The document discusses the key steps and considerations for forming a joint venture in India. 1) The joint venture company must be incorporated with regulatory bodies like ROC. 2) Partners will make inter-corporate investments in the joint venture company according to Section 372A of the Companies Act. 3) Various regulatory approvals are required depending on the industry and foreign investment percentage. 4) Important clauses in the joint venture agreement address issues like control, confidentiality, contributions of each partner.

1. JOINT VENTURES IN INDIA

2. Joint Venture
A joint venture is a business agreement in which parties agrees to develop,
for a finite time, a new entity and new assets by contributing equity. They
exercise control over the enterprise and consequently share revenues,
expenses and assets.
Basic traits of a Joint Venture:
 Specific Purpose
 Limited Time

3. Joint Venture
Legal Definition of Joint Venture
No definition as per Indian Laws
As per Indian Govt :
A joint venture is a new enterprise owned by two or more participants. It
represents a combination of subsets of assets contributed by two (or more)
business entities for a specific business purpose and a limited duration Is a new
business enterprise owned by two or more participants.
Characteristics :
• Contribution by partners of money, property, effort, knowledge, skill or
other assets to the common undertaking.
• Joint property interest in the subject matter of the venture.
• Right of mutual control or management of the enterprise.
• Right to share in the property.

4. Laws governing Joint Ventures
Laws Governing Joint Ventures
 No separate law for joint ventures in India
 Any Law that is applicable to an Indian Company is also applicable to Joint Venture
Company.
Regulatory Bodies Governing Joint Ventures
 Reserve Bank of India (RBI)
 Foreign Investment Promotion Board (FIPB)
 Secretariat of Industrial Approvals (SIA)
 Department of Industrial Policy and Promotion (DIPP)
 Department of Economic Affairs (DEA)

5. Why Joint Venture
Why Joint Venture?
 Marketing & Strategic reasons : Globalisation, Expansion, First Mover
Advantage
 Foreign companies : sectors where 100 percent FDI is not allowed in India, a
joint venture is the best medium, offering a low risk option for companies
wanting to enter into the vibrant Indian market.

6. Joint Venture vs. Partnership
 Involves two or more companies  Individuals who join together for a
joining together in business combined venture
 Contractual arrangement between two  Agreement between two parties
companies that aims to undertake a wherein they agree to share the profits
specific task as well as incurred loss
 Can be formed for specific purposes  Iinvolved are co-owners of a business
like R & D which will be expensive to venture and their aim is to make a profit
take individually
 Lasts for only a limited period until  Last for many years until parties
their goal is achieved involved have no differences
Members can retain the identity of Members do not have any individual
his/her firm or property identity
 The joint venture is held liable for any  Members of the partnership are held
wrongful act liable.

7. JV Pre-formation considerations
1. The industry in which investment is being made
 Foreign investment up to 50%, 51% and/or 74% in the equity of a joint venture
company is permitted without Reserve Bank of India (RBI) approval in industries
like telecom, drugs & pharmaceuticals, hotel & tourism, or advertising
 If foreign investor seek to subscribe to more than 74% of the total equity in a joint
venture company or establish a Wholly Owned Subsidiary (WOS), permission has
to be obtained either from the Foreign Investment Promotion Board (FIPB) or the
Secretariat of Industrial Approvals (SIA) depending upon the quantum of
investment
 In case of FIIs, aggregate portfolio investments in the share capital of Indian
companies are permitted to the extent of 24% of the issued and paid-up capital of
the company
 However, an Indian company may permit a FII to purchase up to 30% of its share
capital by passing a special resolution (resolution required to be passed by
shareholders having 75% shares with voting rights in the company)

8. JV Pre-formation considerations
2. Control in the joint venture company
Under the Companies Act, 1956, (“CosAct”) a company can carry on activities by
passing either of two resolutions, special resolutions and ordinary resolutions.
Ordinary resolutions can be passed by shareholders having 50.01% (rounded of to
51%) shares with voting rights in the company, whereas special resolutions can be
passed only by shareholders having 75% shares with voting rights in the company.
A special resolution is required to amend the Memorandum and Articles of
Association of a company, to issue further shares through a rights issue, to give loans
or guarantees to other companies, etc. 51% majority ensures control of the day to
day working of the company. Therefore, much depends on the level of control the
foreign investor seeks. Normally, Indian joint ventures have a 51%-49% equity break-
up between the foreign and Indian partners, respectively.

9. JV Pre-formation considerations
3. Indian partner’s ability to invest
The investments (cash or otherwise) being made by the parties are also relevant.
Generally, foreign companies are the main investors in joint ventures. Therefore they
seek higher equity percentages. However, larger Indian companies, who are in a
position to make substantial investments, often seek quid pro quos. “Who brings
what to the table,” decides the equity ratio in many cases.

10. JV Pre-formation considerations
4. Tax considerations
Foreign firms should reach out to tax advice at the beginning of an Indian investment.
India has a very low entry for creating a taxable presence. The sale of shares in an
Indian company is usually taxed in India as capital gains, even if the seller is not a
resident of India. India taxes such capital gains at high, variable rates of taxation
ranging from zero to around 30 percent. Therefore, overseas entities are generally
advised to invest through offshore jurisdiction. India has double taxation avoidance
agreements (DTAAs) with Mauritius, Cypress, the UAE, Singapore, and the
Netherlands

11. JV Pre-formation considerations
5. How do you protect confidential information at the negotiation stage
In order to protect sensitive business information from being divulged to others,
confidentiality and non-disclosure agreements are entered into, prior to commencing
negotiations. Indian courts enforce these agreements and grant injunctions on
adequate proof of breach or proposed breach being adduced.
However, due to systemic delays, suits for damages take a fairly long time to reach
hearing. Therefore, although an injunction may be granted urgently, a decree
awarding damages to the injured party may take some time.

12. Steps in formation of a JV
1. Incorporation
2. Inter-corporate investment u/s 372A of
Companies Act
3. Approvals
4. Important clauses of a joint venture
agreement

13. Steps in formation of a JV
1. Incorporation
[A] Formalities
 Public or a Private Limited Company
 The place of Registered Office of the Joint venture Company
 Name of the JV
 Subscribers to the MOA which will include the partners to the JV and their nominees
 Memorandum and Articles of Association in consultation with the JV partners
 Submission of the same with required documents like statutory
declaration u/s 33 of the Companies Act 1956 and Form no.18 u/s 146 of the
Act regarding address of the registered office, to ROC along with fees payable
 Starting of business,
{i} in case of private company, immediately.
{ii} in case of public company ,after obtaining certificate of Commencement of
Business for which the company has to file with the ROC prospectus/statement
in lieu of prospectus, and the statutory declaration u/s 149 of the Companies
Act 1956, duly stamped.

14. Steps in formation of a JV
1. Incorporation
[B] Articles
 Shareholders’ Agreement and Articles of Association
 Shareholders’ Agreement prescribes Share Transfer Restrictions, if any, which
are then incorporated in the Articles of Association of the Company.
 The AOA should contain the stipulations mentioned in the joint venture
agreement and clearly delineate the rights and obligations of the partners.

15. Steps in formation of a JV
1. Incorporation
[C] Non-resident Partner
Approval of RBI required for acquiring shares of the company and establishing
place of business in India u/s 19 and 29 of Foreign Exchange Regulation Act 1973
{FERA}.
However RBI has granted general permission vide its notification dated 26-4-1993
,as amended, u/s 19{1}{d} and u/s 29{1}{b} of FERA to a non resident Indian
citizen / person of Indian origin to subscribe to the memorandum and articles of
association of a company for the purpose of incorporation in India.
And such company is also permitted to issue shares to the non residents subject to
the condition that the total face value of shares is not to exceed Rs 10,000/-, the
company will not engage in the activity of agriculture / plantation/dealing in real
estate other than its development and the company files a declaration with RBI
within 90 days of its incorporation

16. Steps in formation of a JV
2. Inter-corporate investment u/s 372A of Companies Act
Where an Indian company [partner] acquires shares of the joint venture company
which is exceeding 60% of its *Indian company’s+ paid-up capital and free reserves
or 100% of its free reserves, whichever is more, Section 372A will apply requiring
prior Board decision of the Indian company as well as special resolution of its
shareholders.
If a foreign company acquires the shares, this section will not be invoked as it
applies only to a "company" defined under section 3 {1} [i] of the Act which does
not take into account a foreign company.

17. Steps in formation of a JV
Approval
Automatic Approval FIPB Approval
Route Route
 If FDI is upto the extent If FDI not covered under Automatic
permitted approval route
 No approval from RBI or Govt Requires prior Govt. Approval
of India Considered by FIPB
 RBI regional office to be notified No further approval from RBI after
within 30 days FIPB approval

18. Steps in formation of a JV
4. Important clauses of a joint venture agreement
 The proportion of shareholding in the joint venture company
 Specify nature of shares, indicate their transferability conditions
 Composition of the Board of Directors, Appointment of Chairman, Quorum of Board
meetings ,Casting vote provisions
 Annual General Meeting
 Appointment of CEO/MD, Management Committee
 Important decisions with mutual consent of partners
 Dividend policy
 Funding provisions, Access conditions
 Change of control/exit clauses
 Anti-compete clauses
 Maintaining Confidentiality
 Indemnity clauses, Break of deadlock & Dispute Resolution
 Assignment
 Applicable law
 Termination provisions

19. Case – I : HERO HONDA JV a Successful Joint Venture
Honda Group
 Honda started its operations in 1948 in Japan
 Main Products Motor Cycles, Auto Mobiles, Power Products
 Total 390 Subsidiaries till date
Hero Group
 Hero Cycles Started its operations in 1956
 Main Products Bicycle, Motor Cycles, Automobile Parts etc
 Comprises 18 companies till date

20. Case – I : HERO HONDA JV a Successful Joint Venture
Honda came to India as a part of its Globalization strategy in the environment of
liberalization.
While looking for Prospective partners in India, Its intention was to build plants in
local areas to meet local demand.
Before forming JV with Hero, Honda had 50/50 joint venture with Kinetic Engineering
Ltd. forming Kinetic Honda Motors Ltd.
In 1984, Honda formed Joint Venture with Hero Group (Munjal Group) to enter in
motorcycle business in India and formed Hero Honda Motors Limited (HHML). The
company was incorporated on 19th January 1984, at New Delhi.
Both companies entered into a technical cum financial collaboration. As per this JV
Agreement, Honda was to furnish complete technical information, know-how and
trade secrets and other relevant data.

21. Case – I : HERO HONDA JV a Successful Joint Venture
Economic Results and other achievements
 Between 1995-2001 economic spread expand from 16.5% to 65.4% was among
the highest in country
 1997-2000 Hero Honda's quarterly sales grew 303.28% and its net profit jump
from 16.28Cr to 98.3Cr
 While the industry grew at an average 21.74% annum between 1997-2001 and
Hero Honda average growth rate of 35.46% year
 Hero Honda maintained its grip in the motorcycle segment with a lead of more
than one million motorcycles over its competitor
 During the fiscal year 2008-09, the company sold 3.7 million bikes, a growth of
12% over last year
 The company had a market share of 57% in the Indian market in 2008-09
 The 2006 Forbes 200 Most Respected companies list has Hero Honda Motors
ranked at 108
 The Brand Trust Report published by Trust Research Advisory in 2011 has ranked
Hero Honda in the 13th position among the brands in India

22. Case – I : HERO HONDA JV a Successful Joint Venture
 After overwhelming 26 years of success Hero Motors and Honda Motor Co of
Japan in July 2010 announced that they will part ways. They inking an
agreement to dissolve its holding by March 2011. Honda decided to move away
from the joint venture, Hero Honda, which has grown to become the world's
largest two wheeler manufacturer for the ninth consecutive year in 2010.
 Honda decided to focus on its wholly owned subsidiary Honda Motor Cycle and
Scooters India Ltd. (HMSIL)
 The Hero Group bought the 26% stake of the Honda in JV Hero Honda.
 Under the joint venture Hero Group could not export to international markets
(except Sri Lanka) and the termination would mean that Hero Group can now
export.
 Hero Honda Motors is now Hero MotoCorp with new brand identity and logo.

23. Case – II : TVS Suzuki JV a Failed Joint Venture
TVS Group
 Started its operations in 1911
 Main areas of business is two-wheelers, automotive components, spares,
computer peripherals and financial services
 At present TVS group has 33 Group Companies
Suzuki Group
 Michio Suzuki founded Suzuki Loom Works in 1903
 Suzuki started manufacturing cars in 1937
 Suzuki designed first motorized power free bicycle in 1952
 Suzuki Motor Company Ltd was formed in 1954
 Its main products are Motor Cycles/ATV, Automobile, Marine & Motorsport etc.

24. Case – II : TVS Suzuki JV a Failed Joint Venture
TVS-Suzuki Relationship
 1982: Suzuki entered India through TVS-SUZUKI joint venture
 1982: The JV was incorporated as Indian Motorcycles Pvt Ltd.
 1984: Announced the name TVS Suzuki and a public issue.
 Indian Suzuki motorcycles was received well by the market but resulted in loss
due to high import content of the vehicle.
 1987: TVS-Champ, the moped for urban customers was launced.
 1989 – 1991: company posted losses
 1990 – 1991: Company declared lockout due to labour problems
 1991-92: With strengthened R&D the Company decided to become Product
 Focused through a Turnaround Strategy

25. Case – II : TVS Suzuki JV a Failed Joint Venture
Steps in Turnaround Strategy
 Changes in Leadership
 Strategic focus redefined
 Production was Scaled Up
 Unnecessary Assets were Sold or Divested

26. Case – II : TVS Suzuki JV a Failed Joint Venture
Reefs between TVS & Suzuki
1. 1992: Competition intensifying in the motorcycle segement. TVS approached
Suzuki for more funds and technology for new models to make new models.
Suzuki not only refused but also created road blocks for the management.
2. Mid 1990s: Suzuki having 26% stake in the company’s equity, wanted to
increase its share. Suzuki wanted to play a pivotal role and gain management
control in TVS Suzuki, akin to its role in MUL. Suzuki proposed :
 Adoption of Veto Rights for all management decisions.
 Restriction on the use of local components. Import of Dyes and Capital
Equipment
 Constraints on Indigenisation of components for future models
 Royalty Payment to Suzuki for an indefinite period
3. Suzuki also launched Shogun & Samurai independently in India

27. Case – II : TVS Suzuki JV a Failed Joint Venture
Collapse of the Joint Venture
 Early 2001: Suzuki and TVS individually were bidding for the public sector firm
Scooters India Limited ( SIL ).
 August 2001: Suzuki entered into an agreement with Japanese automobile
major Kawasaki for collaborating on Product development, Design engineering
and Manufacturing. TVS saw this as a direct conflict of interest, since Kawasaki
already had a successful joint venture with Bajaj in India.
 September 2001: Suzuki’s representatives were not present at the company’s
annual general meeting. This was a definite proof of the fact that “all was not
well” between the JV Partners.
 November 2001: Dissolution of Joint Venture was announced.

28. Case – II : TVS Suzuki JV a Failed Joint Venture
TVS: After the Split
 November 2001
 The name was changed from TVS Suzuki TVS Motor Company Limited
 R&D wing was strengthened to help sustain in the two-wheeler market
 Sales & Service Program at the Dealer End was consolidated
 Year 2005
 TVS mastered the four stroke technology
 New Motorcycle, Scooter & Moped models launched by 2005
 Product development time reduced from 24 to 12 months
 Expansion to Malaysia, Vietnam, Thailand, Indonesia and Philippines.

29. Thank You !!!