The Associated Chambers of Commerce and Industry of India yesterday joined issue with other leading chambers on the issue of no objection certificate (NoC) to foreign partners, saying the government should not pre-empt the commercial decision rights of the corporates.
Both CII and FICCI had demanded foreign partners should get a NoC from the domestic partner before setting up a 100 per cent subsidiary in India.
In a statement here, Assocham president K P Singh said all joint ventures (JVS) should be contract-driven, and hence, there is no need for covering up lack of contractual protection by policies and legislations. "It should be left to the JV partners as to what clauses they find mutually beneficial to be incorporated in their respective contracts," he said.
If at all NoC is to be granted, the Assocham chief said firstly, the certificate should be based on the nature of the subsidiary, competing or non-competing with the existing JV company.
The requirement of NoC should be made applicable only to competing subsidiaries. Singh said whether the NoC should apply or not, should depend on the foreign investor's stake in the company. For instance, JVS where the foreign investor's shares was either 25 per cent or more should only be asked to fetch a NoC. This is because if the share is less, the foreign company may not actually be in a position to influence the Indian company.
Assocham, having most of the members from MNCs, also said the concept of a cooling-off period does not sound positive to a foreign investor's ears. "It should rather be called a `transition management' period," it said, adding that during the period, government policy should be to `securitise the technology and brand of the foreign investor.'
In the JV, the Indian company employs its valuable resources, labour and capital into the product, build up the market and hence should be allowed to reap the benefit of the technology and brand.
This would put the Indian industry on a firmer ground and at the same time will not discourage the foreign company from starting its operations in India, as soon as it gets the NoC, the Chamber said.
In case of persistent refusal of the NoC by the Indian JV partner, the foreign investor in all fairness should have the right to appeal. Assocham said the ultimate authority for arbitration in such cases should be the Cabinet Committee on Foreign Investment.
