White goods manufacturer Electrolux Kelvinator Ltd (EKL) will pay royalty to its Swedish parent AB Electrolux on all products -- old and new -- at the rate of five per cent of sales as approved originally, even after Electrolux India and Intron Ltd are merged into it.
The Foreign Investment Promotion Board (FIPB) had recently approved the scheme of merger of Electrolux India and Intron (also AB Electrolux subsidiaries) with the condition that royalty, at the rate of 5 per cent, may be paid on the sale of all new products and new and latest models of the existing item of manufacture to be produced by the merged entity.
EKL moved the FIPB representing against the condition that five per cent royalty is payable only on the new products. It said that it was granted permission for payment of royalty at 5 per cent as per the original foreign collaboration approval dated February 13, 1995.
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Hence, the restriction of royalty payment only to new products was contrary to the earlier approval. It also brought to the notice of the government that royalty payment of 5 per cent on total sales was within the ceiling prescribed for automatic route as per press note 9 (2000 series).
EKL sought deletion of the restrictive clause imposed in the amendment letter dated August 22, 2001. Sources said that the department of industrial policy and promotion (DIPP) took note of the petition and found that the restrictive condition was uncalled for. Other financial departments also suggested that the condition be deleted. Hence, the FIPB supported the proposal and recommended deletion of the clause, the sources added.
Electrolux Kelvinator is a refrigerator manufacturing subsidiary of the Swedish white goods major. AB Electrolux holds around 56 per cent stake, 26 per cent stake is with Harish Kumar-promoted Maharaja International Ltd and the balance shareholding is with the public.
EKL has proposed to merge Electrolux India (a wholly owned subsidiary manufacturing refrigerators and marketing air-conditioners) as well as Intron Ltd (a 74 per cent subsidiary manufacturing washing machines) with itself, subject to necessary court clearance.
Post-merger, the shareholding of AB Electrolux in EKL is expected to reach around 78 per cent. EKL will continue to remain listed on the stock exchanges, company officials said.