The document provides an overview of foreign collaboration in India, including:
1) It discusses the key regulations governing foreign investment in India and the roles of the Reserve Bank of India and Department of Industrial Policy and Promotion.
2) It summarizes the two main types of foreign collaboration - financial collaboration involving equity investment, and technical collaboration involving technology transfer.
3) It provides details on the automatic route and government approval route for foreign technical agreements, and the relevant policies around royalty payments.
A PRESENTATION ON COMPETITION ACT, 2002 WITH RECENT AMENDEMENTS. PRESENTED BY MADHUSUDAN NARAYA, STUDENT OF MBA AT NATIONAL INSTITUTE OF TECHNOLOGY, DUGAPUR, WEST BENGAL.
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1. Origin Of Companies Act in India
2. What is a Company?
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a. On Basis Of Liability
b. On Basis Of Registration
5. Small Company
6. Private Company
7. Public Company
8. Unlimited Company
9. Foreign Company
10. Government Company
11. Holding, Subsidiary, Associate Company
12. Investment Companies
13. Promoters
14. Incorporation Of Registration
15. MOA, AOA
16. Tata Sons Vs Cyrus Mistry
17. Vodafone Tax Case
Objectives of foreign direct investmentsabin kafle
1)Sustaining a high level of investment
- Since the underdeveloped countries want to industrialized themselves within a short period of time, it becomes necessary to raise the level of investment substantially. This requires, in turn, a high level of savings.However, because of general poverty of masses, the savings are often very low. Hence emerges a resource gap between investment and savings. This gap has to be filled through foreign capital.
A presentation (Office 13) describing the shift in India's policy towards foreign collaborations since liberalization. Includes illustrations to support the same. Concept of counter trade arrangements are also mentioned.
A PRESENTATION ON COMPETITION ACT, 2002 WITH RECENT AMENDEMENTS. PRESENTED BY MADHUSUDAN NARAYA, STUDENT OF MBA AT NATIONAL INSTITUTE OF TECHNOLOGY, DUGAPUR, WEST BENGAL.
THIS TOPIC IS NECESSARY FOR MARKETING PEOPLE AND THE SLIDE CONTAINS THE CASES ALSO !!
1. Origin Of Companies Act in India
2. What is a Company?
3. Definition & Characteristics
4. Different Type Of Entities:
a. On Basis Of Liability
b. On Basis Of Registration
5. Small Company
6. Private Company
7. Public Company
8. Unlimited Company
9. Foreign Company
10. Government Company
11. Holding, Subsidiary, Associate Company
12. Investment Companies
13. Promoters
14. Incorporation Of Registration
15. MOA, AOA
16. Tata Sons Vs Cyrus Mistry
17. Vodafone Tax Case
Objectives of foreign direct investmentsabin kafle
1)Sustaining a high level of investment
- Since the underdeveloped countries want to industrialized themselves within a short period of time, it becomes necessary to raise the level of investment substantially. This requires, in turn, a high level of savings.However, because of general poverty of masses, the savings are often very low. Hence emerges a resource gap between investment and savings. This gap has to be filled through foreign capital.
A presentation (Office 13) describing the shift in India's policy towards foreign collaborations since liberalization. Includes illustrations to support the same. Concept of counter trade arrangements are also mentioned.
Global Economic Institutions Since World war II,
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The 2008 Financial Crisis changed the world of Banking. Many malpractices by the Banks and various financial institutions came into light and the regulators started scrutinizing and penalizing them. The world’s most important number “LIBOR” came under the sword of the Regulators. In this article we will explore the origins and the fall of the once revered LIBOR rate.
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Article on foreign collaboration
1. TAXPERT PROFESSIONALS
Article on Foreign
Collaboration
24 March 2011
0
TAXPERT Professionals | [Type the company address]
2. Article on Foreign Collaboration
Foreign Collaboration
An Overview
To fulfill the need of freeing the Indian industry from excessive official control and for
promoting foreign investments in India in necessary sectors the much required liberalization
of Indian economy was brought in by Industrial Policy of 1991. From then the Indian
economy is more facilitating to Foreign Direct investment in all form.
Foreign investment in India is regulated by
Foreign Exchange Management Act
Reserve Bank of India
Department of Policy and promotion
Foreign Exchange Management Act is an act to facilitate, promote and manage the foreign
exchange in India.
Reserve Bank of India issues various regulations to give effect to the various provisions of
the Foreign Exchange Management Act.
The Department of Industrial Policy & Promotion was established in 1995 and has
been reconstituted in the year 2000 with the merger of the Department of Industrial
Development. There has been a consistent shift in the role and functions of this Department
since 1991. From regulation and administration of the industrial sector, the role of the
Department has been transformed into facilitating investment and technology flows and
monitoring industrial development in the liberalized environment.
The role and functions of the Department of Industrial Policy and Promotion [here in after
referred as Department or DIPP] primarily includes interalia is following:
Formulation and implementation of industrial policy and strategies for industrial
development in conformity with the development needs and national objectives;
facilitation of FDI;
technology collaborations at enterprise level and formulating
policy parameters for the same;
Trademarks, Industrial Designs and Geographical Indications of Goods and administration of
regulations, rules made there under;
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3. Article on Foreign Collaboration
The DIPP is in charge for encouraging acquisition of technological capability in various
sectors of the industry where such acquisition is required to promote the economic
development. Foreign technology induction is facilitated through liberal foreign technology
collaboration regime either through FDI or through Foreign Technology Collaboration (FTC)
agreement.
There are two types of Foreign Collaboration the Financial collaboration and the
technical collaboration.
1. Financial Collaboration refers to collaboration where only equity is involved. The
financial collaboration can be by way of entering into Joint Venture agreement with
the Indian Company.
2. Technical collaboration refers to collaboration where there is transfer of
technology by the Foreign collaborator on due compensation.
Foreign
Colloboration
Financial Techinical
Colloboration Colloboration
1 Financial Collaboration
Financial collaboration refers to collaboration where there is equity participation. It is
regulated by the sectoral caps only and equity is permitted in almost all the sectors till the
extent as mentioned in the Foreign Direct Investment Policy. Foreign Direct Investment is
permitted under the automatic route in most sectors/activities excluding only few sectors
which are prohibited like real estate etc and few where prior approval from FIPB is required.
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4. Article on Foreign Collaboration
As per press note 3 (2005 Series) issued by DIPP prior government approval for new
proposals would be required only in cases where the foreign investor has an existing joint
venture in the “same field” [refer Annexure I for detailed discussion]. Same field as defined
in the same press note mean 4 digit NIC 1987 code.
In case of Financial collaboration a new Indian company [referred as Joint venture Company
or JVC here in after] is formed, shares of which are subscribed by a foreign party and the
Indian Company. When the money is received by Indian company [JVC] for subscription of
shares by Foreign Company it has to intimate the RBI within 30 days of the receiving of
Consideration and within 180 days of the receipt of consideration the shares are required to
be allotted to foreign company, within 30 days of the allotment of shares the FC GPR Form
along with Certificate from Chartered Accountant as well as Company secretary is required
to be filed by Indian Company [JVC]. As far as Financial collaboration is concerned in most
of the cases a Joint Venture agreement is entered separately or all the conditions of joint
Venture agreement are incorporated in the Article of Association of the Company.
Interalia following are the clauses in Article of Association that will need consideration so
that the interest of both the Joint Venture partners is saved:
1. Shares: - There can be restriction on transferring the share of a company [by each
Joint Venture Partner] that no shareholder [JV partner] shall transfer the shares
without the approval from other JV partner. The shares shall be offered to the other
shareholder first before selling to the third party. How the fair value of the shares to
be transferred shall be determined. There can be Lock in period for holding the
shares.
2. Meetings:-The Quorum for the General meeting shall be at least one Shareholder‟s
representative appointed by both parties respectively.
3. Directors: - The Minimum number of directors representing interest of each party
can be placed in Article of Association. The quorum of the Board Meeting can be
framed to consist at least one Director appointed by each of the parties. The clauses
can be put to safeguard interest of each party as to items where consent shall be
given by way of affirmative voting by each party director.
2 Foreign technology agreements and collaborations
For promoting technological capability and competitiveness of Indian Industry, acquisition of
foreign technology is promoted through foreign technology collaborations. Foreign
technology agreements and collaborations are permitted either through the automatic route
under delegated powers exercised by the Reserve Bank of India, or by the Government.
The items of foreign technology collaboration, which are eligible for approval through the
automatic route and by the Government, are
A. Technical know-how fees,
B. Payments for designs and drawings,
C. Payments for engineering services and
D. Royalty
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5. Article on Foreign Collaboration
For entering into technology collaboration an agreement is entered into between the foreign
entity and an Indian entity. The following should be taken into account while drafting the
technology agreement that the licensed product/technical information is defined elaborately,
period for which such a technology/knowhow is transferred, what is transferred and what is
not transferred and what are exclusive and non exclusive rights transferred, manner of
calculation of payment and schedule of payment, cost of foreign Technicians, which party
will bear the taxes if etc.[Please note that no permission is necessary for hiring of foreign
technicians and no application need be made to Government for this purpose irrespective of
whether the hiring of foreign technician is under an approved collaboration agreement or
not].
As said earlier the collaboration can be through automatic route or government route. Below
is the brief discussion regarding the same:-
2.1 Automatic Route for Foreign Technology Agreements:
The Reserve Bank of India, through its regional offices, accords automatic approval to all
industries for foreign technology collaboration agreements subject to:
The lump sum payments not exceeding US $2 million;
Where there is technology Transfer :- Royalty payment being limited to 5 per
cent for domestic sales and 8 per cent for exports, subject to a total payment of 8
per cent in sales without any restriction on the duration of the payments; and
Where there is no technology Transfer: - The Government of India also permits
payment of royalties of up to 2 per cent on exports and 1 per cent for domestic
sales under automatic route on use of trademarks and brand names of the foreign
collaborator without technology transfer.
Also, Clarification was brought in by department via press note dated 23-12-2005 that as
FDI upto 100% is permitted under the automatic route in most sectors/activities automatic
route is also allowed for foreign technology collaboration where the payments are within 5%
for domestic sales and 8% for exports.
2.2 Government Approval for Foreign Technology Agreements
As per press note 1(2005 series) Prior approval of the Government would be required only
in cases where the foreign investor has an existing joint venture or technology
transfer/trademark agreement in the „same‟ field. The onus to provide requisite justification
and also proof to the satisfaction of the Government that the new proposal would or would
not in any way jeopardize the interests of the existing joint venture or
technology/trademark partner or other stakeholders would lie equally on the foreign
investor/technology supplier and the Indian partner.
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6. Article on Foreign Collaboration
In cases where the foreign investor has a joint venture or technology transfer/trademark
agreement in the „same‟ field prior approval of the Government will not be required in the
following cases:
i. Investments to be made by Venture Capital Funds registered with the
Security and Exchange Board of India (SEBI);
ii. where in the existing joint-venture investment by either of the parties
is less than 3 per cent;
iii. Where the existing venture/collaboration is defunct or sick.
Remittance of Royalty/Technical Fee
General permission has been given permission to authorised dealers by Reserve bank of
India vide (DIR Series) Circular No. 76 dated 24th Feb 2004 to allow remittances for royalty
and payment of Lump sum fee provided the payment; provided the royalty does not
exceeds 5% of the domestic sales and 8% on exports and Lump sum fees does not exceeds
USD 2 Million. Prior approval from Ministry of Industry and Commerce, Government of India
in case exceeds the above said payments.
In terms of Rule 4 of the Foreign Exchange Management (Current Account Transactions)
Rules 2000, prior approval of the Ministry of Commerce and Industry, Government of India,
is required for drawing foreign exchange for remittances under technical collaboration
agreements where payment of royalty exceeds 5% on local sales and 8% on exports and
lump-sum payment exceeds USD 2 million [item 8 of Schedule II to the Foreign Exchange
Management (Current Account Transactions) Rules, 2000].
However as per RBI/2009-10/465 A. P. (DIR Series) Circular No. 52 dated 13 May
2010 the Government of India has reviewed the extant policy with regard to liberalization
of foreign technology agreement and it was decided to omit item number 8 of Schedule II to
the Foreign Exchange Management (Current Account Transaction) Rules, 2000, and the
entry relating thereto. Accordingly, AD Category-I banks may permit drawal of foreign
exchange by persons for payment of royalty and lump-sum payment under technical
collaboration agreements without the approval of Ministry of Commerce and Industry,
Government of India [w.e.f 16 Dec 2009].
Source :http://rbidocs.rbi.org.in/rdocs/content/PDFs/AFE130510RC.pdf
To sum up, success of any collaboration is dependent on the synergies that are
driven from it by both parties. Therefore to achieve the desired objective of
collaboration it is necessary that the matters like proper due diligence, tax
structuring, drafting of joint venture agreement etc are very well taken care of.
For further details get in touch at sudhag999@gmail.com
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7. Article on Foreign Collaboration
Annexure I
Source: http://dipp.nic.in/
DISCUSSION PAPER
SUBJECT: APPROVAL OF FOREIGN/ TECHNICAL COLLABORATIONS IN CASE OF
EXISTING VENTURES/ TIE-UPS IN INDIA
1. The Department of Industrial Policy and Promotion has decided to release Discussion
Papers on various aspects related to FDI. In the series of these Discussion Papers, this is
the third paper on „Approval of foreign/ technical collaborations in case of existing
ventures/tie-ups in India‟. Views and suggestions are invited on the observations made in
the enclosed discussion paper, as also on the entire gamut of issues related to the subject,
by October 15, 2010.
2. The views expressed in this discussion paper should not be construed as the views of
the Government. The Department hopes to generate informed discussion on the subject, so
as to enable the Government to take an appropriate policy decision at an appropriate time.
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8. Article on Foreign Collaboration
DISCUSSION PAPER
APPROVAL OF FOREIGN/ TECHNICAL COLLABORATIONS IN CASE OF EXISTING
VENTURES/ TIE-UPS IN INDIA
1.0 PRESENT SCENARIO:
1.1 Paragraph 4.2.2 of Circular 1 of 2010 (Consolidated FDI Policy), specifies that
investment would be subject to the „Existing Venture/ tie-up condition‟. As per this
condition, where a foreign investor had, prior to January 12, 2005, entered into an existing
joint venture/ technology transfer/ trademark agreement in the same field, any new
proposal for investment/ technology transfer/trademark agreement, requires Government
approval. The proposal has to be routed through either the Foreign Investment Promotion
Board (FIPB) in the Department of Economic Affairs, if fresh foreign investment is involved
or the Project Approval Board (PAB) in the DIPP, if no foreign investment is involved. The 4
digit National Industrial Classification (NIC), 1987 Code, would be the basis for determining
if the field was the same .
1.2 The onus to demonstrate that the proposed new tie-up would not jeopardize the
existing joint venture or technology transfer/ trademark partner, lies equally on the foreign
investor/ technology supplier and the Indian partner.
1.3 The policy aims at protecting the interests of joint venture partners of agreements
entered into, prior to January 12, 2005. Foreign collaboration agreements, both financial
and technical, entered into after January 12, 2005, have been exempted from this
stipulation. This is because such joint venture agreements are expected to include a „conflict
of interest‟ clause, so as to safeguard the interests of joint venture partners, in the event of
one of the partners desiring to set up another joint venture or a wholly owned subsidiary in
the same field of economic activity.
1.4 Five categories of investments have, however, been exempted from the
requirement of Government approval, even though the foreign investor may be having a
joint venture/ technology transfer/ trademark agreement in the same field. These are a)
Investments to be made by Venture Capital Funds registered with the Securities and
Exchange Board of India (SEBI ), b)Investments by Multinational Financial Institutions like
the Asian Development Bank (ADB), International Finance Corporation(IFC), Commonwealth
Finance Corporation (CDC), Deutsche Entwicklungs Gescelschaft (DEG), c) Where, in the
existing joint venture, investment by either of the parties is less than 3 per cent d)Where
the existing joint venture / collaboration is defunct or sick and e) Investments in the
Information Technology or mining sectors.
2.0 EVOLUTION OF THE PRESENT REGIME:
2.1 PRESS NOTE 18 (1998 SERIES)
In Press Note 18 (1998 series), Government set out the following guidelines for approval
of foreign / technical collaborations, under the automatic route, in cases where previous
ventures/ tie-ups existed within India.
a) Automatic route for bringing in FDI and/or technology collaboration agreements
(including trade-mark agreements), would not be available to those who have or
had any previous joint-venture or technology transfer/trade-mark agreement, in the
„same‟ or „allied‟ field, in India.
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9. Article on Foreign Collaboration
b) Government approval route was, necessary in such cases. Detailed circumstances
under which it was found necessary to set-up a new joint venture/enter into new
technology transfer (including trade-mark) were required to be furnished at the time
of seeking approval.
c) The onus was clearly on such investors/technology suppliers, to provide the requisite
justification /proof, to the satisfaction of the Government, that the new proposal
would not, in any manner, jeopardize the interests of the existing joint-venture or
technology/trade-mark partner or other stakeholders. It was at the sole discretion of
the FIPB/ PAB, to either approve the application with or without conditions or to
reject it in toto, duly recording the reasons for doing so.
2.2 PRESS NOTE 10 (1999 SERIES)
Press Note 10 (1999 series) defined the meaning of the terms “same field” and “allied field”
as under:
o “same field” – four-digit NIC 1987code
o “allied field” – three-digit NIC 1987code
The Press Note further clarified that, only proposals for foreign collaboration, falling under
same four-digit or three-digit classifications, in terms of their past or existing joint ventures
in India, would attract the provisions of Press Note 18 (1998 series).
2.3 PRESS NOTE 2 (2000 SERIES)
With a view to further liberalize the FDI regime, the Government issued Press Note 2 (2000
series), wherein all activities were placed under the automatic route for FDI, except for a
specified negative list. Sector-specific guidelines were attached to this Press Note. In
respect of the mining sector, it was mentioned that the provisions of Press Note 18 (1998
series) would not be applicable for setting up 100% owned subsidiaries, subject to a
declaration from the applicant that he had no existing joint-venture for the same area and/
or the particular mineral.
2.4 PRESS NOTE 8 (2000 SERIES)
Press Note 8 (2000 series), recognized the special nature and needs of the IT sector. With
a view to further simplify approval procedures and facilitate greater investment inflows into
the IT sector in the country, FDI proposals relating to the IT sector were exempted from
the provisions of Press Note 18 (1998 series).
2.5 PRESS NOTE 1 (2001 SERIES)
This Press Note provided for exemptions from the provisions of Press Note 18 for
investments made in domestic companies by International Financial Institutions, such as
the Asian Development Bank (ADB), International Finance Corporation (IFC),
Commonwealth Development Corporation (CDC), Deutsche Entwicklungs Gescelschaft
(DEG) etc. Accordingly, such International Financial Institutions were permitted to invest in
domestic companies, through the automatic route, subject to SEBI/ RBI regulations and
sector-specific caps on FDI.
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10. Article on Foreign Collaboration
2.6 PRESS NOTE 1 (2005 SERIES)
1. Following the introduction of Press Note 18 (1998 series), certain representations
were made by foreign investors. They pointed out that:
a) The Press Note had the effect of overriding the contractual terms agreed to with the
Indian partners.
b) Domestic investors were using the provisions of the Press Note as a means of
extracting unreasonable prices / commercial advantage. The Press Note was, thus,
becoming a stumbling block for further FDI coming into the country.
c) The term “allied field” was very widely defined, as it included even those products
which would not have caused jeopardy to the manufacture of existing products.
d) Foreign investors were being singled out to present their defence, without the Indian
partner being asked to justify the existence of jeopardy.
2. Press Note 1 (2005 series), issued on 12 January, 2005, addressed these issues by
amending the earlier guidelines. New proposals for foreign investment/technical
collaboration were allowed under the automatic route, subject to sectoral policies and the
following revised guidelines:
a) Prior approval of the Government would be required only in cases where the foreign
investor had a joint venture or technology transfer/trademark agreement in the
'same' field, existing as on the date of the Press Note i.e. 12 January, 2005.
b) The onus to provide requisite justification and proof, to the satisfaction of the
Government, that the new proposal would or would not, in any way, jeopardize the
interests of the existing joint-venture or technology/ trademark partner or other
stakeholders, would lie equally on the foreign investor/ technology supplier and the
Indian partner.
c) Even in cases where the foreign investor had a joint-venture or technology transfer/
trademark agreement in the 'same' field, prior approval of the Government would
not be required in the following cases:
i) Investments to be made by Venture Capital Funds registered with the Security
and Exchange Board of India (SEBI) or
ii) where in the existing joint-venture investment by either of the parties was less
than 3% or
iii) where the existing venture/ collaboration was defunct or sick
d) In so far as joint ventures to be entered into after the date of the Press Note were
concerned, the joint venture agreements could embody a 'conflict of interest' clause,
to safeguard the interests of joint-venture partners, in the event of one of the
partners desiring to set up another joint-venture or a wholly-owned-subsidiary, in
the 'same' field of economic activity.
2.7 PRESS NOTE 3 (2005 SERIES)
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Subsequently, Press Note 3 (2005 series), issued on 15 March, 2005, clarified that:
a) For the purposes of Press Note 1 (2005 Series), the definition of „same‟ field would
continue to be 4-digit NIC 1987 Code.
b) Proposals in the Information Technology sector, and the mining sector, continued to
remain exempt from the application of Press Note 1 (2005 Series).
c) For the purpose of avoiding any ambiguity, it was further reiterated that, joint-
ventures/technology transfer/trademark agreements, existing on the date of issue of
the said Press Note (i.e. 12.1.2005), would be treated as existing joint-
ventures/technology transfer/trademark agreements, for the purposes of that Press
Note.
3.0 APPLICATION OF THE PROVISIONS IN PRACTICE:
3.1 FIPB considered 566 proposals during the calendar year 2009, out of which 16%
related to matters linked with Press Notes 1 and 3 of 2005, wherein the applicants had a
joint-venture / technology transfer agreement, with an Indian partner, as on 12 January,
2005.
3.2 Some of the principles emerging from the cases discussed in the FIPB 1 are set out
below:
a) In case the existing joint-venture has become defunct, there may not be any
jeopardy to the Indian partner, in case the foreign collaborator wishes to set up a
new venture.
b) „Jeopardy‟ should not be invoked as a measure to stifle legitimate business activity
and prevent competition. The issue of „jeopardy‟ has to be examined in light of the
extant business agreements/arrangements between the parties.
c) „Jeopardy‟ may not be established in cases where technology licence agreements
have expired, as per terms mutually agreed by the joint-venture partners.
d) In location specific projects/ activities, the concept of „jeopardy‟ cannot be extended
beyond the area originally envisaged in the agreement. In such cases, „jeopardy‟
needs to be viewed in a location-specific context.
3.3 The FIPB Review, 2009 has observed that:
“While critics may feel that Press Note 1 has outlived its utility, the high pitched debate on
the issue of jeopardy and Indian JV partners alleging foul play by the foreign collaborator
cannot make us oblivious to its continuing relevance.”
4.0 PRACTICES IN OTHER EMERGING MARKETS (CHINA AND BRAZIL):
1
FIPB Review, 2009
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Emerging economies, such as Brazil and China, do not have any such corresponding
requirements, under their foreign investment regimes.
5.0 CONCERNS RELATED TO LIBERALISING THE ‘EXISTING VENTURE/ TIE-UP
CONDITION’:
5.1 In 1998, the main policy concern was to protect the interests of domestic joint-
venture partners/ technology collaborators, who may have been less advantageously
placed, in comparison to their foreign counterparts, insofar as their ability to influence the
terms of future business engagement were concerned. It was felt that an element of
Government oversight was necessary, so that future collaborations were subjected to the
test of „jeopardy‟ and existing domestic joint-venture partners/ technology collaborators
were not placed in a position wherein their survival was threatened.
5.2 This policy framework was relaxed in 2005, while maintaining a balance between
the need to ensure healthy foreign investment inflows and the need to ensure that survival
of the domestic industry was not threatened. The main elements of the „existing venture/
tie-up condition‟ were retained, underlining Government‟s concerns about ensuring the
continued sustenance and growth of the domestic joint-venture partners/ technology
collaborators, in collaboration with their foreign partners.
6.0 THE CASE FOR REVIEW OF THE EXTANT REGIME:
6.1 The „existing venture/ tie-up condition‟ has now been in existence, as a formal
measure under the FDI policy, for nearly twelve years. It was last reviewed in 2005. There
is a need to examine whether such a conditionality continues to be relevant in the
present day context.
6.2 The „existing venture/ tie-up condition‟ currently applies only to those joint-ventures
which have been in existence as on or prior to 12 January, 2005. With more than five
years having elapsed, it can be argued that the issue of „jeopardy‟ is, no longer
relevant, as the Indian partners could have recovered their investments substantially
during this period of time.
6.3 The Indian industry today is in a much stronger position than it was in the 1990s, when
the condition was first introduced. It, therefore, needs to be seen whether there is a
need to continue with the elements of such a regime even today.
6.4 Further, industry has to increasingly become more competitive. This is particularly
relevant in an era of globalization, where a number of Free Trade Agreements (FTAs)
and Comprehensive Economic Cooperation/ Partnership Agreements (CEPAs/CEPAs) are
in place . In such a scenario, if an industry is discouraged from being set up in India, it
could be set up in a neighbouring country, with whom a trade agreement exists or is
being negotiated. Competition today, is not only between domestic players inter se
but also between international and domestic players. Dumping of goods from some of
countries has posed serious threats to the survival of domestic industries. Between
1992 and 2010 (May), the Directorate General for anti Dumping (DGAD) has initiated
anti-dumping investigations into 253 cases involving 38 countries/territories
(considering 27 EC countries as a single territory). The major product categories on
which anti-dumping duty has been levied are chemicals & petrochemicals,
pharmaceuticals, fibres /yarns, steel and other metal products and consumer goods.
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Limiting international technology agreements through measures described above may
constrain the growth of strong and competitive domestic industries.
6.5 It is also a moot point whether Government policy should intervene in the commercial
sphere and override contractual terms agreed to between the parties, given the need to
promote healthy competition, and ensure sustained long-term economic growth. It
can be argued that Government should not be concerned about commercial issues
between two business partners.
6.6 The measure discriminates between the foreign investors who had shown confidence in
India, by investing in the country prior to 2005 and those who invested later.
6.7 The condition may be restricting a number of investors, who may not be able to reach
agreement with their Indian partners on their future investment plans, thereby
restricting the inflow of foreign capital and technology into the country.
6.8 A related issue is the concept of „same field‟. Press Note 1 of 2005 significantly limited
the scope of the provisions of Press Note 18 (1998 series), as the latter applied only to
the “same field” and not the much wider “allied field”. However, in the present day
context, even the concept of “same field” may not be an accurate indicator for
determining whether the new venture would jeopardize the interest of the existing
joint-venture partner. This is because , the NIC four digit Codes, even after revision ,
may still not fully reflect the complexities related to the concept of the „same‟ industry
and may often tend to cover a wide range of industrial activities under the same head.
As an example, the activity of „manufacturing of seat belts‟ may not jeopardize the
activity of „manufacturing of car steering‟. However, both fall under the „same field‟
under the NIC Code of 1987. Further, the NIC Codes of 1987 may not accurately
represent many of the business situations in the current complex and diversified
industrial environment, leading to difficulties in interpretation.
7.0 POLICY OPTIONS FOR CONSIDERATION :
7.1 For the reasons mentioned in Paras 6.1 to 6.8, should the „existing venture/ tie-up
conditions‟ last amended in Press Notes 1 and 3 of 2005 and now included as paragraph
4.2.2 of Circular 1 of 2010 be totally abolished?
7.2 Alternatively, if it is felt that such a condition should continue for some more time,
should calibrated relaxations be introduced ? These could include exemptions from the
application of the condition in cases where:
a) The existing venture/tie up is more than say 10 years old
b) If the activity of the new venture is demonstrably different from the activity of the
existing venture/tie up, even though it has the same NIC field.
Are there any other contingencies where such exemptions should be considered?
The article is contributed by CA. Sudha G. Bhushan, She is a Chartered Accountant
and a company secretary. She is advisor to many international companies on
international tax matters and FEMA Advisory services. She can be reached at
sudha@taxpertpro.com.
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