The Foreign Investment Promotion Board (FIPB) has sought the law ministry's views on South African Breweries' (SAB) proposal to acquire Rochees Brewery, since giving the deal a go-ahead may be construed as endorsing the state governments' claim on authority to issue industrial licenses for liquor production, a matter being challenged by the Centre in courts.
Rochees has an industrial license to produce liquor issued by a state government, while the Centre is fighting the jurisdiction of the states on issuing liquor licenses.
The decision, taken at the board's meeting last Thursday, comes in the face of SAB announcing an open offer to acquire 48.46 per cent of shares from minority shareholders of Rochees at a price of Rs 10.15 per share.
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SAB had sought FIPB's approval for the buyout involving acquisition of 95,61,400 equity shares, representing 53.54 per cent of Rochees, for a consideration of Rs 9.7 crore.
It had also sought approval to acquire a total of 1,78,57,000 equity shares, the balance proposed to be purchased through the open offer for a maximum consideration of Rs 20 crore.
In its plea to the board, SAB had clarified that the structure and business operations of Rochees will not be changed and the industrial license of the company will not be enlarged.
The publicly listed Rochees originally had an industrial licence (No. 2604 (89)-IL) for manufacture of 5000 kl of beer. The licence was issued by the Central government on October 24, 1989 under the IDR Act.
On September 4, 1997, the company was issued a brewing license (No. 4/97-98) by the department of excise by the Rajasthan government.
Sources said that while the case for infusion of foreign direct investment (FDI) in Rochees was permissible under the FDI guielines since this is a downstream investment by a holding firm.
SAB had acquired the New Delhi-based Narang Breweries, the FIPB took note of the comments of the department of food processing industries (dated November 29, 2001), which said "it was not known whether the company was holding any valid industrial license under the IDR Act".
The FIPB, thereafter, directed the Secretariat of Industrial Assistance (SIA) to obtain necessary clarifications on the issue of licenses and it was found that the company was operating through a license issued by the state.
In the light of the Centre-state dispute, it was felt that if the FIPB, which comprises representatives of the Central ministries, gave a go-ahead to the case, it would strengthen the states' case to issue industrial licenses for liquor production.
The Centre is already fighting court cases (Bihar Distilleries vs Union of India and Haryana Breweries case) against claims that the states have the jurisdiction to issue liquor licenses.
To resolve the Centre-states dispute, the department of industrial policy and promotion (DIPP) in the Union Commerce and Industry Ministry had moved a cabinet note proposing to amend the IDR Act, thus giving the states, the exclusive powers to issue liquor licenses, with the Centre retaining the power to clear FDI proposals in the liquor industry.
However, the cabinet decided to defer the case with several ministries opining that the such a step may be detrimental in the interest of the public, and the DIPP should be allowed to move further in the case. No decision has been taken on the issue as yet.