TCL beats Baron in FIPB war

Chinese firm to set up 100% arm despite objection by local partner

The Foreign Investment Promotion Board (FIPB) has allowed Chinese consumer electronics firm TCL Electronics to set up a 100 per cent subsidiary in India and overruled objections raised by its local partner, Baron International.

The FIPB approval, which is subject to clearance by Finance Minister Jaswant Singh, comes more than a year after TCL put in its application to manufacture and market colour televisions and home appliances in the country.

This is the third significant proposal the FIPB has cleared in the last five months after overruling objections by local partners.

Saudi Arabia's Amiantit was allowed to transfer technology to another Indian firm despite objection by Graphite India, and Kennametal was permitted to raise its stake in Widia India despite objection by the Yash Birla group.

Baron had objected to TCL's plans saying a joint venture agreement was still in force. TCL, however, contended that the joint venture was not functional and Baron was not responding to its request for a termination of the agreement.

The Chinese firm also alleged that Baron had wrongly used TCL designs for its own brand, Bush, even as Baron said TCL directors on the board of TCL Baron, the 50:50 joint venture, had siphoned funds from the company.

The FIPB, however, kept off the allegations and counter-allegations by the companies. Sources said the FIPB members decided to give TCL the go-ahead as they found merit in TCL's argument that the joint venture was not functional for almost two years. Baron representatives even failed to turn up for the meetings convened by the finance ministry.

A senior government official said the provisions of Press Note 18 should be used only to protect local firms having a sound financial track record, and which have the potential to grow into large domestic or multinational companies.

As per the NoC clause, any foreign firm intending to set up a new company in India is required to produce a no-objection certificate from the existing or erstwhile local partner.

But owing to representations made by several foreign investors, the government has been reviewing the policy.

In fact, senior government officials now clarify that the policy does not make it mandatory for the foreign investor to produce an NoC.

Instead, the policy seeks to bar such companies from taking the automatic approval route. "It is left to the FIPB to find out if the proposal triggers the provisions of the NoC clause," a government official explained.

Objections under Press Note 18 overruled

• Saudi Arabia's Amiantit allowed to transfer technology to another firm despite objection by Graphite India
• Kennametal allowed to raise stake in Widia despite the Yash Birla group's objection
• TCL allowed to set up wholly owned arm overruling Baron's objection

Why TCL got the green signal

• TCL served notice for termination of JV; Baron did not pay heed to it
  
• TCL said JV was not functional for almost two years