitute a Contract Enforcement Authority for adjudication of disputes. Thus, if it is enacted, the scope of arbitration may further narrow down.

An arbitration under the Arbitration Act, 1996 has benefits of the time limit for arbitral award under Section 29A which states that the award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings. Another benefit for parties for adjudication under Arbitration and Conciliation Act, 1996, the fast track procedure under Section 29B of the Arbitration and Conciliation Act, 1996 which provides that the parties to an arbitration agreement, may, at any stage either before or at the time of appointment of the arbitral tribunal, agree in writing to have their dispute resolved by fast track procedure. When the appropriate commission adjudicates the dispute themselves, these benefits cannot be availed by the parties.It is also to be noted that the default of payments by consumers and distribution licensee due to the Covid-19 lockdown will also reflect on the power sector as such defaults would trigger default of payments to generating companies. Various players will invoke Force Majeure and disputes will arise regarding project commissioning differences, forecasting accuracy challenges and curtailment of power purchase through long term PPAs. The CERC adjudicates several disputes by itself and then, often their orders are challenged before the APTEL. The saga does not end here but subsequently is brought before the Supreme Court of India, thus, making dispute resolution a cumbersome and time consuming affair.

Meanwhile, the Covid-19 lockdown has also created fluctuations in energy demand which affects the industry as long term power purchase agreements are entered into on the basis of predicted supply and demand and plummeting of demand creates excess capacity problem. At the moment, the distribution utilities are facing difficulty as the power purchase agreements which were entered into with suppliers were for larger supplies than there is demand for. Meanwhile, Competitive procurement has meant declining tariffs both for conventional and renewable energy. This drives the utilities to renegotiate the contract with suppliers creating pressure on independent producers to reduce prices or alter other contractual conditions affecting the investors in power sector. These disputes which will arise would fall within the appropriate commission’s jurisdiction as they would have effect on Tariff.

When the power to nominate is vested in the commission, the commission should be bound to refer disputes to Arbitration if there is an existence of arbitration agreement as there are array of benefits the party can avail under Arbitration and Conciliation Act, 1996. It is seen that even when parties agree to arbitrate, the commission objects to arbitration and adjudicates the dispute themselves. Foreign investors seek to avoid forum for dispute resolution forums for dispute resolution that are perceived to be hostile as well as procedural rules or substantive law that are considered unfavorable. The international parties strive to achieve greater certainty as to where and by whom their potential disputes may be resolved. In that regard, arbitration provides for a truly international, neutral and customizable approach to the settlement of energy disputes. Hence, in order to attract foreign investors, more legal certainty is necessary.

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How is Crew Management changing during the Pandemic?

The lockdowns implemented by the Countries is posing multiple complications to employment, allotment and safety of Seafarers. The travel restrictions imposed by governments around the world have created significant hurdles to crew changes and repatriation of seafarers which is giving rise to a humanitarian crisis as well as significant concerns for the safety of seafarers and shipping.

IMO has intervened promptly by urging its Member States to designate as key workers, so they can travel between the ships that constitute their workplace, and their countries of residence and has constituted Seafarer Crisis Action Team to support the Seafarers.

On 1 July, 2020 IMO published Circular Letter No.4202/Add.23, providing recommendations for port and coastal states on the prompt disembarkation of seafarers for medical care ashore during the covid-19 pandemic. The Circular provides recommendation on what is to be done when a ship reports a suspected or confirmed case of COVID-19 onboard and such other situations.

In India, DG Shipping issued Instructions vide DGS Order 04 of 2020, dated 20.03.2020, DGS Order 39 of 2020 (to be read with DGS Order 5 of 2021) to all major and minor ports for dealing with COVID-19 pandemic. These Procedures mandate Covid-19 test and quarantine period. Accordingly, Ship management companies are implementing new crew change procedures.

The mental health of the Seafarers is also a concern. Companies such as Wilhelmsen, VG Group are taking positive steps towards ensuring continued communication in order alleviate anxiety among the seafarer such as enabling crew to increase their interaction time with their family. For example, in light of the evolving COVID-19 situation, mental health support is heightened by way of awareness messages and extending further support from shore with crew to address the concerns surrounding the progress of the pandemic and provide port updates and safety bulletins as it is essential to keep the crew updated on the latest progress of the outbreak situation and measures for protection. Measures are taken by Ship Manager to familiarize the Crew with the safety guidelines focusing on safety measures to be taken prior to calling, during stay and after departure. VGroup, a Ship Management Company, has launched an “Employee Assistance Programme (EAP)” for seafarers’ onboard vessels in their Ship Management and , fleets providing free, confidential counselling support via telephone and online chat. Some other companies are live streaming exercise classes, yoga meditation classes, stress management classes live to ships. In some vessels, all staff has been advised to order dry provision items for up to 3 months. The Ship Management companies are liaising with their vendors to arrange for the supply accordingly. They are also trying to arrange supplies, including extra stores, whenever vessels are calling major supply ports. They have advised the vessels to increase the quantities of stores being ordered, as this disruption to world trade due to Covid-19 is expected to continue further for next few months.

A legal issue that Ship management may face is that the seafarers who would not sign an extension to their employment agreement. From a legal point of view, it is the seafarers right to do. The Seafarers also have right to be repatriated once their duty is over. It is duty of the company to make the necessary arrangements to get those seafarers home. However, Companies are unable to do so and the Seafarers are stranded all across the globe as the Travel restrictions imposed by the States.

There are various laws and regulations, the Ship Owners are bound by in terms of health and safety of seafarers. India ratified the Maritime Labour Convention, 2006 on 09.10.15 and same came into force for India with effect from 09.10.16, in accordance with Article VII (4) of the MLC-2006. As per the MLC, there are various certificates such as Maritime Labour Certificate and Inspections, Medical Certificates, Certification of Training and Qualifications which need to be maintained. On 7 April, 2020, International note on Maritime Labour issue and Coronavirus addressed the necessity of maintaining these certificates are temporarily relaxed. DG Shipping issued DGS Order 17 of 2020 which provided extension to validity of Seafarer’s Certificate and Ship’s Statutory Certificate due to Covid-19 Pandemic. What needs to be seen how long such automatic extension will continue and the impact of such automatic extension on the Safety Standards that are to be maintained. It is possible that the Ship management Companies will also face many employment disputes as the Collective Bargaining Agreements are mostly silent about Quarantine periods and delay in Crew Change due to Force Majeure.

Another question is CBAs and Maritime Labour Officers provide for compensation for Operational risks, whether contracting Covid-19 is Occupational Hazard or not is a question which need to be considered in detail and trauma the trauma undergone due to extended service beyond the recommended will be compensated or not, would be the questions seafarers will raise sooner or later. It is pertinent to note that DGS Order No.21 of 2020 states that it is the responsibility of ship owner to ensure that all the safety precautions as per standard health protocol are followed during the crew change. The question of default by the ship owners and the consequences which would follow legally are not far into the future.

Shipping is the only viable method for transporting goods around the world, at least as of now. The seafarer crisis caused by the inability to conduct crew change and increasing restrictions, reducing demand for certain category of goods will impact the Global supply chain and the shipping industry in general. A key player who will be involved in disputes which will arise is the P& I Club, which provides insurance. The P&I Clubs undertake to cover the Seafarers’ risks and personal injury/medical liabilities with a recognized P&I Club while the seafarers are under contract. It will be interesting to what will be the position that these clubs take when and if the seafarers contract the Covid-19 Virus.

A point of dispute which will arise in future is with regard to Ship manager’s responsibility in containing the spread of Covid-19. The Company agrees to ensure that all Crew have passed a medical examination with a qualified doctor certifying that they are fit for the duties for which they are engaged and are in possession of valid medical certificates. If there is a lapse and the crew members are not examined properly or there is negligence on the part of Ship Management to conduct medical examination for the crew members and when they are already on board and there is spread of the virus among the crew, the other crew members as well as the owner of ship might sue the Ship Management for breach on the ground that they failed to comply with the provision of contract and there is negligence on the part of the Ship Management. However, the Manning agreement contain clauses which that the Ship Manager shall not be liable for any acts or omissions of the Seafarers, even if such acts or omissions are negligent, grossly negligent or wilful. Hence, it would remain on case to case basis, how the contracts will be interpreted. Another question which is plausible between Seafarers and Ship Managers, is whether the mandatory quarantine when on board will be considered as medical leave or as on duty and how the wages are calculated.

Most of the Ship Management Contracts would contain, the Force Majeure Clause. It would be decided on case to case basis on how the term would be interpreted in disputes between Ship Managers and Ship Owners. The question was discussed in Rashmi Cement Ltd. v. World Metal & Alloys, O.M.P.(I)(COMM) 117/2020, High Court of New Delhi, 18 June 2020.

The Pandemic has affected ship operation and office operation for Ship Management Companies. With regards to ships, the challenges are identified in various aspects. As the needs of global economy is changing, the demand for goods are also changing which is affecting the commercial employment of most types of vessels. As worldwide trade was suffering and the productions were decreasing, shipping in its entirety was grinding to halt. However, as the global market slowly ‘unlocking’, inevitable, shipping industry will also survive. The question is how much of it will survive.

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The Merchant Shipping Bill, 2020 (Part II)

The Press Note issued by the Ministry of Ports, Shipping and Waterways states that the Bill is drafted with the primary aim of promoting the growth of Indian Shipping Industry by incorporating best practices from U.S, Japan, U.K, Singapore and Australia.

Some of the notable changes in this bill are following:

Abandoned Vessel : It is peculiar that the term Abandoned vessel has been defined twice in the Bill. It is defined in Section 3(2) and Section 318. Section 3(2) states that ‘abandoned vessel’ as a vessel which has been abandoned and deserted by the owner or ship owner or the master of the vessel without any hope of recovering it or whose owner or ship owner is unknown or cannot be traced or has failed to fulfil his fundamental obligation under the Merchant Shipping Act or whose master has bee left without financial means in respect of its operation and includes any vessel falling within Section 318. Section 319 of the Bill deals with the power of Central Government in respect of Abandoned vessels. It states that the Central Government may take actions towards ascertainment of the condition of the condition and towards safe and environmentally resolution of the situation. The cost incurred to the Central Government for taking any measures constitutes a debt due to the Central Government and it shall have first priority after Claims for wages and Claims for loss of life/personal injury under the Admiralty Act, 2017.

Abandoned Seafarer : The Merchant Shipping Act, 1958 uses the term ‘seaman’ which has been changed to ‘seafarer’ in the bill. The bill defines Abandoned Seafarer under Section 2(3) which states that an abandoned seafarer refers a seafarer who is deemed to have been abandoned, in violation of Maritime Labour Convention or Seafarers’ employment agreement, where the ship owner fails to cover the cost of the seafarer’s repatriation or has left the seafarer without the necessary maintenance and support or has unilaterally severed their ties with the seafarer including failure to pay contractual wages for a period of at least two months. Considering the increasing number of cases where the seafarers are denied their wages for months, including such a situation in the definition may afford more protection for the seafarers.

Further, Section 5 of the Bill deals with constitution of Seafarer Welfare Board which is also provided under MS Act, 1958 as National Welfare Board of Seafarers. The Bill adds an additional responsibility to the Board. It states that the Board may advise the Central Government regarding the measures to be taken in the case of foreign seafarer who is abandoned in the Indian waters.

What appears is that the bill has also taken mental well being of the seafarers into account as the Bill states that the Ship owners shall provide and maintain decent accommodation and recreational facilities for seafarers.

The Bill guanratees more protections and provisions regarding welfare of Seafarers.

Maritime Emergency Response : Part X of the Bill seeks to establish a nodal authority for Maritime Emergency Response. The nodal authority shall administer and supervise the marine incident and the corresponding maritime emergency response. The nodal authority under Part X has authority to issue directions to the administrative bodies under the Central Government and State Government.

Insurances : As per the Merchant Shipping Act, 1958, it is mandatory to take insurance for the members of the crew of the sailing vessel (Section 434A) and to take insurance to cover oil pollution (Section 352N).

As per Section 173 of the Bill, Compulsory insurance policy is required to be taken to cover Maritime Claims as per the Limitations applicable. Section 175 states that rules shall be published by the Central Government which may also include accepted list of insurers. The Ship owners also shall maintain compulsory insurance to cover maritime emergencies as per Section 231 of the Bill. The insurance to cover pollution are also mandatory as per Section 189 (For ships carrying more than 2000 tons of oil) and Section 205 (For ships having gross tonnage more than 1000 tons). Section 248 also requires that compulsory insurance is maintained to cover wrecks.

In my opinion, this bill is beneficial for the seafarers as it provides wider protections and benefits. Marine Insurance industry may receive a boost considering the fact that the bill has included mandatory insurances. With regard to the Maritime Emergency Response, time will tell whether this authority would act as liaison for state and central authorities and would become a one point contact for all marine incidents.

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The Merchant Shipping Bill, 2020 (Part I)

The Ministry of Ports, Shipping and Waterways has on 25th November,2020 published the Merchant Shipping Bill, 2020 for public comments. This bill will replace the Merchant Shipping Act, 1958, if enacted. The last date for submitting comments is 24 December 2020.

The Bill consists of 15 parts with a total of 325 Sections. The outline of the Bill along with the corresponding part in the Merchant Shipping Act, 1958 is provided here below:

Merchant Shipping Bill, 2020	Corresponding Parts in Merchant Shipping Act, 1958
Part I – Prelimimary	Part I – Preliminary
Part II – Establishment of Boards and General Administration	Part II – Establishment of Board Part III – General Administration Part VII – Seamen and Apprentices ( Section 218- 218A)
Part III – Registration of Vessels	Part V – Registration of Indian Ships
Part IV – Certificate of Competency and Certificate of Proficiency	Part VI – Certificate of Officers
Part V – Seafarers	Part VII – Seamen and Apprentices
Part VI – Safety and Security	Part IX – Safety
Part VII – Prevention, Containment of Pollution from Vessel and Response	Part XIA – Prevention and Containment of Pollution of the Sea by Oil Part XIB – Control of Anti-Fouling systems of Ships
Part VIII – Survey, Audit and Certification	Sections from various Parts of the Act
Part IX – Maritime Liability and Compensation	Part X – Collision, Accidents at Sea and Liability Part XA – Limitation of Liability Part XB – Civil Liability for Oil Pollution Damage Part XC – International Oil Pollution Compensation Fund
Part X – Marine Incident and Emergency Response
Part XI – Investigation and Inquiries	Part XII – Investigation and Inquiries
Part XII – Wreck and Salvage	Part III – Wreck and Salvage
Part XIII – Sailing and Fishing Vessels	Part XV – Sailing Vessel Part XVA -Fishing Vessel
Part XIV – Penalties and Procedures	Part XVI – Penalties and Procedure
Part XV – Miscellaneous	Part IX-A – Nuclear Ships Part XVII – Miscellaneous

Comparison Table

It is seen in general that the Merchant Shipping Bill, 2020 is more concise and less detailed in comparison to the Act of Merchant Shipping Act, 1958.

Prima facie, the Bill seems to have change definitions which were provided under the Merchant Shipping Act and has provided for establishment of new authorities and for expansion of powers of existing authorities. For example, the Welfare Board for Seafarers are also given responsibility to take measures regarding abandoned foreign seafarers in Indian waters.

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THE COASTAL SHIPPING BILL, 2020

The Ministry of Shipping has published the draft of Coastal Shipping Bill, 2020 and has invited comments, which are to be submitted before 6th November 2020.

The object of the bill is to consolidate and amend the regulatory framework for coasting trade and other activities in coastal waters of India in line with global best practice and to encourage participation of Indian vessels in coasting trade. This bill seeks to create shipping transportation networks for greater economic growth.

At the moment, the Coastal Shipping in India is governed by Merchant Shipping Act, 1958 which imposed various conditions regarding pollution control, manning norms and other operations which were cost-incurring for the coastal ships. The new bill intends to lower production costs and efficiency in the manufacturing sector.

This proposed act would apply to all vessels engaged in coastal trade including foreign vessels. The proposed act has 29 sections and a schedule.

Section 4 of the bill states that the no vessel other than the vessels registered as Indian ships (Part V of the Merchant Shipping Act, 1958) shall engage in coasting trade, or the exploration, exploitation, or research, in the coastal waters of India, except under a licence granted by the Director-General under Chapter II of the Bill. This section incorporates the essence of Section 407 of Merchant Shipping Act, 1958 which states that no ship other than Indian Ship or ship chartered by citizen of India shall engage in coasting trade of India except under license provided by DG Shipping. The term “ship chartered by citizen of India” is seen to be omitted.

Section 5 of the bill deals with Conditions of grant license which may include conditions on Citizenship requirements of the crew, build requirements of the vessel and such other requirement DG may consider necessary.

Section 5 states that Director General shall consider whether the applicant has previously held license that was cancelled, violation of any provisions by the applicant, availability of vessels on the route, licenses granted for the same route, safety and security concerns, validity of vessel etc. If the grant of license is made dependent on the availability of vessels on the route, it may be lead to regulations being enacted which would hamper competition in the trade.

Section 8 of the Bill states that all the vessels shall report the ports or ports which it will visit in the course of its voyages, details of goods and passengers and any other information DG may deem fit. This seems to be an additional statutory requirement which the Coastal Traders have to comply with and may prove to be burdensome to the Coastal Traders. Fine upto one lakh may be imposed if the above provision is contravened.

Section 9 of the Bill states that National Coastal and Inland Shipping Strategic Plan which will be developed within two years of the enactment. It would identify new routes and would identify best practises for improvement of coast shipping. This would be effective only if the plan is prepared scientifically. Otherwise, it may lead to public outcry from affected communities such as that of fisherman early this year.

Section 10 of the bill states that a National Register of Coastal Shipping shall be maintained by DG Shipping which would contain details of licenses.

Chapter III/IV (Chapter III is omitted, which I believe is by oversight) of the Bill deals with offences under the Act. It refers to schedule which describes the offences and penalties for those respective offences. It provides power to the DG Shipping to make rules.

The Bill appears to be an amendment to the Part XIV of the Merchant Shipping Act, 1958. The hope is that it may give a boost to the Coast Shipping in India which would enable optimal utilisation of India’s vast coast line. However, the increasing state intervention is to be viewed cautiously and sceptically keeping in mind that over-regulation would be counter-productive to growth.

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From Ship Building Agreement to Ship Recycling Agreement – Part III

CHARTERPARTY

Once a ship is built and manned, the next aim would be to put it to commercial use. The main agreements which are involved are charterparty, and ship management agreement.

Charterparty is one of the most required contract in shipping business. Charterparty is nothing but a contract to rent/lease a vessel which is entered between a ship owner and charterer. There are standard forms of charterparty such as that of GENCON, BALTIME etc. These are made the basis for drafting the charterparty.

There are three types of charterparty: time charterparty, voyage charterparty and demise charter which is also known as bareboat charterparty.

Time Charterparty : In a time charterparty, a ship is chartered for a defined period of time. In this charterparty, the ship owner is responsible for the management of the ship.

Voyage Charterparty : In a voyage charterparty, the ship is chartered for a specific voyage. Like time charterparty, the ship owner is responsible for the management of the ship.

Demise Charterparty : In a demise charterparty, the owner only provides a “bare boat”. Hence, it is also known as bareboat charterparty. The vessel may be sub-chartered and the original charterer will be known as disponent owner. Section 11 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.

Some of the common clauses are herebelow:

Port of Delivery – The charterparty will specify where and when the vessel will be delivered by the owner to the charterer.

Time of Delivery – The charterparty should state when the vessel will be delivered and from when the hire will be charged.

Time of Redelivery – The charterparty should also specify when and where the vessel, the charterer will redeliver the vessel. A delay in redelivery may incur hire as per the charterparty.

Owners to provide and charterers to provide – The charterparty must lay down the undertakings by both parties and clearly mention their responsibility. It should also mention the consequence of default.

Bunkers : The term in shipping is used to refer to fuel for the vessel. It is the Charterers’ obligation to buy bunkers required for the vessel. The charter should also return the vessel with the same amount of bunkers at the time of delivery. In the alternative, the charterer may buy the bunker remaining on board at delivery port and the owners’ may buy bunkers remaining on board at redelivery port.

Hire : Hire is the consideration paid for chartering the vessel. Owners can withdraw the vessel for default on hire payments. The hire payment can be suspended for duration for certain specified circumstances such as boiler cleaning.

Cargo Space : Agreement that entire carrying capacity of vessel will be at charterers’ disposal.

Directions and Logs : It is the resposibility of the Charter to to provide master with voyage instructions and information and the master and engineers’ responsibility to make voyage logs available to charterers and their agents.

Excluded Ports :Prohibition on charterers from ordering vessel to a place where disease is prevalent or which would be beyond the agreed limits of the Crew Agreement. This is specially relevant in charterparty that are entered during the pandemic.

Lien : The charterparty may state that the owner shall have lien on the cargo for non-payment of hire or any other dues.

Sublet : The charterparty will lay down what are the responsibilities of original charterer if the vessel is on sublet and whether the charter has right to sublet.

Cancelling : The charterparty may provide option to the charter to cancel the charterparty if the vessel is not delivered as agreed. This may be due to delay in delivery or due to seaworthiness of the vessel.

Commission : The charterparty may also mention obligation of parties to pay the charter broker.

These are some of the clauses in a charter party. The clauses in the charterparty will be different depending on the type of charterparty. Apart from these clauses, there will be clauses like boiler cleaning, master’s responsibility and obligations, boilerplate clauses etc.

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From Ship Building Agreement to Ship Recycling Agreement – Part I

There are many agreements that are part of the Shipping Trade. When it comes to the life of a vessel, we can say it starts from an agreement of Ship Building and ends in the agreement for ship recycling. This series of posts briefly covers the agreements which are related to a vessel.

Ship Building Agreement

A Ship Building Agreement is nothing but a simple agreement of sale between a ship builder and a purchaser for building of a vessel and sale of the same. For example, the Cochin Shipyard signed an agreement to build two automated electric ferries from the world’s shipping giant, Norway. In India, it is governed by Sale of Goods Act, 1930. Like any other agreement, it must include the details of parties, consideration etc to be valid.

Description of the Vessel : In the description of the vessel to be constructed, it must clearly state the class of vessel to be built, the dimensions required, guaranteed trial speed, guaranteed fuel consumption etc. Approved plans and drawings of the vessel are also enclosed as annexures/schedules to the Agreement.

Contract Price : With regard to the payment of contract price, it is practical to pay in instalments based on the completion of construction. For example, when Stage 1 is completed, 5% of contract price will be released. While drafting the price clause, attention must be paid to banking charges, fluctuation in currency rates, mode of payment, and change in tax rates. It must also mention the consequences of default of payment by the purchaser.

Representative of the Buyer : A representative will be appointed by the purchaser/buyer in order to conduct time to time inspections.

Warranties : The ship builder provides warranty that any manufacturing defects will be taken care of at his expense. The clause must include when the notice of defect is to be issued and must specify if anything is excluded from the warranty. The builder also indemnifies the purchaser from claims of infringement of intellectual property rights belonging to a third party.

Sea Trial : A sea trial is like a test run for the vessel. After the completion of the construction of the Vessel, a sea trial is conducted. A notice must be issued by the builder to the purchaser specifying date and time of the trial so that the purchaser can make necessary arrangements for attendance of trial by the representatives of the purchasers and other observers. The provision providing the same must specify the weather conditions and such other details under which the trial will be conducted. It must also mention the consequences that will follow if the vessel specifications are not as agreed. Provision can be made for deductions, allowing grace period for any changes or an option to the purchaser to reject the vessel. It also must provide clarity regarding the salary of crew during the sea trial.

Delivery : Once the sea trials are completed, the vessel is delivered to the purchaser. It is necessary to include time and place of delivery in the agreement. It must also include a complete list of documents will be handed over along with the vessel. The contract must also include the remedies available to parties if the vessel is not delivered on date or is not taken possession of the mentioned date.

A point to be pondered upon is regarding the title of the vessel. If the title passes upon delivery of the vessel or from the date of first payment is to be paid attention to. Otherwise, it will create hurdles if any of the parties faces insolvency and is declared bankrupt.

Insurance : The ship building contract must assign responsibility of insurance coverage.

Other clauses which are to be included are force majeure, disputes resolution and indemnities. It is important to pay heed to these clauses as the choice of law and seat of arbitration would be an important consideration when there is a dispute, not just from the legal aspect but also, from the cost management aspect.

There are standard forms of contract such as the contracts of of Shipbuilders Association of Japan, AWES etc., which can be used as the basis for negotiating a shipbuilding contract.

The next post will be regarding Seafarer Employment Agreements/Collective Bargaining Agreement.

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Who is who under the Electricity Act, 2003

The Electricity Act is the statute which governs generation, transmission, distribution, trading and use of electricity in India. It constitutes various authorities for dispute resolution and for regulation. Also, the Electricity (Amendment) Bill, 2020 proposes to constitute a Electricity Contract Enforcement Authority (ECEA).

In this context, it is important to understand who are the different authorities and what are their powers and functions.

Before we delve into the authorities, we need to understand that the main players in the industry are generation companies, distribution licensees and the consumers. Generation companies as the name suggests are involved in generation of electricity. After generation, the next stage is the transmission and then, distribution of electricity which is done by a distribution licensee who operates and maintains a distribution system for supplying electricity to the consumers in its area of supply.

Central Electricity Authority : Part IX of the Electricity Act deals with the constitution, powers and functions of the Authority. This authority promotes research and specifies the technical standards for construction of electrical plants, electric lines and connectivity to the grid. It advises the Central Government on matters relating to national electricity policy for optimal utilisation of resources. They issues regulations regarding construction standards, transaction of business , metering , grid operation, connectivity, safety measures and communication system. They also have the power to require statistics as per Section 74 of the Electricity Act.

Central Electricity Regulatory Commission: There are regulatory commissions which are constituted at the Central and State level. Their main role is to determine tariff. In simple terms, tariff is the price at which consumers buy their electricity. It is not the same price that everyone pays; it changes from category to category. The category may depend upon volume, purpose etc. For example, the tariff for a factory won’t be the same as the one for a household. So electricity regulatory commissions play a key role in determining who belongs to which category. The constitution, powers and functions of Central Electricity Regulatory Commission [CERC] is laid down in Part X of the Act. The CERC regulates the tariff for generating companies owned by the Central Government, for generating companies who operate in more than one State and for interstate transmission of electricity. In case, generating companies or transmission licensees have any dispute regarding the tariff so determined, the Authority adjudicates the disputes. It specifies Grid Code having regard to Grid Standards. Grid to put in easy language is an interconnection necessary for transmission of electricity between producer and consumer.

State Electricity Regulatory Commission

There are regulatory commissions formed in states known as State Regulatory Commission. For example, there is a Kerala State Electricity Regulatory Commission in Kerala. The powers and functions of this commission is provided under Section 86 of the Act. It determines tariff for generation, supply and transmission of electricity within the state. It also regulates electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State. They specify Grid code in accordance with the Grid Code specified by the Central Government.

They can adjudicate upon the disputes between the licensees, and generating companies and can refer any dispute for arbitration.

Both Central Regulatory Commission and State Regulatory Commission, can specify the standards with regard to quality, continuity and reliability of service by licensees and fix the trading margins for inter-state trading of electricity, if necessary.

Appellate Tribunal for Electricity (APTEL)

As per the Electricity Act, appropriate commission appoint adjudicating officers as per Section 143 for the purpose of adjudicating as per the Act. Any person aggrieved by an order made by an adjudicating officer under the Act except under section 127, or an order made by the regulatory commission may prefer an appeal to the Appellate Tribunal for Electricity. The procedure for Appeal is provided under Section 120 of the Act. An order passed by APTEL is executable as decree of civil court and has all the powers of a civil court. Any person aggrieved by any decision or order of the Appellate Tribunal, may, file an appeal to the Supreme Court under Section 125 of the Act.

Electricity Ombudsman

As the Electricity Act, every distribution licensee (for example, Kerala State Electricity Board) has to establish a forum for redressal of grievances of the consumers. If the grievance is not redressed by the forum, then the consumer may make a representation for the redressal of his grievance to an authority to be known as Ombudsman who is appointed by the State Commission. So if you are a consumer, then the remedy for you is to approach the forum established by the distribution licensee. If it is not addressed, then the next forum is the ombudsman. If the order of the Ombudsman is arbitrary, it is seen often that the consumers approach the Court under Writ Jurisdiction for redressal.

Proposed Electricity Contract Enforcement Authority (ECEA)

The amendment to the Electricity Act proposes to establish a Electricity Contract Enforcement Authority (ECEA) to adjudicate contractual disputes arising from contracts relating to sale, purchase, or transmission of electricity. It would have no power over any other matter related to regulation or determination of tariff or any dispute involving tariff which is vested with appropriate commissions.

When there is a dispute, it is important to understand which is the relevant authority that can redress the grievance. Sometimes, the regulations by these authorities are challenged on the ground that the authorities do not have the power to issue such a regulation as per the Act.

The developments in dispute resolution in Electricity law would be interesting if the new authority is constituted as proposed by the Electricity Amendment Bill, 2020.

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A to Z of Shipping Law

This post is inspired by Bharath Chugh’s A to Z of IBC. This is not an exhaustive list of words but a quick reference for those readers who are new to the Shipping industry. The attempt is to simplify the terms and make them sound easier than rocket science.

Arrest – Arrest is an order by the High Court under Section 5 of Admiralty (Jurisdiction and Settlement of claims) Act, 2017. In simple terms, it is a direction to a vessel to remain within the territory of the Court and not to sail away till the order is lifted. A High Court can order for Arrest of a vessel if there is a maritime claim as per Section 4 of the Admiralty Act,2017.

Bill of Lading – Bill of Lading is an instrument which is issued by a Carrier upon receipt of Cargo. It would contain details such as the name of Consignor, Consignee, Cargo details, Port of Discharge etc.

Consignor – Important parties in a bill of lading are the three ‘C’s. consignor, consignee and the carrier. For example, if Ramu is sending a container full of cashew nuts to Shamu through Maersk Line. Then, Ramu is the consignor and Shamu is the consignee. Maersk is the Carrier.

Demurrage– Demurrage is the charge which is imposed on the time taken to unload the Cargo. Usually the Carriers will provide a free period for unloading the cargo and after that the demurrage charges will be imposed on each day as agreed in the bill of lading. For example, the container reaches the Port at Tuticorin on 1 April,2020. The free period is 14 days. From 15^th April, Shamu will be liable to pay demurrage charges till he takes delivery of the Cargo and returns the empty container.

Extended Suit time – The carrier and the ship is discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered. This time period can be extended for another three months with the leave of the court. The provision is in the Indian COGSA, 1925.

Freight Charges– Freight Charge is the amount paid to the Carrier for the transport of Cargo.

Ground rent – Ground rent is the charge imposed by whoever stores the container till the consignee takes delivery. It can be either the port or the Container Freight Station (CFS).

Hague Visby Rules– Hague visby rules are international rules for carriage of goods by Sea laying down the rights between parties. In simple terms, it is an international version of Indian COGSA.

Intermodal Transport – When more than one mode of transport is used, it is called Intermodal Transport.

Joint Survey – An inspection of cargo conducted together by the parties when the Cargo arrives in order to record the state of cargo at its destination when there is a damage is called Joint Survey. This report is a key document when there is a claim arising from damage to the cargo.

Knot – Unit for speed of the ship

Lien – Maritime Liens are Maritime Claims which have priority over other claims. Section 9 of the Admiralty Act, 2017 lays down what are maritime liens. For example, if a vessel is sold, the priority of claims will decide who will be paid first and what will be the amount that is paid. Maritime Liens have higher priority over other claims. Most Maritime Liens expire in one year.

Maritime Claim – Maritime Claims are claims that arise from transactions with a ship or due to operation of a ship. The list of Maritime Claims are provided in Section 4 of the Admiralty Act, 2017.

Note of Protest – A note of protest is basically a declaration from the party that their conduct will not be considered acceptance. For example, delivery of cargo is taken by paying certain charges. A note of protest is made so that it can be claim for refund can be made later on. A note of protest is also means a declaration under Oath by the Master of the Ship.

Off-hire – Off hire is the period when the hire is not payable as per charterparty.

Port Charges- Port Charges are the charges paid by operators to the Port for using the facilities of Port.

Quay – It is a platform like structure for loading and unloading a vessel.

Re-delivery – As per the Charter Party, the vessel will have to be returned to the owner at the place decided agreed between them in the same condition as it was taken. This returning of the vessel is called re-delivery. If there is a delay in re-delivery, it may be included in the Charter period.

Salvage – Salvage is rescuing of a wrecked or disabled ship or its cargo. There are parties who provided such specialised services and they are called ‘salvors’.

Time Charter Party – Charter Party in layman terms is like a rent agreement for a ship. Time charterparty is when ship is hired for a fixed period of time. For example, I hire a ship for a period of three months to go around the world to wherever I please, it would be a time charterparty. If I hire the ship to travel from India to Mauritius, then it would be voyage charterparty. In time charterparty and voyage party, the owner has control over the crew and such matters. In a bareboat charterparty, the Charterer steps into the shoes of the owner and manages everything.

Unseaworthiness – Unseaworthiness means that a ship is not fit to be used for a voyage. It is an important concept in Marine Insurance.

Vessel – Vessel is the term used for Ships, yachts, dredgers etc. Admiralty Act, 2017 defines it as “to include any ship, boat, sailing vessel or other description of vessel used or constructed for use in navigation by water, whether it is propelled or not, and includes a barge, lighter or other floating vessel, a hovercraft, an off-shore industry mobile unit, a vessel that has sunk or is stranded or abandoned and the remains of such a vessel.”

Way bill – Way bill is similar to bill of lading but it does not confer title. Unlike bill of lading, it is not negotiable. The purpose of way bill is to avoid the delay and need not be presented in original while taking delivery of the cargo.

X Letter – X letter in International Code of Signals means “Stop carrying out your intentions and watch for my signals”.

York Antwerp Rules – The York Antwerp Rules are a set of rules that outlines the rights and obligations of both ship and cargo owners in the case that cargo must be jettisoned in order to save a ship. Jettison means to abandon a cargo or to discard it. In such a situation, the cargo owner will be the ‘General Average’ which is the compensation. In simple terms, the loss is divided proportionally between all the parties. York Antwerp rules elaborate on the concept of General average.

Zone – The Maritime zones are divided into territorial waters, exclusive economic zone, contiguous zone and continental shelf. The first 12 nautical miles is the territorial waters of India. The Courts in India will have jurisdiction to arrest a vessel only when the ship enters with in this 12 nautical miles.

So these are some of the common terms in shipping and there are many more terms which I have left out, which will be explained in another post some other day.

From Ship Building Agreement to Ship Recycling Agreement – Part IV

SHIP BREAKING AGREEMENTS

Ship Breaking is the process of dismantling a vessel. This is also called ship recycling. Alang in India is one of the biggest ship graveyards. Recently, India enacted the Recycling of ships Act, 2019 which provides for the regulation of recycling of ships by setting certain standards and laying down the enforcement mechanism for such standards.

When the Ship owners decides to sell the vessel for ship breaking, an agreement called Ship recycling agreement is entered into. BIMCO has a standard form of contract called RECYCLON for ship recycling. This standard agreement is drafted in accordance with the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009.

Some of the important clauses in a Ship Recycling Contract are as below:

Place of Delivery : This clause must make it clear whether the sale is outright or the sale is complete only upon delivery at the ship breaking yard.

Consideration : The Ship Recycling Contract like any contract would contain clauses such as consideration and mode of payment. This clause must make the currency, mode and time of payment clear. The parties may also opt for an escrow account and decide when the amount will be released.

Documents: A ready for recycling certificate has to be obtained from National Authority as per Section 16 of the Ship Recycling Act, 2019. As per Section 19 of this Act, shall give an advance intimation to the Maritime Rescue Co-ordination Centre and the Competent Authority about the date of arrival, clear all port dues, and must keep the ship clear of cargo residues and minimise any remaining fuel oil and wastes on board. The agreement must clearly specify the consequences if there is any default in obtaining such documents.

Encumbrances: The Contract also provides a warranty from the seller that the vessel is from encumbrances and maritime liens. It is to be noted that Maritime lien cannot be exercised on a vessel, once the documents are submitted for the ship breaking as it is considered a dead vessel.

Environmentally Sound and Safe Recycling : The Seller must provide an inventory of hazardous materials and the buyer must provide a ship recycling plan. The Ship Recycling Act, 2019 also lays emphasis on the importance of safe and sound recycling and has introduced various regulations for the same.

Apart from the above clauses, other clauses which are included are dispute resolution, notices etc.

From Ship Building Agreement to Ship Recycling Agreement – Part II

SEAFARER EMPLOYMENT AGREEMENTS

Seafarer is a person who is employed by the ship owner for operation of a vessel such as petty officers, deck cadets etc. A seafarer employment agreement is an employment agreement between ship owner and a seafarer. They are drafted on the basis of Collective Bargaining Agreements entered into between Ship Owners and Unions of Seafarers such as ITF.

Following clauses are to be included while drafting the Seafare Employment Agreement:

It is mandatory to enter into an Seafarer Employment Agreement as per Section 100 of the Merchant Shipping Act, 1958. The Directorate General of Shipping issued a circular (MS Notice 7 of 2020) dated 04 May 2020 providing the guidelines for drafting Seafarer Employment Agreements. This was issued in order to ensure complete effect of Maritime Labour Convention, 2006 provisions for employment of Indian Seafarers.

Following are the clauses mainly found in Seafarer Employment Agreements :

Name and details of the Seafarer : This clause mentions name, date of birth, nationality and address of the seafarer. The agreement should also mention what is the capacity in which the seafarer is to be employed.

Name and details of the Shipowner : This clause mentions the name and address of the Shipowner.

Description of the Vessel : The SEA must mention the Gross Tonnage, type of the ship and the trading area.

Work Hours : The SEA states what are the hours of work and hours of rest.

Wages: Like any other contract of employment, SEA also must clearly laid down what is the agreed consideration. SEA must also include details regarding overtime allowance. Overtime allowance can be paid as a lumpsum amount or on the basis of actuals.

Period onbaord : The SEA must mention the period for which the Seafarer is employed. Maritime Labour Convention (MLC), 2006 states that the maximum continuous period that a seafarer should serve on board a vessel without leave is 11 months. The Ship owner must arrange for crew change at agreed periods.

Leave Policy : SEA must lay down the leave policy. National Holidays are to be taken into consideration.

Contributions : Contribution to the Seafarers Welfare Fund Society and Seamen’s Provident Fund Organisation. These contributions cannot be deducted from the wages.

Benefits: The SEA states what are the benefits available to the seafarer in the form of disability compensation, death compensation, sick wages and sick leave . The amount so mentioned shall not be less than that provided under Collective Bargaining Agreements. The above mentioned circular states that death and disability compensation for trainees shall not be less than ten lakhs.

Legal Support : The SEA shall specify the Ship owner’s liability for providing legal support to the seafarer in the event the seafarer is stranded, detained or arrested during the course of employment.

Repatriation : The SEA must clearly lay down the entitlement of seafarer for repatriation. This clause must also mention circumstances which are exempted from Ship owner’s liability.

Liabilities of both parties : The SEA must mention that the Ship owner is to provide clean and living condition for the seafarers along with food and water. The seafarers guarantee that there shall be no omission or negligence in the performance of duty.

Termination : The SEA must lay down what is the notice period for termination of SEA.

Apart from the above clauses, the SEA includes the date and time of agreement like any other agreement. SEA will also contain jurisdiction and governing law clause, disciplinary procedures, grievance redressal procedures etc.