THE GAZETTE OF INDIA : EXTRAORDINARY

[PART III—SEC. 4]

TARIFF AUTHORITY FOR MAJOR PORTS

NOTIFICATION

New Delhi, the 28th November, 2001

No. TAMP/8/20U0-G«nl.—In exercise of the powers conferred by Sections 48, 49 and 50 of the Major Port Trusts

Act, 1963 (3 8 of 1963), the Tariff Authority for Major Ports hereby disposes of a proposal of the Indian Ports Association

for a reduction in the rate of penal interest leviable on delayed payments/refunds made by users/port trusts and prescribes

a revised range of penal interest rates for common adoption by all the major port trusts as in the Order appended hereto.

SCHEDULE

hfpJAMP/8/2000-Qenl.

Th« Indian Porte Association (IPA)

Applicant

(Passed on this 5th day of November 2001)

This case relates to a proposal sent by the Indian Ports Association (IPA) requesting for a

reduction in the rate of penal interest on delayed payments / refunds by users / Port Trusts.

In its proposal, the IPA has made the following points:

(i)

The penal interest for delayed payment / refunds approved by th« Authority in its Order

No TAMP/8/2000-Genl dated 23 February 2000 may be fixed by individual Ports within a

range between a minimum of the State Bank of India notified rate plus 1% and a maximum

of 15% per annum.

(ii).

Delays In refund may be counted only after 30 days from the date of completion of the

services instead of 20 days as mentioned in the Order of Authority.

3 1

One of the Guidelines adopted at the Workshop held in Chennai in February 1908 was to

the'effect that the Port Trusts shall pay penal interest on delayed refunds. Based on the guideline

adopted, this Authority passed an Order on 4 February 2000 for uniform adoption by all the Major Port

Trusts. This Order was notified in the Gazette of India on 23 February 2000.

3.2.

In the said Order, the Authority decided the following:

(i).

The user shall pay ponal interest @ 24% per annum on delayed payments.

()|).

Likewise, the Port Trust shall pay penal Interest Q 24% per annum on delayed refunds.

(iii).

The delay in refunds will be counted only 20 days from the date of completion of services

or on production of all the documents required from the user, whichever is later.

4 1

In response to this Order, various port trusts had submitted representations against the

interest rate presenbed. These ports and also the other ports were advised to discuss the subject in the

forum of the IPA for a coordinated view of all the Major Port Trust to adopt a uniform interest rate which

should be applied equally on delayed payments made by the port-users and delayed refunds made by the

Port Trusts. The IPA accordingly, disoussod the matter and conveyed its views that each port should have

the freedom to decide Its policy.

4.2.

The matter was again considered by this Authority in its meeting held on 16 May 2001 in

the backdrop of the opinion given by the IPA and the views sent by some of the Port Trusts and the

following observations were made:

(i).

The question about the competence of the Authority to prescribe penal interest rate for

delayed payment / refund in the Scale of Rates of Major Port Trusts had already been

settled by this Authority through its Order dated 19 July 2000.

(il).

The intention behind this Authority's Order dated 4 February 2000 was to prescribe a

uniformity of penal interest payable on delayed payments both ways i.e., by port users as

well as by the Port Trust. In the Order, this Authority prescribed a 24% interest for such

cases taking into consideration the penal interest being charged for the year 1 SSfi-2000 by

the Income Tax Department for delayed payments. This Authority had already taken a

decision that if the Intention behind the Order was correctly understood In Its true spirit,

this Authority was not concerned about the time limit or the penal interest rate. Whatever

was the rate of interest such prescription would be uniformly applied to both sides.

(iii).

Even though the stated position of this Authority has been that it ie not concerned about

the rate of penal interest, it can not be left to th^ndividual Port Trust to decide such rates.

There has to be uniformity among all major Port Trusts in this regard.

On this

consideration only, this Authority had decided to advise the ports to discuss the mater in

the forum of IPA for a coordinated view of all the major Port Trusts to adopt a uniform

interest rate. Th« reply than given by the IPA did not address the issue referred to it.

Legally, each port can not have freedom to decide its policy relating to tariff matters.

Since the IPA failed to recommend any coordinated view on a uniform interest rate, this

Authority suo motu decided on the rate of the penal interest with reference to reduction in

commercial rates by banks and the Income Tax Department

4.3.

After considering all the issues involved, this Authority passed an Order on 16 May 2001

partially amending Its Order dated 4 February 2000 as follows:

(i).

The user shall pay penal interest @ 18% p.a. on delayed payments.

(ii).

Likewise, the Port Trust shall pay penal interest @ 18% p.a. on delayed refunds.

The Mormugao Port Trust (MOPT) submitted a proposal to grant 7 clear working days as

grace period from the date of the receipt of the bill to the port users. The proposal of the MOPT was

considered after consultation with all other Major Ports for adoption of a uniform prescription in this regard.

An Order was passed on 30 August 2001 amending the earlier Order dated 4 February 2000 (partially

amended by Order dated 16 May 2001). This Authority in its Order dated 30 August 2001 approved the

following:

" The delay in payments by users will be counted only 10 days after the date of raising, the bills by

the Port Trusts. This provision shall, however, not apply to the cases where payment Is to be

made before availing the services / use of Port Trust's properties as stipulated in the MPT Act

and/or where payment of charges in advance is prescribed as a condition in the Scale of Rates."

The Jawaharlal Nehru Port Trust (JNPT) has now submitted a separate proposal

requesting to reduce the rate of penal interest to 12.5% and also to consider 10 days grace period from the

date of preparation of invoices to the port users. In its proposal, the JNPT has made the following points:

(i).

In the past, no penal interest was charged on delayed payments and on refunds.

(ii).

The port users, therefore, are requesting for not implementing the Order relating to

charging penal interest on delayed payment/refunds and also stated that 18% interest is

on the higher side.

THE GAZETTE OF INDIA: EXTRAORDINARY

|PAKT HP-SEC. 41

(iii).

The JNPT also agrees the views of the users and Its Board of Trustees have decided to

approach the TAMP to reduce interest at a rate that is 1% higher than that of SBl's prim*

lending rate whioh is at present 11.5%. The JNPT, has, therefore proposed 12.5% interest

on delayed payment / refunds.

(iv).

The JNPT has also recommended allowing 10 days grace period from the date of the

invoice to the port users for effecting the payment

With reference to the proposals now made by the IPA and the JNPT, the following position

emerges:

(i).

Earlier, this Authority advised all the port trusts to discuss the matter In the forum of the

IPA to formulate a coordinated view about adoption of uniform penal interest rate,-as also

the time limit beyond which the penal provisions will apply. In response, .the IPA then

conveyed its view that each port should have the freedom to decide its policy. Since the

reply given by the IPA did not address the issue referred to it, and each port could not

legally have freedom to decide its tariff policy, this Authority proceeded suo motu to decide

on the rate of penal interest and reduced it from 24% p.a. to 18% p.a.

Now the IPA has come up with a specific suggestion on the rate of penal interest. The

proposal of the IPA is to prescribe a range of interest rates and allow individual port trusts

to choose the interest rate within the range prescribed.

(II).

It Is to be recognised that the intention behind the Order of this Authority Is to prescribe a

uniformity of penal interest payable both ways. The idea is only to emphasise the principle

of level playing field. This Authority has already taken a view that if the intention behind

the Order is correctly understood in true spirit, it is not concerned about the time limit or

the penal interest rate. Even though the rate of penal interest does not matter much, it

was the opinion of this Authority that it could not be left to an individual Port Trust to

decide; and, there must be a uniformity among all major port trusts in this regard, Viewed

in this perspective, the proposal of the IPA to allow freedom to the port trusts to select the

interest rate of their choice from the range to be fixed may not be in line with this

Authority's approach to adopt uniform principles and concepts in the matter of tariff fixation

at the major ports.

It may be useful in this context to recapitulate the pith and substance of this Authority's

thinking on this subject:

(a).

Whatever may be the penal rate, It shall be the same for both the port

trusts and the port-users.

(b).

Whatever may be the rate, it shall be the same at all the port trusts.

The port trusts have, willingly or unwillingly, accepted this Authority's intervention in this

matter and, have also accepted the need to have the same rate both ways on

considerations of equity. But because of local peculiarities caused by varying financial

features, they have not been able to come an agreement about a common rate. In

recognition of this ground reality, this Authority is inclined to veer away from ita earlier

stand and introduce some flexibility in the arrangement to promote effective

implementation of its Order.

(iii).

The fictitious position oreated by addition of penal interest on doubtful debts is also a

relevant point for consideration. Levy of penal interest on delayed payment is, however, a

well-established commercial practice. Just because some of the debts have gone bad or

doubtful, there is no reason to abandon such an established practice.

(iv).

The IPA has proposed to reduoe the rate of penal interest to 15% and fix it as the ceiling

limit. It is noteworthy that the penal interest rate has recently been reduoed from 24% p.a.

to 18% p.a. Since a range of penal interest rate Is to be prescribed, It may not be

necessary to reduce the penal interest rate already in force which will serve only as a

ceiling limit in the revised prescription. It is to be recognised that a port trust will have the

flexibility to adopt a penal interest rate within the range and it can be less than 18% p.a.

(v).

Penal Interest must be viewed as a punitive measure to enforce a disciplined cash and

• debt management. It may not be correct to view it only as the opportunity cost of funds

blocked. In this backdrop, prescribing a penal interest rate only at 1% above the SBI's

PLR, as proposed by the IPA, does not seem to achieve the desired result. It haw to be

recognised that rarely a borrower can obtain loans at the PLR. Further, if penal interest

rate is closer to commercial borrowing rates, then there may be a tendency to view (by the

other party to the transaction) the Port Trusts / Users as a depository or lending agencies.

That being so, this Authority finds it reasonable to prescribe penal interest rates within a

range between the minimum of 2% above SBI's PLR rate and a maximum of 18% p.a.

The Port Trusts can be allowed to choose the rate convenient to their purpose within this

range subject to the following understanding:

(a).

The penal interest rate chosen will apply to both the Port Trusts and the port-users

equally.

(b).

The port trusts must exercise their option and choose a rate within the range

prescribed. Any change thereafter can only be with this Authority's approval.

(c).

The arrangement relating to introduction of a range itself will be reviewed after two

years to examine whether a common ratosfor all the Port Trusts can be prescribed.

(vl).

The IPA has also proposed that the time limit to count delay in refund be enhanced to 30

days from the date of completion of 30 days of service. This Authority has already allowed

a time limit of 20 days for processing of such refund claims. The time limit already allowed

is liberal; any further increase in the lead-time is not necessary. It is also relevant that the

IPA's proposal is to consider the lead-time from the date of completion of services. For a

port to process the refund claims the completion of services is not as crucial as production

of all required documents by the users. In this context only, this Authority has already

prescribed that the delay in refunds will be counted only 20 days from the date of

completion of services or on production of all documents required from the users

. whichever is later.

(vii).

The JNPT has suggested allowing 10 days grace period from the date of invoice for the

port users to make payment. This Authority has already allowed such a grace period vide

its Order dated 3 August 2001.

(viii).

In this context, it will be relevant here to mention that the Calcutta Port Trust (CPT) and

Chennai Port Trust (CHPT) (repeatedly) raised doubts about the competence of this

Authority to prescribe a penal interest rate for delayed payment / refund. This issue has

already been settled by this Authority through its Order dated 19 July 2000 in respect of

the CPT and repeated in the case of the CHPT. In the Order related to the CPT, the

following position was clearly brought out:

(a).

The prescription of penal interest made by this Authority did not contravene any of

the provisions of the MPT Act.

(b).

An Authority empowered to prescribe rates and associated conditlonalitles can

prescribe penal rates also.

(c).

If the penal interest levied by the CPT (as per "its Scale of Rate* even before this

Authority passed the common adoption Order) was tenable' then the Order

passed by this Authority to extend the principle to refunds to be made by the Port

was also justifiable.

THE GAZETTE OF INDIA: EXTRAORDINARY

PARTID—Sac 4]

8.1.

In the result, and for the reasons given above, and based on a collective application of

mind, this Authority deoides the following: .

(i).

In partial amendment of its earlier Orders on this subject, the rate of penal Interest will be

in the range between a minimum of 2% above the Prime Lending Rate of the State Bank

of India and a maximum of 18% within which the Port Trusts can choose the rate

convenient to their purpose.

(ii), « The penal interest rate chosen will apply to both the Port Trusts and the port-users

- equally.

(iii).

The port trusts must exercise their option immediately and choose a rate within the range

prescribed. Any change thereafter can only be with this Authority's approval.

Civ).

The arrangement relating to introduction of a range itself will be reviewed after two years

to examine whether a common rate for all the Port Trusts can be proscribed.

8.2.

All the major port trusts are directed to amend their respective Scale of Rates to include

the revised rate of penal interest (to be) chosen by them.

8.3.

This Order will come into effect on expiry of 15 days from the date' of Jts notification in the

Gazette of India.

S. SATHYAM, Chairman

lADVT/ID/IV/143/2001/Exly.l

Printed by the Manager, Qovt. of India Prass, Ring Road, Mayapurl, New Dolhl-110064

and Published by the Controllar oi Publications, Dalhl-110054 — 2001