Delhi HC Quashes 'Make In India' Notification Giving Preference To Indian Built Ships [Read Judgment]

The Delhi High Court has quashed a notification under the 'Make in India' program, which provided preferential commercial treatment to 'Indian built ships'.

The Court said that the Merchant Shipping Act 1958, under which the notification was purportedly issued, was not concerned with the place where the ship was built; rather it was concerned only with the ownership of ship.

The petition was filed by Samson Maritime Ltd arguing that the promulgation of the February notification by the Centre and a subsequent circular in March under Sections 406 and 407 of the Merchant Shipping Act, 1958 allowed a completely alien concept of an "Indian Built Ship" to get commercial rights higher than an Indian Flag Vessel under the Act, 1958 and to destroy any statutory recognition and preference available to an Indian Flag Vessel over Foreign Flag Vessels.

The bench of Justice Suresh Kumar Kait noted that the 1958 Act governs ownership of and not where the ship is built, and that this essential difference seems not appreciated by the respondents. The proposed new regime under the impugned Notification, in fact attempts to create a scenario wherein a Foreign Built, Foreign Owned, Foreign Flag Vessel is treated on the same pedestal as a Foreign Built, Indian Owned and Indian Flagged vessel. And that "this has no nexus to the purported and ostensible objective of the impugned notification which is to further the interest of the Ship Building Industry in India".

The object of the Act was to promote Indian Flag vessels and to increase Indian tonnage. The impugned notification seeks to do is to do away totally with the existing protection which is provided to Indian Ships to have a right to do Indian business by matching the lowest rate quoted by the Foreign Flag Ships, the bench observed.

The new regime creates a scenario when an Indian Flag Vessel owned and offered by an Indian citizen/Indian Company/ Indian Society is placed on the same pedestal as Foreign Flag Vessel offered by an Indian citizen/ India Company/ India society in its capacity as a mere "charterer" which does not require registration under the Act, 1958. This clearly is not linked to the ostensible objective or the policy of "Make in India" and also amounts to treating unequals as equals.

The Court added that Indian Ships are a Class by themselves and equalisation of Indian Ships with Foreign Flag Ships amounts to treating unequals equally which is violative of Article 14.

 Commenting on the adverse commercial impact of the impugned notification on Indian flag vessels, the Court observed :

"The Impugned Notification issued under the Act, 1958 needs to operate within the confines of said Act and not beyond it. The Impugned Notification seeks to provide RoFR to ships already built in India prior to the date of the impugned notification irrespective of such Indian built ships being foreign flag or Indian flag. It seems giving RoFR to ships already built in India before the date of the impugned notification does not incentivise future shipbuilding in any manner whatsoever thereby defeating the objective of 'Make in India'. The foreign ship owners invest in Indian shipping Companies and set up 100% subsidiaries under the FDI regime to flag vessels in India and set up offices in India only to take advantage of RoFR Regime thereby increasing not only the Indian Tonnage, but to provide additional revenue, foreign exchange, tax and employment in India. The dilution of the RoFR Regime may reduce foreign direct investment in shipping in India", it was observed.

The court was of the view that under Section 21 of the Act, 1958 only an Indian Ship is statutorily recognised. Under Section 68, only an Indian Ship is entitled to the benefits and advantages under the Act- "The respondents in the garb of the purported new regime cannot efface the Statute and incorporate a totally new and alien concept and category which is not recognised by the Act itself"

The bench recorded that globally coasting trade is exclusively reserved for National ships bearing the national Flag of that jurisdiction (commonly referred to as "cabotage"), and that no country in the world gives same treatment to the National ships compared with Foreign Flag Vessels. "The effect of the impugned Regime would be that the entire Indian trade would fall in the hands of Foreign Flag Vessels and Indian Ships would be rendered completely out of the market", the bench remarked.   

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