Press Note 18 scrapped for future ventures

Foreign partners free to start operations in similar business.

The government scrapped Press Note 18 for all future joint ventures. Overseas partners in such joint ventures would not require the consent of their Indian partners before picking up an interest in other ventures in the country.

Starting today, foreign companies are no longer required to get a no-objection certificate from their Indian partner in sick or defunct joint ventures if they wish to invest in other ventures in the country.

Foreign companies are also free to enter into similar or allied businesses as their existing joint venture either on their own or with a new partner.

However, they will not be allowed to enter the same business as an existing joint venture without the consent of the local partner.

By bringing in these changes, the government has met a long-standing demand of multinational corporations and several foreign governments that the restrictive conditions of Press Note 18 were coming in way of foreign direct investment in the country.

"This regulatory provision has been a source of some discomfort to investors. I am convinced that measures like Press Note 18 are anachronisms today, having outlived their purpose," Prime Minister Manmohan Singh said while addressing the 11th Partnership Summit of the Confederation of Indian Industries (CII) in Kolkata.

At the same time, Singh has kept India Inc happy by not doing away with the Press Note 18 in toto. Its provisions in full will continue to apply in some high-profile joint venture companies like Maruti Udyog Ltd, Hero Honda Ltd and ITC Ltd.

The foreign shareholders in these companies "" Suzuki, Honda and British American Tobacco respectively "" will still need a no-objection certificate from their Indian partners if they wish to enter the country on their own.

However, cases like Baron International blocking TCL's investment proposal by virtue of being partners in a defunct joint venture will not happen any longer.

Later at the summit, Commerce and Industry Minister Kamal Nath added that Press Note 18 would not be applicable to those existing joint ventures where the stake of both the Indian and the foreign partners was less than 3 per cent.

It will also not apply to venture capital funds registered with the Securities and Exchange Board of India. "Indian industry has matured and does not need the stipulations of Press Note 18 any more," the minister said.

While diluting the provisions of Press Note 18, which was introduced in December 1998, the government has decided that the onus of proof to prove whether or not the new ventures adversely impact the existing joint venture would lie equally with the foreign and domestic partners. So far, the onus was only on the foreign partner.

The government also said joint venture agreements may embody a "conflict of interest" clause in order to safeguard the interests of the joint venture partners.

Relieved at Press Note 18 not being scrapped for existing joint ventures, India Inc welcomed today's announcement.

Expressing satisfaction, Federation of Indian Chambers of Commerce and Industry President Onkar Singh Kanwar cautioned Indian industry "to carefully draw up future joint venture contracts using the global templates in practice where a 'cooling-off' period of three-five years is included in commercial joint venture contracts."

CII President Sunil Kant Munjal, said: "By restricting the coverage of the existing Press Note 18 to the joint venture in the same business and not to sick companies would prevent the misuse of the law."

While ITC Chairman YC Deveshwar said a long-standing demand of industry had been met, Assocham President Mahendra K Sanghi added that the stringent stipulations of Press Note 18 were of no consequence in the globalising economy.