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Foreign flag ships chartering — Exporters unaware of cancellation of pre-approval norms

P. Manoj

New Delhi , Feb. 9

DOMESTIC charterers (exporters/importers) and shipping companies have been caught napping. They have been flocking to the Director General of Shipping seeking permission for in-chartering of foreign vessels and for making dollar remittances towards freight/charter hire rates to foreign ship owners though these requirements are no longer required under relevant laws.

For instance, contrary to popular perception, in-chartering of foreign flag vessels by domestic entities does not require permission from the DG (Shipping). This has been made abundantly clear in a Gazette notification issued by the Government as far back as in 1963.

"In exercise of the power conferred by the proviso to sub-section 1 of section 406 of the Merchant Shipping Act, 1958 (44 of 1958), the Central Government hereby exempts foreign flag ships trip/voyage chartered by a citizen of India or a company from the provisions of the said sub-section, provided that nothing in this Notification shall apply to such ships which are engaged in the coasting trade of India," the Gazette notification said.

Still, charterers and shipping lines sought approval from DG (Shipping) for in-chartering of foreign ships for purposes of the erstwhile Foreign Exchange Regulation Act (FERA). During the FERA regime, all dollar remittances required prior RBI approval through designated competent authorities.

For the shipping sector, the Central Bank had designated DG (Shipping) as the competent authority for chartering of foreign flag vessels and for dollar remittances. The main responsibility given to DG (Shipping) under the FERA regime was to certify the " competitiveness and reasonableness" of the freight/charter hire rates paid to foreign ship owners to check the possibility of over-remittances. Freight charges are paid for hiring ships on voyage basis while charter hire is for hiring vessels on time-charter basis.

When the Foreign Exchange Management Act, 1999 (FEMA) superceded FERA, this requirement was removed, making it redundant. " Under FEMA, there is no longer a requirement for freight/charter hire remittances with prior RBI approval. It is now freely permitted under current account transactions", a Government official said.

Oblivious to these developments, charterers and shipping lines approached the DG (Shipping) for his permission to in-charter foreign flag vessels and for making dollar remittances, which entailed charges as well as delays and bureaucratic redtape.

The DG (Shipping) charges Rs 20,000 from charterers and shipping lines for permission to hire a foreign ship on voyage charter basis not exceeding one month and Rs 25,000 for approval to hire a foreign vessel on time charter basis not exceeding 90 days.

In the absence of adequate tonnage owned by them, domestic shipping lines also hires foreign flag vessels to undertake a contract or to fulfil its obligations under the Contract of Affreightment (CoA) with exporters/importers.

A few shipping lines and charterers are now waking up to the fact the DG (Shipping) permission is no longer required under relevant laws for in-chartering of foreign ships and for making dollar remittances towards freight/charter hire rates. "We have taken a strong stand not to approach the DG (Shipping) henceforth for permission in this regard. Since dollar remittances with prior RBI approval are not required under FEMA, permission from DG (Shipping) for in-chartering of foreign ships is also not required in view of the 1963 Gazette notification ", a prominent ship owner said.

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