Suessen plan up against local veto

German engineering major Suessen's plans to expand its textile machinery manufacturing capacity in India has hit a roadblock.

Lakshmi Machine Works, which has a joint venture with Suessen's new owner Rieter of Switzerland, has objected to the move under Press Note 1.

Press Note 1 requires a foreign company with a joint venture in India to get a no-objection certificate (NOC) from its partner for setting up another venture in the same line of business.

LMW is of the view that a permission to Rieter's wholly owned arm to manufacture textile spinning machinery in India will adversely affect LMW. Rieter had entered into a collaboration with LMW in 1963 and was allotted 13 per cent equity for technology transfer.

The collaboration agreement ended in 1999, although Rieter continues to own 13 per cent in LMW. In 1993, Rieter and LMW also formed a 50:50 venture called Rieter LMW Machinery Limited (RLMW) to set up a 100 per cent export unit in Coimbatore to make ring frame components for export to Rieter Group.

Subsequent to Suessen's application seeking permission to expand its activities in India, the Foreign Investment Promotion Board (FIPB), had asked it to furnish a declaration under Press Note 1 of 2005 from Rieter Group along with an NOC from LMW.

Suessen, however, is of the view that it is not in a position to obtain an NOC from LMW and RLMW.

Suessen has also pointed out that the 13 per cent equity in LMW is a passive investment and no financial collaboration exists. Besides, RLMW is only manufacturing parts, sub-assemblies and assemblies of ring frames which are now proposed to be manufactured with Rieter technology by Suessen Asia.

The company has also said that Rieter has FIPB permission to manufacture Rieter machines in India other than the draw frame model SB/RSB 851 as per an approval dated September 25, 2001 and that Rieter is merely implementing the approval through Suessen's existing factory in India, which is a sick unit. This implementation will help revive the unit, the company has said.

However, LMW has stated that during 1964, Rieter had signed an agreement with the promoters of LMW to transfer the know how for manufacturing the entire range of textile spinning machinery, assist LMW in preparing the factory layout and to subscribe for equity.

The promoters of LMW and Rieter had agreed that Rieter could nominate directors to the LMW Board so long as there was transfer of technical know-how from Rieter to LMW.

With the technical collaboration from Rieter expiring in 1997, Rieter withdrew its directors from the board of LMW. The financial collaboration, however, continues.