Vessel-Sharing Agreements And The Boundaries Of Competition Law Enforcement

The proposal by the Ministry of Ports, Shipping and Waterways to exempt vessel-sharing agreements from the operation of the Competition Act, 2002 ("Act") has reopened a long-standing policy debate at the intersection of competition law and sector specific regulation. Vessel-sharing agreements are commonly entered into by liner shipping companies to pool capacity and optimise routes but occupy a legally sensitive space. While they are operationally distinct from horizontal agreements as envisaged in the Act, their structural similarity has consistently attracted scrutiny. India has historically oscillated between competition enforcement and sectoral accommodation. Temporary exemptions have been granted in the past only to lapse and be reconsidered again in light of market conditions and industry representations. The current proposal addressed to the Ministry of Corporate Affairs seeks renewed exemption on the premise that vessel-sharing agreements are essential for the viability of Indian shipping operations particularly in a global market dominated by large alliances.

Vessel-Sharing Agreements

Vessel-sharing agreements are contractual arrangements between shipping lines to share vessel capacity on specified routes. Unlike traditional liner conferences, vessel-sharing agreements do not typically involve joint pricing or revenue pooling. Instead, they are designed to achieve operational efficiencies by optimising vessel utilisation, reducing costs and expanding service coverage without duplicative deployment of ships.

In the Indian context, vessel-sharing agreements have assumed heightened importance due to the relatively limited scale of domestic shipping lines and dominance of large global carriers on major trade routes. For Indian operators, participation in vessel-sharing arrangements is often positioned as a commercial necessity rather than a strategic choice.

However, from competition law perspective, such agreements are horizontal agreements between competitors. They involve coordination on capacity deployment, sailing schedules and port calls being features that fall squarely within the zone of scrutiny under Section 3 of the Act.

Horizontal Coordination under the Act

Section 3(1) of the Competition Act prohibits agreements that cause or are likely to cause an appreciable adverse effect on competition in India. Section 3(3) creates a presumption of such adverse effect for certain categories of horizontal agreements including those involving output limitation, market allocation or control of production. The Supreme Court has consistently emphasised that horizontal coordination is assessed on its economic effect rather than its formal description. In Excel Crop Care Limited v. Competition Commission of India¹, the Court held that coordination among competitors that affects output or market conditions may attract liability even in the absence of explicit price-fixing and that anti-competitive intent can be inferred from conduct and surrounding circumstances. This principle is directly relevant to vessel-sharing arrangements where coordination on capacity and sailing schedules may influence supply conditions in freight markets.

Similarly, in Competition Commission of India v. Coordination Committee of Artists and Technicians of West Bengal Film and Television², the Supreme Court treated collective action restricting supply or access as falling within the ambit of Section 3(3) notwithstanding the absence of a traditional cartel structure. The decision underscores that coordination which constrains market outcomes cannot escape scrutiny merely because it is framed as operational cooperation.

Historical Exemptions u/s 54 of the Act

Recognising the peculiarities of liner shipping, the central government has previously exercised its powers under Section 54 of the Act to grant time-bound exemptions to vessel-sharing agreements. These exemptions were typically conditioned on the absence of price-fixing, revenue pooling or market allocation. Section 54 empowers the central government to exempt any class of enterprises or agreements from the application of the Act if such exemption is necessary in the public interest. However, this power operates as an exception to the general competition framework not as a parallel regulatory regime. Judicial precedent makes it clear that sectoral regulation or policy preference does not automatically displace competition law. This principle is relevant in assessing the respective ministry's proposal as it explains why a formal Section 54 exemption is being sought rather than relying on implied regulatory priority.

Ministry's Current Proposal

The renewed proposal by the shipping ministry to exempt vessel-sharing agreements is premised on the argument that global consolidation in liner shipping has altered competitive dynamics placing Indian operators at a structural disadvantage. The proposal reportedly seeks a limited exemption focused on operational coordination, coupled with safeguards against anti-competitive conduct. From a legal perspective, the proposal reflects an acknowledgement that absent an exemption, such agreements remain vulnerable under Section 3. It also implicitly recognises that the CCI cannot be expected to refrain from enforcement purely on policy grounds given its statutory mandate and judicially affirmed jurisdiction.

Cooperation or Collusion?

The CCI's enforcement practice reflects a cautious but firm approach to coordination in transport and logistics markets. While recognising that certain forms of cooperation may yield efficiencies, the Commission has repeatedly stressed that such efficiencies must be demonstrated and must not be outweighed by competitive harm. In Rajasthan Cylinders & Containers v. Union of India³, the Supreme Court clarified that parallel conduct alone is insufficient to establish cartelisation but also observed that coordination may be inferred where conduct is inconsistent with independent decision-making. This distinction is particularly relevant to vessel-sharing agreements where coordination is explicit and contractual raising question of whether such coordination remains confined to operational efficiency or spills over into market control. The Delhi High Court in Mahindra & Mahindra Limited v. Competition Commission of India⁴ further reinforces that that efficiency justifications cannot be presumed. The Court held that claims of efficiency must be substantiated and weighed against potential competitive harm.

Risk of Broad Exemption

A broad exemption carries inherent risks. Coordination on capacity and scheduling can indirectly influence freight rates and service availability even in the absence of explicit price-fixing. There is also a risk that information exchange within vessel-sharing agreements could facilitate collusion beyond the scope of the government. From a legal standpoint, exemptions also create enforcement blind spots. Once conduct is removed from the purview of the Competition Act, remedial options become limited, placing greater reliance on sectoral oversight mechanisms that may not be designed to address competition concerns. If an exemption is granted, its design will be critical. Conditions must be precise and enforceable with clear boundaries separating permissible operational coordination from prohibited competitive restraints. Time-bound exemptions coupled with reporting and review mechanisms would align with both past Indian practice and judicial caution around permanent immunities. Coordination between the shipping regulator and the CCI would also be essential to ensure that conduct falling outside the exemption remains subject to competition law scrutiny.

Conclusion

The proposal to exempt vessel-sharing agreements from the Act raises issues that are as much legal as they are economic. Supreme Court jurisprudence on horizontal coordination, sectoral regulation and the role of exemptions makes clear that vessel-sharing agreements cannot be treated as benign arrangements beyond the reach of competition law absent explicit statutory cover. A carefully calibrated exemption may be justified in light of sectoral realities but such an exemption must be narrow, conditional and subject to oversight. The resolution of this issue will test India's ability to reconcile competition discipline with sector-specific policy objectives without compromising the coherence of its competition law framework.

Footnotes

1 (2017) 8 SCC 47

2 (2017) 5 SCC 17

3 (2018) 14 SCC 615

4 W.P. (C) 11467/2018

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