JUNE 24, 2016

By Archi Agnihotri

THE Ministry of Shipping has prepared a draft bill 'The Central Port Authorities Act 2016' 1 (hereinafter referred to as "the Act") to replace the 'Major Port Trust Act, 1963'. While the draft bill was published on the website of the shipping ministry on November 17th 2015 and the revised draft was uploaded on 31 st March 2016, the Press Information Bureau recently published information regarding its salient features 2. The legislation is a significant step as it brings in a much needed change in the manner in which the major ports are operated and reflects the current outlook of the Government in raising professional standards in the functioning of government bodies so as to encourage trade and commerce.

India has a coastline of around 7,517 km and has 12 major ports, namely, Chennai, Cochin, Jawaharlal Nehru port, Kandla, Kolkata, Mumbai, New Mangalore, Mormugao, Paradip, V.O. Chidambaranar, Kamarajar and Visakhapatnam and 205 notified non-major ports along the coast-line and sea-islands. Out of these 12 ports, the Kamaraj Port Ltd has already been corporatized, therefore as per Section 1(3) of the Act, the Act applies in the first instance to the all major ports except Kamarajar and the Central Government may, by notification in the Official Gazette, apply the provisions of this Act to such other major port, and with effect from such date, as may be specified in the notification. The total cargo handled at Indian Ports (major and non-major) increased to 1052.23 million tonnes in 2014-15 from 972.46 million tonnes in 2013-14 reflecting an increase of 8.2% during 2014-15. India's major ports handled more than 55% of the cargo handled at Indian ports. Traffic handled at the major ports has been increasing over the years in tandem with the economic activity and volume of trade turnover. The total traffic handled by the major ports has recorded nearly threefold increase from 195.9 million tonnes in 1994-95 to 581.34 million tonnes in 2014-15. 3

The Act has generated positive response from various stakeholders and in this context, we may examine its key features:

Board of Port Authority (hereinafter referred to as 'Board')

The draft Bill seeks to provide for the constitution of Board for the regulation, and planning of major ports in India. 4 These authorities will also be vested with the administration, control and management of the ports. The Board will comprise of nine members including three to four independent members. The provisions of the statute also require three functional heads of major ports as members in the Board apart from a Government nominee member and a labour nominee member. This is in contrast with the Major Port Trust Act, 1963, wherein under Section 3, the Board of Trustees would comprise of 17-19 trustees. The disqualifications of the appointment of the Board members, their duties and provision of the meetings of the Board through video conferencing etc., have been introduced on the lines of Companies Act, 2013. This will greatly modernize the existing model of functioning and the Board will gain insight from the varied experience of the Board members. The provision for maintenance of books of account and financial statements in accordance with the accounting standards notified under the Companies Act, 2013 or as prescribed by Central Government has been provided. 5 This will increase transparency and accountability in the functioning of the Port Authority.

The Board may appoint committees from among its own members or other non-members (from outside). It may delegate some of its functions, powers or duties to these committees.

The status of Port Authority will be deemed as 'local authority' under the provisions of the General Clauses Act, 1887 and other applicable Statutes so that it could prepare appropriate regulations in respect of the area within the port limits to the exclusion of any Central, State of local laws. 6

Property and contracts

The Port Authority of each port can use its property and assets for purposes it may deem fit for the major port. The Board will make Rules for the use and development of all port assets, as approved by the Central Government. As per the draft bill, a distinction has been made between the usage of land for port and non-port related activities in terms of approval of leases. The Port Authorities are empowered to lease land for port-related use for up to 40 years and for non-port related use up to 20 years, beyond which the approval of the Central Government is required.

The need for Government approval for raising loans, appointment of consultants, execution of contracts and creation of service posts has been dispensed with, bringing in greater financial autonomy.

Financial powers

The Board will frame the scale of rates for assets and services available at the major port. 7 The Board may raise loans to meet capital or working expenditure. Loans above 50% of the capital reserves of the Port Authority will require approval of the Central Government.

Dispute Resolution

To reduce the extent of litigation between Public Private Partnership operators and Ports; an independent Review Board has been proposed. 8 This Review Board, will carry out the residual function of the erstwhile Tariff Authority for Major Ports (TAMP) for major ports to look into disputes between ports and PPP concessionaries, to review stressed PPP projects and suggest measures to review stressed PPP projects. At present, there is no independent body to look into these aspects.

Management restructuring

The Port Authority of each major port, may become a company. This will be subject to approval of the Central Government and passage of a special resolution by the Board. Further, in such a situation, the Board may raise additional capital through the sale or disinvestment of holdings in the Port Authority.

Provisions of corporate social responsibility and development of infrastructure by Port Authority have been introduced. 9

Conclusion

The highlight of the proposal is that the power to regulate tariff will be taken away from the Tariff Authority for Major Ports (TAMP) and the power to fix the scale of rates for service and assets will be delegated to the port authority's board. The removal of TAMP is likely to create a level playing field. Several key measures relating to simplifying procedure and providing greater autonomy to Port authorities will go a long way in removing red-tape from the entire process. It is also interesting to note that in order to avoid any unwarranted interference in the functioning of the Board, power of Central Government to take over the control of the Port Authority is limited to the event of 'grave emergency' or in case of persistent default by Port Authority in performance of their duties. 10   Under the Section 2(j) of the Act, 'Grave Emergency' means a condition as determined by the Central Government wherein the Board is unable to discharge its duties appropriately and includes acts of sedition, non-performance, unlawful and illegal actions, negligence and financial misappropriation. Therefore, only when these circumstances exist, can the Central Government intervene in the functioning of the Port Authority.

The capacity addition and the productivity improvements achieved by the major ports coupled with growing participation of Private Sector in cargo handling have had a favourable impact on efficiency of cargo handling operations at India's major ports. In order to utilize these positive results, the shipping ministry seems intent upon bringing in reforms, in keeping with the spirit of make in India and ease of doing business. This is evident from the fact that the Ministry of Shipping decided to remove 13 Rules under the Merchant Shipping Act, 1958 on November 18th , 2015, a day after the new bill was released, as they were found to be unnecessary and obsolete 11. Further, Maritime India Summit, 2016 was also organized from 14th to 16th April, 2016 at Mumbai to encourage investment in and showcase the strength of Indian ports. The legislative measures will surely invigorate these actively pursued initiatives of the Government and are likely to yield positive results.

(The author is an associate with the Indirect Tax team at Luthra and Luthra Law Offices, New Delhi & the views expressed are strictly personal.)

1. Referred to as the 'Draft Major Port Authorities Bill, 2015' in the document published by the Ministry of Shipping, Government of India dated 30.03.2016 accessed at http://shipping.gov.in/showfile.php?lid=2153

2. Accessed at http://pib.nic.in/newsite/PrintRelease.aspx?relid=146110

3. Basic Port Statistics of India 2014-15, dated 11th April, 2016 published by the Transport Research Wing, Ministry of Road Transport and Highways accessed at http://shipping.gov.in/showfile.php?lid=2272

4. Chapter II of the Act

5. Section 44 of the Act

6. Section 66 of the Act

7. Section 25 of the Act

8. Section 59 of the Act

9. Section 65 of the Act

10. Section 53 of the Act

11. Rules being removed include: (i) the Merchant Shipping (Distressed Seamen) Rules, 1960, (ii) the Merchant Shipping (Rates) Rules, 1970, and (iii) the Merchant Shipping (Safety Convention Certificates) Rules, 1975.