The document discusses key provisions that are typically included in joint venture agreements. It outlines 12 such provisions: 1. Conditions precedent that must be fulfilled before commencing the joint venture. 2. Purpose and scope of the joint venture. 3. Structure of the joint venture including capital structure and stake holdings. 4. Financing arrangements of the joint venture company. 5. Management control and administration structure. 6. Operational issues like borrowing, expansion and decision making processes. 7. Treatment of intellectual property rights and technology transfers between partners. 8. Provisions for the continuing operations of the joint venture. 9. Non-compete clauses to prevent partners

1. UNNI IIM C 1
V.K. Unni
Professor
Indian Institute of Management Calcutta
E-mail: unniv@iimcal.ac.in

2.  Once the Joint Venture (JV) partners are finalised, the parties will
discuss about the structure and framework of the JV
 Thereafter the parties will reduce the understanding arrived at into
writing in the form of a Memorandum of Understanding (MoU)
 The MoU covers the broad terms for the proposed JV such as its
form, its capital structure, stake holdings of its partners,
management issues etc;
 The parties may agree to enter into a binding MoU which shall bind
the parties to take concrete steps to get into a JV agreement and
setup the JV entity
 As an alternative they may enter into a non-binding MoU which will
enable the parties to exit before they enter into the final binding
agreement
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3.  After the MoU comes, the next step is of drafting and
finalising the contractual documents
 The JV partners prepare the documents in close co-ordination
with their legal advisors
 In almost all the cases the documents may include a JV
agreement, a share subscription agreement, a shareholders
agreement, trademark licensing agreement, technology transfer
agreement etc;
 It is important to make a distinction between JV agreements
and contractual joint ventures
 JV agreements are entered in the case of incorporated and
unincorporated JVs
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4.  In the case of the former (incorporated JV) the terms and conditions
of the JV agreement are made part of the Memorandum and
Articles of the company so as to make them legally binding on the
JV company
 In the case of the latter (un-incorporated JV) the JV agreement
itself becomes the contractual document that forms the main
document of such JV (In January 2018, Biocon had a global
partnership signed with Sandoz a pharma company based in
Switzerland to develop and commercialize biological drugs)
Contents of JVAgreement
 Preparing a JV agreement involves thorough understanding of the
partners’ needs, the provisions of the companies law, law of
contract, various IPR laws etc;
 Followings are the typical provisions seen in JV agreements:-
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5. 1. Conditions Precedent
 Conditions precedent would usually be those conditions or
requirements that must be fulfilled by the JV partners before they
commence the business
 These may include getting the necessary approvals, licenses,
registrations from concerned government/regulatory bodies etc. or
any condition that may have a direct bearing on the
commencement of the JV
 The conditions precedent may be different if the investment is to
be made in an existing company rather than setting up a new
company
 In such cases , the investor group usually conducts a legal,
financial and technical due diligence on the targetcompany
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6.  If the JV partners are not able to fulfill the compulsory condition
precedents such as obtaining the requisite approvals from the
concerned government agencies, the entire JV may have to be
scrapped
 Illustration: Renault of France and Tata of India decide to set up a JV
in India to manufacture passenger cars, Renault already has a JV in
India with Mahindra to manufacture passenger cars. In such a case
Renault getting a No Objection Certificate (NOC) from Mahindra
may be condition precedent for the JV between Renault andTata
2. Purpose and Scope of JV
 The agreement shall contain in unequivocal terms the basic purpose
of the JV and shall also mention the business to be carried on by the
JV company
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7. 3. Structure of JV
 This clause will discuss about the structure of the JV, the respective
proportion in which each of the parties would share the rights and
obligations in the JV company etc;
 The capital clause also discusses the capital structure of the JV and
the percentage of shares that each JV partner shall subscribe to inthe
JV company
 The capital clause shall contain provisions about the manner in
which the paid up capital of the JV company shall be increased
beyond the initial subscribed capital
 The subsequent increase in the capital is generally recommended to
be in the same proportion as the initial proportion, so that the
underlying rights attached with such proportion of shares remains
unaffected
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8. 4. Financing of the JV Company
 The JV agreement should specifically provide the sources of
funding and allocate the responsibility for the same
 In many cases along with cash, the JV partners may provide the JV
company with services, specific functional expertise, intellectual
property etc. with respect to R&D, marketing, manufacturing etc;
5. Management Control &Administration
 For the smooth functioning of the JV company it is imperative to
have clauses dealing with its management
 It is important to specify the manner in which the JV company
shall be managed, the person who shall be acting as the controlling
authority and the mode of taking management decisions
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9.  Illustration: In the case of joint venture between Ford and Tata,
the parties may agree that all the executive and operational
powers of the JV shall be with Ford exercised through the
Managing Director who shall be appointed by Ford. The powers
of Managing Director may be made subject to the approval of
the director board with respect to certain issues.
 The JV agreement shall also set out the constitution of the
director board including the strength, right of parties to
nominate the director etc;
 The JV agreement should have suitable provisions on quorum
requirements for holding the director board meeting, the manner
of providing notice for such meetings etc;
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10. General Meetings
 According to the Companies Act, certain matters like
increase in the authorised share capital, alteration ofArticles
etc. need the approval of the company’s shareholders at the
company’s general meeting
 The respective JV parties being the shareholders of the
company would need to approve the matters at the
company’s general meeting
 It may also be provided that the affirmative vote of all the JV
partners on certain key issues would be mandatory for
further action
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11. 6. Operational Issues
 There can be a number of operational issues like borrowing of
money, expansion, diversification of business, investing in
other companies etc. where JV partners may agree that
decisions on such matters shall be taken only after obtaining
the mutual consent of parties
 In order to iron out the operational issues, JV partners may
agree to adopt an annual business plan that provides for the
path and goal of the JV company for a particular year
 This may cover company’s proposed marketing plans,
financing arrangement, capital expenditure and a tentative
budget that sets out an estimate of the income to be received
and the expenses to be incurred during the said year
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12. 7. Issues relating to IPRs
 If the JV involves transfer of any IPR such as a trademark, copyright
or patent the same shall be provided under the JV agreement
 If any JV partner is licensing any technical know-how to the JV
company, the JV agreement shall specify the terms and conditions
with respect to that license
 The JV agreement should also contain provisions of rights on
ownership if any, IPR is developed as a result of the use of such IP
by the JV partner
 Right(s) may be given to the JV company to acquire interest in the
improvements and future developments resulting from the
technology provided by the JV partner like the right to applyfor
patent
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13.  For effective protection of IPRs, the respective parties may also
have a separate technology transfer agreement, trademark license
agreement to determine and safeguard the mutual rights of parties
 In case either or both of the JV partners having a well known
trademark/trade name, the partners may agree to permit the use of
their mark/name as part of the corporate name of the JV company
 In such cases mentioned above, adequate protection under suitable
agreements must be provided for the owners of the trademark/name
 The manner and extent of use and restrictions shall be mentioned
clearly including situations wherein the owner of the
trademark/name wants to exit the JV
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15.  Connaught Plaza Restaurants Private Limited (CPRPL) is a
50:50 JV between Mr. Vikram Bakshi and Mc Donald’s India
Pvt. Ltd (MIPL).
 CPRPL is the master franchisee of MIPL since 1995, and
operates 169 McDonald’s restaurants in north and east India
 In terms of the JV agreement, Bakshi became the Managing
Director of the CPRPL with a 2 year term which will be
renewed after the said period.
 JV agreement provided for his re-election as managing
director, based on his performance of certain obligations
 One such obligation was that he spends substantially, all of
his business time to perform his obligations under the JV
agreement
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16.  McDonald’s had an option to buy the 50 percent shares held by
Bakshi and Bakshi Holdings Pvt Ltd, only if Bakshi failed to reside
in New Delhi and/or failed to devote substantial time and effort to
the JVC
 McDonald’s did not re-appoint Bakshi as the Managing Director in
August 2013 , and issued a notice electing to exercise their option to
purchase his shares.
 Against this Bakshi approached the erstwhile Company Law Board
(CLB) under the Companies Act, 1956, with the allegation of
oppression and mismanagement against McDonald’s
 In July 2017 National Company Law Tribunal (NCLT) which
replaced CLB under Companies Act 2013 ruled that Bakshi had
given full business time to CPRPL and reinstated Bakshi as the
Managing Director and refrained MIPL from interfering in CPRPL’s
functioning
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17.  Subsequently in August 2017, MIPL terminated its franchise
agreement with CPRPL, citing “default in payment of
royalties by CPRPL” as the primary reason.
 Thereafter MIPL directed CPRPL to stop using the
McDonald’s system that includes proprietary rights in
McDonald’s names, trademarks, designs, branding, operational
and marketing practice and policies, and food recipes and
specifications and its associated intellectual property from
September 2017.
 Against this Bakshi had moved the contempt petition in the
NCLT alleging that MIPL’s decision to terminate the franchise
agreement with CPRL in August 2017 violated the NCLT
order of July 2017
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18.  In spite of MIPL terminating various licenses, CPRPL continuedto
use the IPR of MIPL and against this MIPL has approached the
Delhi High Court in January 2018
 Although Delhi High Court (DHC) did not restrain CPRPL from
using the McDonalds IP, it allowed a MIPL representative tovisit
CPRPL restaurants in New Delhi to collect samples of food and
packaging as well as inventory.
Finally in May 2019 there was an out of court settlement made
between parties and MIPL bought the stake of Bakshi in CPRPL
Arbitration Clause in CPRPL and JVAgreement
 The JV agreement had an arbitration clause which MIPL
invoked in November 2013 after issuance of the call cum
termination notice.
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19.  The London Court of International Arbitration (LCIA) in
September 2017 directed Bakshi, to sell his stake in the CPRPL
to MIPL
 In its 2:1 majority award, the arbitration panel has asked Bakshi
to transfer his 1,45,600 shares to MIPL at a fair valuation in
accordance with their JV agreement, they said
 After this order MIPL has approached DHC to enforce LCIA
arbitration award against Bakshi.
 In DHC Bakshi challenged the enforcement of arbitral award on
multiple grounds like governing law of arbitration, issue being
referred for arbitration not being part of the JVagreement etc
 In May 2019 MIPL and Bakshi entered into an out of court
settlement
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20. 8. Continuing JV
 Continuity clause is inserted in JV agreements with no fixed
tenure
 It lasts so long as the JV partners continue to be in the
business
 There can be some special cases when one of the JV partners
wants to exit the JV company
 In such cases the outgoing JV partner should give the
existing partner/partners the option to purchase its interestin
the JV
 If this is not feasible, the outgoing partner may be given the
option of introducing a suitable new partner acceptable to the
continuing partner
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21.  If a new partner joins the JV, all the existing terms of JV will
apply to the new partner as if it had been a signatory
9. Non-compete Clauses
 The non-compete clause in a JV is incorporated with an intent to
restrain the JV partners from carrying out any independent
activity which may compete with the JV company
 The rationale of such clause is that once the JV partners have
decided to join hands then they should not divert theirresources
and expertise into any business that may compete with the JV
 Each JV partner takes significant business risk by disclosing their
much valuable business strategies, proprietary technology, clients
etc. to the other JV partners
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22.  The JV agreement should also contain adequate warranties from the
partners confirming that there is no existing agreement and neither
party whether by itself or by its subsidiaries or associates shall engage
in any activity that competes with the business of the JV company
 The important point to be considered here is, the extent to which non-
compete clauses are considered valid in the eyes of law
 JVs are form of private contracts and parties are free to provide
exceptions based on their mutual understanding
 The terms of the contract would be enforceable unless it is expressly
prohibited by the law
 As per Sec 27 of the Indian Contract Act 1872 (ICA), any agreement
which restrains anyone from carrying a lawful profession, trade or
business is to that extent void
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23.  However, as an exception, if a party sells its goodwill to another,
it can agree with the buyer that it will not carryon similar business
within specified local limits
 Various judicial decisions have held that any restriction(s)
operating during the subsistence of the contract whether of
employment or otherwise shall not attract the provisions of Sec 27
of ICA unless the contract is one sided
 Under the Indian Partnership Act also, there are someexceptions
provided to Sec 27 of ICA
 Thus, partners cannot compete with their partnership firm while
they are partners and cannot compete after they exit from the
partnership for a specified period of time or within a particular
location
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24.  The Supreme Court has held that a negative stipulation contained
in a franchise agreement restraining the franchisee from dealing
with competing goods/services could not be regarded as a restraint
of a right to trade. (Gujarat Bottling Co. Ltd. v. Coca Cola
Company, 1995 Case)
 If the terms of the non compete clause are fair and reasonable,
which seek to protect the goodwill of the parties such a clause
could be enforced
10. Deadlock Provisions
 In a JV, two or more parties come together for furthering their
business
 It is very likely that there may be some differences between the JV
partners on various issues of the JV
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25.  In the absence of a mechanism to resolve such issues, the
dispute can give rise to a deadlock where the entire affairs of
the JV company come to a grinding halt
 There are several ways to resolve a deadlock especially with
respect to the day-to-day functioning of the JV
 Generally, the Chairman of the board is empowered to
exercise a casting vote which will be used in the event of
equality of votes
 Other serious issues may be resolved by way of deliberations
between the nominated representatives of each party
 When both the above mentioned steps fail, the JV agreement
provides for dispute resolution through arbitration, if the
subject matter of the dispute is arbitrable
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26. 11. Confidential Information
 A JV involves sharing of confidential information amongst
the JV partners
 Thus, it becomes imperative to provide for adequate
safeguards to prevent unauthorised use or misuse of such
information by either of the JV partners or any third party
acting through them
 Thus, the JV agreement may provide that any information
received by the JV partners in the course of the JV, that is
confidential in nature shall not be disclosed to any third
party or utilised to the detriment of the other JVpartner
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27. 12. Disclosure Obligations, Representations and Warranties
 The JV partners shall disclose all material facts which may affect the
JV, including the opportunity of one JV partner to make profit to the
detriment of the other JV partner
 Any undisclosed interest(s) which is detrimental to the interest of the
JV may be treated as a breach of warranties/conditions
 The JV agreement usually provides for warranties from the JV
partners to the effect that the JV partners have the full power and
authority to enter into the JV agreement and perform their respective
obligations under the agreement
 The JV agreement shall also provide that the parties have obtained
the appropriate licenses and approvals to enter into the JV of the
nature contemplated under the agreement
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28.  Uninor, a joint venture between the Telenor Group of Norway
and real estate company Unitech Ltd. witnessed an
acrimonious fight between JV partners
 Holding Unitech liable for the breach of warranties related to
the cancellation of the telecom licenses, Telenor in 2012
February filed an indemnity claim for Rs. 6400 crores
against Unitech for the failure to obtain spectrum in the
strategically critical Delhi circle
 As per Telenor the legality and validity of the licenses was a
fundamental term of the JV agreement between Telenor
Group and Unitech Limited.
 Finally in October 2012 the JV was called off and Unitech
decided to exit the telecom business
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29. 13. Contributed Assets
 In case, any of the JV partners is contributing any assets to
the JV, the JV agreement should clearly set out the
contribution of such assets by the partners
 It should contain terms regarding the valuation of the
contributed assets and the ownership thereof
 Thus, it has to specify whether such assets would be owned
by the JV company or the respective contributing partner.
 If the ownership is with the latter, the manner in which the
rights can be transferred to the JV company (license, lease
etc;) should be clearly mentioned.
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30. 14. Resolution of Disputes
 The JV agreement shall contain suitable provisions for
redressal of disputes between JV partners
 This clause may provide for negotiations, conciliation,
arbitration or recourse to courts as a means of dispute
resolution depending upon the nature and gravity of disputes
 Efforts shall be made to resolve the disputes through
negotiations and conciliation, failing which the parties should
settle the disputes by arbitration
 It shall also provide for the manner of selection of arbitrators,
venue of arbitration, laws governing arbitration etc;
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31. 15. Transfer of Shares
 Provisions dealing with transfer of shares are most critical
for any Joint Venture agreement
 Once the JV partners have decided to enter into a JVand
thereafter, if anyone of the JV partners is permitted to
transfer its stake to a third party it would defeat the very
purpose of the JV as the existing partner may not be
interested in continuing the JV with a third party
 It thus becomes crucial to provide for restrictions on the
transfer of shares which may be permitted under certain
circumstances as mentioned in the JV agreement
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32. 

Most importantly such restrictions should also be incorporated
in the Articles of Association of the JV company to make the
same binding on the JV company
Such restrictions on the transfer of shares can be enforced
only with respect to a private company
Generally the following types of restrictions can be imposed:
I.
II.
No transfer without consent: The JV partners may agree to
an absolute restriction on transfer of shares by any JVpartner
without the consent of the other JV partner, however this is
only feasible in the case of a private company
Lock-in-period for transfer: The JV agreement may
disallow the partners from reducing their stake holding for a
specified period of time
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33. iii. Pre –emption Rights on Transfer: This means that any partner
desirous of selling, buying, transferring or renouncing all or any of
the shares will be subjected to various contractual restrictions
iv. With a ROFO(Right of First Offer) a JV partner has the obligation
to make the first offer of buying the stake held by the other JV
partner when he decides to exit the JV
 The other JV partner (the seller of the stake) is free to accept or
reject the offer and the outgoing partner can sell the shares to
third parties on terms that are more favourable than the terms
on which shares were offered to be bought by the other partner
(better price)
 The seller is always free to return to the buyer (other JV partner) if it
cannot find a better deal 33

34. According to ROFO if one JV partner decides to sell its share
in the JV , the selling JV partner must be offered a price by the
other JV partner
If satisfied with the price offered by the other JV partner or if
the selling shareholder is unable to obtain a higher price from a
third party, then the selling JV partner’s only option is to sell
its shares to the other JV partner
However, if the selling JV partner receives from a third party a
price higher than that offered by the other JV partner, the
selling JV partner is free to sell shares to the third party at a
higher price
Contractual Issues in JV

35.  For a JV partner seeking to exit a company, a ROFO will be the
preferred option as the ROFO provides the JV Partner a price with
which to it can start negotiations with third parties (the same logic
applies to be true for a strategic investor like a PE fund vis a vis the
company’s promoters)
Right of First Refusal (ROFR)
With a ROFR a JV partner is obligated to offer its shares to third
parties first and obtain/discover the price from them ( price
discovery)
After obtaining the price the JV partner has to approach the other JV
partner with the discovered price
If the other JV partner can match or better the discovered price then
the shares shall be sold to the other JV partner only
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36.  if there is a ROFR in favour of the one JV partner no third party
would be expressing interest to buy the shares because even after a
thorough due diligence process by the third party to discover the
price there remains a strong possibility that no sale might take
place if the other JV partner (who holds the ROFR) decides to
match or better the price offered by the third party.
iv. Complete sale or no sale: The JV partners may arrive at an
understanding that no transfer of shares shall be made by the party
unless it transfers the entire shareholding in the JV company
This clause will make sure that one party does not dilute its
commitment to the JV company
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37. v. Tag along or piggy back: The JV agreement may
provide that no transfer of shares can be made to a
third party without the third party offering to buy
the shares of the other JV partner(s) also
 This means that the JV partner who wants to sell
its stake shall persuade the third party buyer to
purchase the shares of the other partner(s)
 Such rights will make sure that the JV partners are
never stuck with undesirable partners who may be
strangers to them
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38. VI Drag-Along Rights: A Drag Along right gives the
JV partner (usually the majority stakeholder) the
right to force the other JV partner/minority
stakeholder to exit when the majority JV partner
decides to sell its stake to an outsider
 The minority JV partner shall be forced to sell
under the same price and terms upon which the
majority JV partner had sold
16. Call and Put Options:
 A JV agreement may have call or put options
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39.  A call option is an option giving the grantee of the option the right to
require the grantor to sell all or any part of its shareholding to the
grantee
 Thus, it is an obligation to sell on the part of the grantor on exercise
of the call option by the grantee
 A put option is an option giving the grantee of the option the rightto
require the grantor to purchase all or any part of its shareholding to
the grantee
 Put option is generally incorporated to protect the interests of the
minority shareholders/partners
17. Force Majeure
 A JV agreement may provide for circumstances that may be beyond
the control of the JV partners and thus affect its performance
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40.  The JV agreement should provide for suspension of the respective
obligations of the JV partners till such time as the force majeure
continues
18. Termination
 This clause shall provide the manner and circumstances under which the
JV can be terminated
 A JV may be terminated either on the date mutually agreed upon by the
partners or the date on which the JV company is wound up by an order
from the court of law or in respect of partner when it ceases to be
shareholder in the JV company
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41. 19. Survival Clauses
 Depending upon the nature of the JV agreement, it is important
to provide for certain obligations of the JV partners that would
survive even after the termination of the JV agreement
 Such obligations may include restrictions on solicitation and
hiring of personnel after termination of the JV, confidentiality
of information, dispute resolution, IPRs etc;
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42. Shareholders Agreement
 A shareholders agreement is a limited purpose agreement
between the shareholders of a company which describes the
relationship between the respective shareholders in a company
 This sets out the respective rights and obligations attachedwith
the respective proportion of shares held by shareholders
 It also sets out the restrictions and the manner in which shares
may be transferred by any party
 In simple words, the main objective of this agreement is to
determine the rights and obligations of the parties inter se (in
between) who have agreed to be shareholders, the company also
becomes a party in many of these agreements
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43.  When parties enter into a JV agreement, the aspect relating to
shareholding is covered in the JV agreement itself and no
separate shareholders agreement needs to be drafted
 Thus, the shareholders agreements is much narrower in scope
than a JV agreement
 The shareholders agreement becomes a substitute for a JV
agreement when there is no joint venture between the parties but
there is an arrangement between parties to hold the shares of the
company in an agreed manner along with the rights and liabilities
 The shareholders agreement is usually entered in cases where the
parties do not wish to participate in the management of the
company but would like to hold the shares as a strategic investor,
for example, a private equity investor or venture capital fund
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44.  Shareholders agreement are usually entered into by the members
of private companies as public companies usually have large
memberships which makes such agreements difficult to enforce,
 Just like in the case of JV agreements, the most important
provisions of the shareholders agreement should be incorporated
into the Articles of Association of the companies to give them a
binding character
Important Clauses in Shareholders Agreement
 Shareholders agreement contains the same clauses as that of JV
agreement but will focus more on the shareholding pattern of the
company, rights and liabilities of shareholders etc;
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45.  The main clauses on shareholders agreement cover the
followings:-
1. Share capital and Subscription: This sets out the
commitment of the shareholders to contribute funds to the
company in the form of share capital in the agreed proportion
 The shareholders may initially agree to contribute a
minimum capital and infuse more funds as and when
required by the company in an agreed proportion
 Shareholders agreement provides more flexibility to
shareholders as JV agreements in terms of exit option either
by way of sale of its stake at a pre-determined price, exiting
by way of public offer or sale to a third party
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46. 2. Transfer of Shares
 The shareholders agreement provides the manner in which the
shares may be transferred by the shareholders and the restrictions
on such transfers
 This may also include prohibition on transfer of shares for a
specific period known as lock-in period
 However under the Indian Law only private companies can impose
such restrictions on transfer of shares in theirArticles
3. Voting and Management Rights
 Just like the JV agreement, the shareholders agreement records in
detail the agreement arrived at between the parties in respect of the
voting rights of shareholders along with the right to nominate
directors on the board and participate in the management
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47. Illustration
 The shareholders agreement which Etihad has signed (May
2013) to become a strategic investor in Jet Airways was
entered between 5 parties i.e Naresh Goyal and Anita Goyal,
(Jet’s main promoters), Tail Winds Ltd, Jet’s holding company
registered in the Isle of Man, Etihad Airways and JetAirways
 Since Jet is a listed company SEBI will scrutinize the
agreement strictly before granting its approval
 It is reported that Etihad with a minority stake, has
considerable clout on the Director board which is similar to
that of the Jet management and promoters.
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48. 4. Meetings and Related Issues
 The shareholders agreement also sets out the manner in
which the meeting(s) of the company shall be conducted: the
appointment of directors, quorum requirements, casting vote
of the chairman etc;
 Furthermore the shareholders agreement would also contain
clauses dealing with confidentiality, dispute resolution etc;
 It may also contain certain provisions depending upon the
facts and circumstances of each case
 However, the provisions of the agreement cannot override
express provisions in the CompaniesAct
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49. Share Subscription Agreement
 A Share Subscription Agreement is generally drafted whenthe
shares of an existing company are to be subscribed by a
prospective investor
 The agreement sets out the terms and conditions subject to the
fulfilment of which the prospective investor agrees to subscribe to
the new shares of a company
 The agreement may be entered into between the parties to a
proposed JV when the parties agree to subscribe to its shares in
agreed proportions
 The duration of the agreement is generally short and it ceases to
exist once the parties have subscribed to the shares of the JV
except for certain surviving clauses relating to confidentiality etc;
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50.  This agreement reflects the commitment of the parties to contribute
requisite funds into the JV company by subscribing to its share
capital
 Such agreements may also be entered into to adduce evidence before
government bodies like DIPP to depict foreign investment in the JV
company
The agreement deals mainly with the following issues:-
 Subscription: The fundamental objective of the subscription
agreement is to make sure that a party shall subscribe to the agreed
number of shares of the JV company provided certain conditions are
fulfilled
 The agreement provides for a definitive date by which a party must
subscribe to the agreed number of shares and the price at which it
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51.  Completion and Closing: The agreement may also provide the
manner in which the subscription of shares shall be completed
and the closing mechanism
 The agreement may have detailed provisions which set out the
place at which the subscription and allotment would be made
and the manner in which the company would receive the
payment
 Subsequent to the allotment, the subscribers would be entitled
to exercise certain underlying rights attached to the shares as
well as those specified in the shareholders agreement
 Warranties: So as to protect the interests of the subscribers,
the agreement may provide warranties from the issuer company
as well as other JV partners
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52.  The warrantors shall warranty that they are fully aware that,
the subscribers have relied upon their warranties in entering
into this agreement, and that warranties are valid as on the
date of this agreement and will at the completion date be
true, complete and accurate in all respects
 Other clauses: Though the primary objective of the
agreement is to provide for a commitment from the
subscribers to subscribe to the agreed number of shares, it
may also contain certain other clauses like the those relating
to confidentiality
 Thus, the confidentiality clause binds the subscribers not to
use the sensitive information pertaining to the company or
disclose to any person the above-said information
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53. Share Transfer Agreement / Share Purchase Agreement
 In certain cases like an existing JV, one party may exit or
dilute its shareholding by selling its entire or partial
shareholding to a third party who may agree to become a
party to the JV
 In the context of JV either of the following agreements may
be entered into in various situations
1. Where an existing shareholder dilutes a part of its
shareholding in favour of a prospective JV partner who
undertakes to acquire the shares to set up a JV
2. One of the two JV partners agrees to sell its shares to a third
party or to the existing JV partner(s)
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54. 3. All the existing JV shareholders agree to sell their respective
stakes to a third party or parties
 The above-mentioned transfer would naturally involve a change
in the management of the JV company
Contents of Share TransferAgreement:-
 Conditions Precedent: This sets out the obligations to be
fulfilled by the respective parties before any transfer of shares
can take place
 The obligations may relate to obtaining prior approval of
various regulatory bodies like RBI, DIPPetc;
 If the conditions precedent could not be fulfilled on account of
breach, default or negligence the agreement shall stand
terminated
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55.  Schedule for performance of the Transaction: It is always
advisable for the parties to fix timeframe for the completion of the
transaction
 Thus, the agreement shall provide a time frame for completion of
the transaction and also provide the target date for the completion
of conditions precedent and for the transfer of shares
 Transfer of Shares : The following documents are required to be
executed and exchanged between the buyers before the transfer of
shares is recorded by the JV company
i. A duly executed and valid share transfer deed for transferring the
shares from the seller to the purchaser
ii. Original share certificate which is a proof of the seller’s ownership
of shares in the company
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56. iii. Certified copy of the board resolution of the seller and the
purchaser, authorising its representative to execute the share
transfer agreement and deed and complete the necessary
formalities related to the sale of shares
iv. Resignations of all the directors nominated by the seller on
the board of the JV company which shall be effective from
the completion date or the parties may even agree that the
existing directors shall continue for a period of six months
after the completion of the sale
v. Other documents necessary to transfer the shares from the
seller to the purchaser like NOC from banks and financial
institutions, if the company has taken loans
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57.  Consideration: The agreement also provides for the price
(consideration) at which the shares may be transferred from the
seller to the buyer
 In the case of international JVs, either the buyer or the seller is a
non resident. The consideration of such share-transfer shall be
on the basis of the various regulations formulated under FEMA
1999
 Renunciation: The share transfer agreement may also provide
that the buyer may renounce the right to purchase the shares in
favour of its nominee or any third party
 Settlement of liabilities : In case of an exit by all the existing
JV partners and entry of new partners, the parties need to decide
the manner in which the liabilities shall be settled
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58.  The agreement shall provide that the seller shall settle all the
existing liabilities of the company such as trade creditors
 There are no hard and fast rules with respect to the
settlement of liabilities
 Liabilities may include liabilities towards trade creditors,
loans from banks/financial institutions, costs in the event of
retrenchment of employees, payment of statutory dues like
income tax, service tax etc;
 The agreement should also provide for the settlement of
contingent liabilities which may arise due to potential
litigation or claims against the company
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59. V.K. Unni
Professor
Indian Institute of Management Calcutta
E-mail: unniv@iimcal.ac.in
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