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GuidelinesforGrantofLicencetoForeignFlag
Vessels.
ShippingDevelopmntCircularNo.2of2002
Dated8.11.2002
Sub:GuidelinesforGrantofLicencetoForeignFlagVessels.
1.LegalProvisionsandObjectives:
1.1InpublicinterestandtoensuretransparencyandequitableconsiderationforIndianshipowners,
shippers,Projectauthorities,otherpublicandprivateparties(citizens/companies/societiesandPSUsand
jointventures),andaboveall,fortheIndianconsumers,theDirectorGeneralofShippingishereby
pleasedinsupersessionofallearlierguidelinestolaydownthefollowingguidelinesforgrantoflicence
forcharteringofforeignflagvesselsforexport,import,forcoastingtrade,implementationofprojects
etc.
1.2InPartXIVoftheMerchantShippingAct,1958entitled'ControlofIndianshipsandships
engagedinCoastingTrade',theprovisionsofSection406dealwithIndianshipsandcharteredshipsto
belicensedandprovisionsofSection407dealwithlicensingofshipsforcoastingtradeinIndia.Aslaid
downinthesesections,thelicencehastobegrantedbytheDirectorGeneralofShipping(hereinafter
referredtoasD.G.Shipping)fortakingtoseafromaportorplacewithinandoutsideIndiaofIndianor
othershipbyacitizenofIndiaoracompanyoracooperativesocietyunderSection406.Thesameis
trueforshipotherthanIndianshiporashipcharteredbyacitizenofIndiaoracompanyoraco
operativesocietyforengaginginthecoastingtradeofIndiaunderSection407.
1.3SubSection(3)ofSection406andsubsection(2)ofSection407empowertheD.G.Shippingto
grantthelicencesubjecttosuchconditionsasmaybespecifiedbyhim.Consolidatedguidelineshad
beenissuedbytheDirectorGeneralofShippinginthissameregardvideNo.SD9/CHART(82)/97II
dated27March,2000.Asaresultofexperiencegainedduringthelast21/2years,itisfeltnecessaryto
issuethepresentupdatedandfreshguidelines.
1.4Itiswellknownthatinrecentyears,therehasbeenatremendousgrowthinthedevelopmentofoff
shoreshippingindustryinallitsvariousaspects.ItisnecessaryfortheCentralGovernmenttoensurethe
growthanddevelopmentofIndianoffshoresector,vessels,equipmentetc.Consequentlywhile
consideringtheapplicationforgrantoflicencetoanyforeignflagvesselofanytypetoworkinIndian
watersanywhereinentireExcluiveEconomicZone,itwillbenecessaryforD.G.Shippingtoconsiderthe
effectonthegrowthandencouragementofIndianoffshoreindustryandvessels,irrespectiveofwhether
theyarefittedwithmechanicalmeansofpropulsionornot.Therefore,theseGuidelinesareapplicableto
allvessels,asdefinedunderM.S.Act,supportingorperforminganyservices/functionsasenumerated
below:
(i)CapitalintensiveassetssuchasFloatingStorageandOffloadingdevisesetc.
(ii)OilfieldSupportServicesrenderingvesselsengagedintowing,anchorhandling,dredging,offshore
drilling/productionrigs,divingsupport,maintenancesupport,varioustypesofsurveys,cablelaying,sea
bedminingoperations,pipelaying,lighterage,salvagemarineconstruction,hookup,supplyand
transportofpassengers,goodsandmaterial,and
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(iii)PortandTerminalrelatedsupportservicesrenderingvessels.
1.5Theseguidelinesshallbeapplicabletoanyforeignflagvesselcharteredbyanyoneforoperationin
theIndianExclusiveEconomicZoneofIndiaincludingitsterritorialwatersandcontiguouszone.
1.6TheseGuidelinesshallcomeintooperationwithimmediateeffect.
2.Charteringofforeignflagvesselsforexport/import
2.1TheApplicantshouldsubmittheenquiryconsistingofdetailsregardingspecificationofthe
requirementofvessel,quantityofcargo,natureofcargo,laycan,portofloadinganddischargeetc.tothe
IndianNationalShipowners'Association(hereinafterreferredtoasINSA)andtotheD.G.Shippingat
leastthreeworkingdayspriortolaycan.Heshouldsubmittheapplicationintheappropriateformatas
prescribedatAnnexA,B,C&Dwithnecessaryfees,atleastthreeworkingdayspriorto
commencementofthelaycan.
2.2INSAshallcirculatetheenquirytoitsMemberCompanieswhoshallforwardtotheApplicantthe
offertheywishtomakegivingdetailsofasuitableIndianflagvessel,Charterhire/freightetc.informing
INSAthattheofferhasbeenmadegivingalldetailsexceptthepriceofferandendorsingacopyofthe
offermadetotheD.G.Shipping.TheoffersshouldbemadebytheINSAMemberswithinnotmorethan
twoworkingdaysafterreceiptoftheenquiryinrespectofallvessels,exceptCrudeCarriers,Product
Tankers,ChemicalCarriers,AmmoniaTankers,GasCarriers,FeederandContainerVessels.Inrespect
oftheselattervessels,INSAMemberCompaniesshallmaketheirofferstotheApplicantwithinone
workingdayafterreceiptoftheenquiry.INSAshall,inresponsetotheenquiryoftheApplicant,inform
theD.G.ShippingoftheoffersmadebyitsMemberCompaniesandendorseacopyofthesametothe
ApplicantCompanywithintwoworkingdaysafterreceiptoftheenquiryinrespectofallvesselsexcept
CrudeCarriers,ChemicalCarriers,AmmoniaTankers,GasCarriers,ProductTankers,Feederand
ContainerVessels.Inrespectofthelattercategoryvessels,INSAshallinresponsetotheenquiryofthe
ApplicantinformtheD.G.ShippingoftheoffersmadebyitsMemberCompaniesandendorseacopyof
thesametotheApplicantCompanywithinoneworkingdayafterreceiptoftheenquiry.Incaseno
copiesofofferarereceivedbyINSAfromitsmembercompanieswithinthestipulatedtime,INSAshall
informtheD.G.Shippingaccordingly,withacopyofthesametotheApplicant.
3.CharteringpermissionforCoastingTrade/OffshoreSupportOperation/PortrelatedSupport
ServicesforSpotRequirement
3.1TheApplicantshouldsubmittheenquiryconsistingofdetailsregardingspecificationofthe
requirementofvessel,quantityofcargo,natureofcargo,laycan,portofloadinganddischargeetc.tothe
IndianNationalShipowners'Association(hereinafterreferredtoasINSA)andtotheD.G.Shippingat
leastthreeworkingdayspriortolaycan.Heshouldsubmittheapplicationintheappropriateformatas
prescribedatAnnexA,B,C&Dwithnecessaryfees,atleastthreeworkingdayspriorto
commencementofthelaycan.
3.2INSAshallcirculatetheenquirytoitsMemberCompanieswhoshallforwardtotheApplicantthe
offerstheywishtomakegivingdetailsofasuitableIndianFlagVessel,Charterhireetc.,informing
INSAthattheofferhasbeenmadegivingthedetailsthereofexceptthepriceofferandendorsingcopies
oftheoffermadetotheD.G.Shipping.TheoffersshouldbemadebytheINSAMemberswithinnot
morethantwoworkingdaysafterreceiptoftheenquiryinrespectofallvessels,INSAshallinresponse
totheenquiryoftheapplicantinformD.G.ShippingtheoffersmadebyitsMembercompaniesand
endorseacopyofthesametotheapplicantcompanyimmediatelywithinonedayinrespectofall
vessels.
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3.3TheprocedurespecifiedintheGuidelines(Paragraphs2.12.2)alsoappliestoallapplicationsfor
permissionforspotrequirementsforcoastingtradeandtimeorvoyagecharterofforeignflagvessels
wherenotenderprocesshasbeenfollowedforcoastingtrade.TheApplicantshallhoweverreferthe
enquirytotheIndianCoastalConference(hereinafterreferredtoasICC)aswellastoINSA.TheICC
shallalsofollowthesameprocedureasINSAasspecifiedearlierinParagraphs2.1to2.2.However,
Paragraphs3.1to3.2shallapplytoallrequirementsintheOffshoreSupportServicesand/or
Port/TerminalSupportServiceswherenotenderprocessisfollowed.
4.CharteringofVesselsdonethroughTenderProcessforalltypesofRequirements
4.1UnlesstheIndianvesselbecomessuccessfulintheevaluationofthetechnicalbid,itwillnotof
coursebeeligibleforanyconsiderationandsupportundertheprovisionsofSection407oftheM.S.Act,
1958.
4.2Whenevercharterofvesselisundertakenthroughatenderprocess,open,closedorglobaltender,or
anyotherprocessoftender,theprovisionsoftheseguidelinesarerequiredtobeincorporated.Whether
theguidelineshavebeenincorporatedinanytenderornot,thesaidguidelineswouldbedeemedtohave
beenincorporatedasapartofthetenderdocuments.
4.3EverytenderprocesswouldprovidescopeforIndianCitizens/Companies/CooperativeSocieties
havingIndianflagvesselstoparticipateinthesaidtender.WherethesaidIndianCitizens/Companies/
CooperativeSocietieshavefailedeithertoparticipateorobtaintheorder,theycannotbeallowedto
obtainthesameorpartofthesameworkatanycostmerelythroughtheprovisionsfoundinSection407
andSection406oftheM.S.Act,1958.Inthesaidtenderprocess,therightoffirstrefusalwillremain
withtheIndianvesselowneronhisshowingreadinesstotakeupthejobatthelowestpriceindicatedby
theforeignflagvessels.
"Rightoffirstrefusal"isarightwhichaccruestoabidderinatenderingprocesswhooffersanIndian
flagvesselandwhoseratethoughnotbeingthelowesttobeawardedthetender,subjecttohismatching
ofthelowestrateofferedbyabidderwhooffersaforeignflagvessel.Thisrightisconferredbasedupon
thepracticesoftheindustry,andthedeliberateintentionoftheCentralGovernmenttowards
encouragementanddevelopmentoftheIndianshippingindustry.
4.4Rightoffirstrefusalwillbeapplicableto:
(a)Avessel,whichhasbeenofferedbyanIndianbidder,andwhichremainsunderforeignflagonthe
dateofthepricebidopening,wouldbetreatedasaforeignflagvesselforthepurposeofbidevaluation.
Accordingly,thelowestIndianflagvesselwouldbegrantedtherightoffirstrefusalagainsttheforeign
flagvesselsincludingtheforeignflagvessel(s)whichareofferedwithanundertakingtoconvertto
Indianflagpriortocommencementofoperations.
(b)Abovethelowesttenderwithaforeignflagvessel,wheretherearemorethanoneIndiantenderer
offeringIndianflagvessel(s),thenthefirstrightoffirstrefusalwillbegiventothelowestamongsuch
Indiantenderers,andonhisfailuretomatchthelowesttender,thenexthigherIndiantendererwillbe
giventheofferandsoon.
(c)TheofferofanyforeignflagvesselbyanIndianbidderwithanundertakingtoconvertittoIndian
flagpriortocommencementofoperationsbutlaterthanthepricebidopeningcanbeconsideredonly
whenandiftheIndianbidder/sofferingIndianflagvessel/shavefailedtomatchthelowestpriceoffered
bytheforeignflagvessel.Insucheventthetenderawardingauthorityshallincorporatedeterrent
penaltiesintheawardoftendertoensurethatthebidderwillconvertthevesseltoIndianflagbefore
commencementofoperations.
(d)Similarly,anIndianbidderwhooffersanIndianflagvessel(s)foraparticulartenderwillnotbe
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grantedlicencebyD.G.Shippingtocharteraforeignflagvessel(s)forthesameworkeitheratthe
commencementofcharteroratanytimeduringthetenureofthecharter.TheIndianbidderwillnotbe
allowedtosubstitutetheIndianflagvessel(s)withavesselthatwasbeingconstructed,contractedor
flyingaforeignflagatthetimeofbiddingbutwastobeconvertedtoIndianflagpriortocommencement
ofoperations,butlaterthanthepricebidopening.NorwillhebeallowedtobringinanotherIndianflag
vesselfromelsewherehopingtoreplaceitwithaforeignflagvessel,irrespectiveofwhethertender
processwasfollowedornot.Sucharequesttograntlicenceforaforeignflagvesselwillnotbegranted
byD.G.ShippingtoreplaceanIndianflagvessel.
(e)Inshort,bothinand(d),equitywillbemaintainedtoensureabalancebetweenboththeobjectives
ofencouragingtheexistingIndianflagvesselsontheonehand,andofencouragingtheacquisitionof
newIndiantonnage,butwithaslighttiltinfavourofexistingIndianflagvesselssincetheinvestment
herehasalreadybeenmade.
4.5Theparty,whichofferstheIndianflagvessel,shouldmeetthecommercialrequirementbymatching
thelowestcompositeeffectivepriceandthereshallbenopricepreferenceinfavouroftheIndianflag
vessels.IfanyexpenditureincurredbytheIndianvesselownerisbeingbornebythechartererforthe
foreignflagvesselthatshallbesuitablyaddedtothepricewhilecomparingthecosts.Onsuch
calculationiftheIndianvesselisofferedatthesamepriceastheforeignvessel,thelicenceunderSection
406and/or407willnotbegrantedforthesaidforeignflagvessel.
CompositeEffectivePriceisthederivedfigurefromthevariouspriceinputssubmittedbya
bidder/participantinatenderprocess,whereinallthecosts/inputsaresummarized.Whileworkingout
suchCompositeEffectivePrice,inputssuchasdailyhire/dailyrate,mob/demobcharges,calloutrates
andconversionchargesetc.aretakenintoaccount.
5.AmendmenttoLicencealreadygranted:
5.1Amendmenttolicencewillbegovernedbythefollowingprovisions:
a)Notmorethantwicewillamendmentsbeallowedinrespectofthesamelicence.
b)Ifanamendmentseeksvariationsinmorethanthreeparameters,itwillbetreatedasafreshcase.
c)Anyvariationonlaycanexceedingoneweekoneithersidewillbetreatedasafreshcase.
d)Thefeesoncepaidwillnotbeautomaticallyrefundedoradjustedagainanyfreshapplication.Separate
andadequatejustificationforrefundoradjustmentwillhavetobeadvancedbeforetheD.G.Shipping,
andbeacceptedbyhim.
e)Afreshcasewouldmeanthattheapplicanthastofollowtheprocedurefromthebeginningonceagain.
6Penaltyfordeviations:
6.1IfINSAoranyoftheShippingCompaniesbringstothenoticeoftheD.G.Shippingthatacharterer
hasviolatedtheseGuidelinesincharteringforeignflagvessels,theD.G.Shippingafterdueverification
ofthecomplaintshalltakeappropriatemeasurestopenalizethechartererconcernedashemayconsider
necessarytopreventrecurrenceofsuchevents.
6.2Ifthereisadoubtthattechnicalspecificationsofthevesselgiveninthetenderadvertisementwere
drawnupwiththedeliberateintentionofavoidingIndianflagvessels,themattermaybereferredtothe
D.G.ShippingfordecisionastowhethertheIndianvesselwithminordifferenceinspecificationsshould
bechartered,andnottheforeignflagvessel.Asfaraspracticable,thisdecisionwillbetakenafter
discussionwiththeconcernedparties.
6.3IfpastpaymentdueoncharterofIndianflagshipsisnotclearedintime,theD.G.Shippingmay
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decidethatnofurtherlicenceisgrantedtoapplicantswhoareinsucharrears.
7.NonINSA/ICCMembers
FornonINSA/ICCMembers,acopyoftheenquiryshall,ashasbeentheprevailingpractice,be
displayedonthenoticeboardoftheOfficeoftheD.G.Shippingwithintherelevanttimestipulated.
8.Exceptionsinpublicinterest
Toexpeditenationalprojectimplementation,toincreaseIndiantonnage,toencouragedevelopmentof
Indianhubportsandseatraderoutes,bothneworexistingandtotackleanemergencyorovercomea
crisis,theD.G.Shippingretainstherighttotakeactionasdeemedfit,overridinganyoftheguidelines
laiddownhereinabove.
ANNEXURE'A'
ProformatobefilledinforthepurposeofCharteringofforeign
flagvesselbyEXPORTERSonvoyagecharterbasis.
1.Nameandaddressoftheapplicant........................:
2.DateofinquirysubmittedtoINSA.....................:
3.DateofinquirycirculatedtoIndian....................:shippingcompanies4.Whetheranyresponsereceived
from.......................:
Indianshippingcompanies?
(i)Ifsodetailsthereof............................:
(ii)ReasonforrejectionofIndianflag.........................:....................................vessel,ifoffered.
5.(i)Nameofthevesseltobechartered...........:
(ii)Nameandaddressoftheowner.....................:
(iii)Flag...................................................:
(iv)Yearofbuilt...........................................:
(v)D.W.T.....................................................:
(vi)G.R.T......................................................:
(vii)Draft.......................................................:
6.(i)Portofloadingandlikelydateof........................:readiness.
(ii)Portofdischargeandlikelydateof...................:...............becomingfree.
(iii)Laycan....................................................:
7.(i)NameandNatureofcargo.......................................:
(ii)Quantityofcargotobecarried...................................:
8.Nameofthevesselstakenonvoyage.....................:.......charterduringthelastyearwith..................
indicationofD.G.Shippingletterand..............dateofapproval.
ANNEXURE'B'
ProformatobefilledinforthepurposeofCharteringofaforeignflagvesselonTimeCharterbyIndian
ShippingCompany/Exporters.
1.Nameandaddressoftheapplicant..........................:
2.DateofinquirysubmittedtoINSA..........................:
3.DateofinquirycirculatedtoIndian...............:..............shippingcompanies
4.Whetheranyresponsereceivedfrom...............:.............Indianshippingcompanies?
(i)Ifsodetailsthereof.......................:
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(ii)ReasonforrejectionofIndianflag..............:.......................vessel,ifoffered.
5.(i)Nameofthevesseltobechartered...................:
(ii)Nameandaddressoftheowner.........................:
(iii)Flag..................................................:
(iv)Yearofbuilt..............................................:
(v)D.W.T.........................................................:
(vi)G.R.T.........................................................:
(vii)Draft..................................................:
6.(i)Portanddateofdelivery/..................................:.......................redelivery.................(Portofloading
&Portofdischarge)
(ii)NatureandquantityofCargo............................:.................................proposedtobecarried.
(iii)Laycan...........................................:
7.Nameofthevesselstakenonvoyage.........................:...........charterduringthelastyearwith
.............indicationofD.G.Shippingletterand................dateofapproval.
AuthorisedSignatory
ANNEXURE'C'
ProformatobefilledinforthepurposeofCharteringofaforeignflagvesselbyExporter/Importeron
voyagecharterbasis.
1.Nameandaddressoftheapplicant............................:
2.DateofinquirysubmittedtoINSA............................:
3.DateofinquirycirculatedtoIndian...........................:.....shippingcompanies
4.Whetheranyresponsereceivedfrom...................:..............Indianshippingcompanies?
(i)Ifsodetailsthereof....................................:
(ii)ReasonforrejectionofIndianflag...............:.....................vessel,ifoffered.
5.(i)Nameofthevesseltobechartered................:
(ii)Nameandaddressoftheowners........................:
(iii)Flag..................................................:
(iv)Yearofbuilt...........................................:
(v)D.W.T......................................................:
(vi)G.R.T........................................................:
(vii)Draft..................................................:
(viii)Speed................................................:
(ix)Fuelconsumption...........................................:
6.(i)Portofloadinganddateof..................................:.................readiness
(ii)Portofdischargeanddateof...................................:..................becomingfree
(iii)Laycan................................................:
7.(i)Nameandnatureofcargo...............................:
(ii)Quantityofcargo.........................................:
(iii)Loadingrate.................................................:
(iv)Dischargingrate.................................................:
(v)Demurrage...................................................:
(vi)Despatch.............................:..............................
8.(i)FreightrateperM.T.Payable.................................:
(ii)Currencyinwhichpayable...................................:
(iii)Quantityofcargotobecarried..............................:
(iv)Totalfreightpayableinforeign........................:.......................exchange
(v)Brokerage,ifpayableand................................:............................howtobepaid.
9.(I)Briefdetailsofvariousforeignflag...................:....................vesselsofferedincludingtherates
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..................atwhichoffered.
(ii)Reasonforselectingthepresent........................:.........................vessel.
(iii)Howdoestheproposedcharter............................:.......................hirecomparewiththeprevailing
..............................marketrate.
8.Totalforeignexchangeearnings/.................................:
Savingsontheshipments:
(i)C&FPriceofthecargotobe..........................:.............................realised
(ii)F.O.B.Priceofthecargo....................................:
(iii)Freightinforeignexchange...................................:
(iv)Demurrage/DespatchMoney......................................:
(v)Netforeignexchangeearnings..............................:
(vi)Documentssuchascopyofthe...............................:..............................contract/L.C.etc.tobe
furnished.
11.MARKETPOSITION:
(i)Marketinthecurrentfreightmarket......:..................trendforthiscargoandwith
.....................referencetothetraderoute?
(ii)Pleasequoteafewfreightratesat...................:...................whichthiscargowasfixedin
.......................comparableinternationaltrade.............................duringthelast2monthsnaming
............................specificvessels.
(iii)Whatfreightrateshavebeen.......................:.........................reportedbyreputedpublications/
.....................brokersduringthelast2months........................foridenticalsizeofships.
12.(i)Nameofthevesselstakenon.......................:.........................voyagecharterduringlastoneyear
.....................withindicationofD.G.Shipping............................letteranddateofapproval.
(ii)Exactamountoffreightpaidin.......................:............................respectofeachvessel.
(AUTHORISEDSIGNATORY)
ANNEXURE'D'
ProformatobefilledinforthepurposeofCharteringofaforeignflagvesselonTimeCharterbyIndian
ShippingCompany.
1.Nameandaddressoftheapplicant..................................:
2.DateofinquirysubmittedtoINSA....................................:
3.DateofinquirycirculatedtoIndian...................:.............shippingcompanies
4.Whetheranyresponsereceivedfrom..........................:..............Indianshippingcompanies?
(i)Ifsodetailsthereof.......................................:(ii)ReasonforrejectionofIndianflag.....................:
..........................vessel,ifoffered.
5.(i)Nameoftheshiptobechartered................................:
(ii)Nameandaddressoftheowners..................................:
(iii)Flag........................................................:
(iv)Yearofbuilt................................................:
(v)D.W.T.......................................................:
(vi)G.R.T.........................................................:
(vii)Draft...........................................................:
(viii)Speed.....................................................:
(ix)Fuelconsumption...........................................:
6.(i)Portanddateofdelivery....................................:
(ii)Portanddateofredelivery...............................:
(iii)Portofloading.............................................:
(iv)Portofdischarge:..................................
(v)Radiousoftradingoftheship.................................:
(vi)Natureandquantityofcargo.............................:.................youproposetocarry.
(vii)Laycan............................................:
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7.(i)Charterhirerateagreed...................................:
(ii)Currencyinwhichpayable.........................................:
(iii)Periodofcharter................................................:
(iv)Doyouexpectofcharterperiodto...............................:..........................exceedthestatedduration?If
yes,.............................pleasegivedetailsonexpected..............................additionaldurationand
contingent.............................reasonsthereof.
(v)Totalamountofcharterhire.............................:......................payableforthewholetransaction
........................includingO.T.
(vi)Brokerage/Commissionandhowit........................:.....................istobepaid.Pleasegivefor
.......................exceedingtheindustrynor.m.
9.Briefdetailsofotherforeignflagvesselsofferedtoyouincludingthecharterratesatwhichoffered.
(a)
(b)
(c)
10.Netforeignexchangesavings/.....................:earningsestimatedalongwith....................detailed
calculations.
10.Marketsituation:(a)Pleasegivetrendofthetimecharter:................rateinInternationalmarketfor
this...............typeofshipandrelevantinternational...................trade.(b)Namespecificships&charter
rates....:................atwhichtheywerefixedinsimilaror...................comparablepositionduringthelast
....................twomonthsasreportedbyreputed.....................shippingjournals/brokers.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
11.(a)Nameofships(withcharterhirerate):..................fixedbyyouearlierduringlastone
.........................yearwithD.G.Shippingapproval.
(b)Whethercopiesofcharterparties......:........................havebeenfurnishedinrespectof
............................thesecharterstoD.G.Shipping.
(AUTHORISEDSIGNATORY)

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