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Joint Ventures by Foreign Companies

A foreign company can invest in an Indian company through any of the following modes:

• Joint Venture in Form of equity: In this form of Joint Venture, the Foreign party take ownership stake in the business by contributing capital in the business, which is to be conducted as an separate business identity with some degree of management independence in which parties will share the profit and losses as per the ownership stake.
• Joint Venture of form of non-equity: This type of alliance does not result in ownership stake or profit sharing or even creation of separate business entity. It includes collaborative agreement including resources sharing such as technology transfer, trademark licence, production or network sharing alliance.

Joint Venture in Form of Equity:

Foreign investment in Indian companies in form of equity Joint venture agreement (or as a wholly owned subsidiary, comes under a two tier approval mechanism, which has been provided below :-

• Automatic Approval Route: FDI in sectors or activities to the extent permitted under automatic route does not require any prior approval either by Government of India or Reserve Bank of India (RBI). The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.
  
  
• Foreign Investment Promotion Board (FIPB) Approval Route: FDI in activities not covered under the automatic approval route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). The FIPB has been set up in the Ministry of Finance to promote inflows of FDI into the country, as also to provide appropriate institutional arrangements, transparent procedures and guidelines for investment promotion and to consider and approve/recommend proposals for foreign investment.

Approvals of composite proposals involving foreign investment or foreign technical collaboration are also granted on the recommendations of the FIPB. The companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. The proposals to FIPB shall contain the following information:-

• Whether the applicant has any existing financial or technical collaboration or trade mark agreement in India in the same field for which approval has been sought; and
• If so, details thereof and the justification for proposing the new venture or technical collaboration;
• Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing;
• Foreign investment proposals received in the Department of Economic Affairs are generally placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt.

Joint Venture of form of non-equity

The Foreign Technology Collaboration/trademark agreements pertain to provision of technology by a foreign entity to an Indian concern for agreed consideration, which can be of the following nature:

• Initial lump-sum payment
• Royalty
• Fees for Technical Services
• Payment for design & drawing
• Payment for engineering services

Payment for hiring technicians, deputations of Indian technicians abroad and testing of indigenous raw material, products, indigenously developed technology in foreign countries are governed by separate Reserve Bank of India procedures.

Foreign technology collaborations/ trademark agreement are permitted either through the following routes

• Automatic Approval: No approval is required for entering into technical/trademark sharing joint venture with Indian Company in case of the following conditions are satisfied:
  
  1. The Foreign investor has no existing joint venture or technology transfer/trademark agreement in the same field provided that even in case of existing joint venture or technology transfer/trademark agreement, no approval is required in following conditions:
     1. Investment to be made by Venture Capital Fund registered with Securities and Exchange Board of India.
     2. Wherein existing joint venture investment by either of the parties is less than 3% or
     3. Where the existing joint venture is defunct or sick. Provided the aforesaid said restriction is not applicable on foreign technology collaboration in
     Information Technology sector or in case of investments by multinational financial institutions.
  
  
• Foreign Investment Promotion Board Approval: Under following circumstances , approval is required for entering into technical/trademark sharing joint venture
  
  1. Proposals which requires compulsory licensing.
  2. Items of manufacture reserved for the small scale sector
  3. Proposals involving any previous joint venture or technology transfer/trademark agreement in the same field in India
  4. Extension of foreign technology collaboration agreements (including cases which may have received automatic approval in the first instance)

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