UNIVERSITY INSTITUTE OF LEGAL STUDIES,

PANJAB UNIVERSITY, CHANDIGARH

COMPANY LAW

JOINT VENTURE : VISTARA AND INDIGO AIRLINES

SUBMITTED TO :- PROF RAJINDER KAUR

SUBMITTED BY:- KIRAT BIR KAUR

CLASS:- BALLB(HONS)

SECTION:-B

SEMESTER:-8TH

ROLL NO:- 376/19

WHAT IS JOINT VENTURE?
Generally, Joint Venture means a contractual arrangement between two parties for the joint
control of the company assets and collectively they try to achieve their economic goal.

In Legal Terms, Joint Venture means:

A joint arrangement, entered into in writing, whereby the parties that have joint control of the
arrangement, have rights to the net assets of the arrangement.

TYPES OF JOINT VENTURES:

1. Contractual Joint Venture:

In India, it is the most common type of Joint Venture practice. Parties involved
collaborate in this Joint Venture to create a successful venture without claiming any
ownership or establishing a new legal entity, i.e. corporation or company

Collaboration for research and technologies, Joint Tenders for bidding, Strategic
alliances, are some of the types of Contractual Joint Ventures.

Brahmos Aerospace, Mahindra- Renault LTD, PNB Metlife, ICICI Lombard are some of
the successful Contractual Joint Ventures of India.

2. Equity-based Joint Venture:

In this Joint Venture, the parties come together in an agreement to form a new legal entity
owned by each party. They are in charge of management and share benefits and losses as
well.

Vistara, Air Asia India, Dhirubhai Ambani Aerospace Park are some of the examples of
Equity-Based Joint Ventures in India.

FORMS OF LEGAL ENTITIES:

1. Company:
Under the Companies Act 2013, parties can create a new company and subscribe to the
share under the agreement or make an agreement with an existing company and acquire
their share and become shareholders.

2. Partnership Firm:
The Partnership Act 1932, provides for this form of Joint Venture. The parties decided to
share the benefits of the undertaking they had agreed on. But this body is limited to
Indians only, and in certain cases, NRI is also permitted.

3. Limited Liability Partnership (LLP) Firm:

Under the Limited Liability Partnership Act 2008, this entity is formed. Previously
foreign investors were not permitted to invest in LLP but it was permitted by the
government in 2015.

Minimum capital investment is not necessary for this entity and it is mandatory to have at
least two partners and one of them should be an Indian.

4. Venture Capital Fund:

It is an investment fund pool that manages the money of investors involved in investing
in start-ups and small and medium-sized industries.

5. Trusts:
According to India Trusts Act 1882, Trusts is defined as an obligation annexed to the
ownership of property, and arising out of a confidence reposed in and accepted by the
owner, or declared and accepted by him, for the benefit of another, or of another and the
owner.

Foreign companies are not allowed to use Trusts as a form of the joint venture.
 6. Investment Vehicle:
These are the legal entities that are registered and regulated by the SEBI. Real Estate
Investments Trusts, Infrastructure Investment Funds are some examples.

In 2015 the RBI amended the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations, 2000, and allowed the FDI in
Investment Vehicles.

LAW GOVERNING THE JOINT VENTURES IN INDIA:

There are no separate laws for Joint ventures in India.

Contractual Joint Venture is governed by the Partnership Act, 1932 because it is like a
partnership that is binding by the legal agreement no separate Legal Entity is formed.

Equity-based Joint Ventures are regulated by the Companies Act 2013 because a new legal entity
is formed which are either Public or Private Sector companies.

Some other laws by which Joint Ventures in India are regulated:

 Competition Act, 2002.

 Foreign Trade (Development and Regulation) Act, 1992.
 Industrial Policy and Procedure Policy for Foreign Investment Contract Act. Foreign
Exchange Management Act.
 1999 SEBI Guidelines, Regulations, Notifications & Circulars.
 Reserve Bank of India (RBI) Guidelines, Regulations, Notifications & Circulars.
WHO CAN SET UP A JOINT VENTURE:
A non-resident entity can invest in India, subject to the FDI Policy except in those
sectors/activities which are prohibited.

A company, trust, and partnership firm incorporated outside India and owned and controlled by
NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy

Foreign Portfolio Investors (FPI) may make investments in the manner and subject to the terms
and conditions specified in Schedule II of Foreign Exchange Management (Non-Debt
Instruments) Rules, 2019.

Foreign Investment is permitted under the automatic route in Limited Liability Partnership
(LLPs) operating in sectors/activities where 100% FDI is allowed through the automatic route
and there are no FDI-linked performance conditions.

HOW TO SET UP A JOINT VENTURE:

As an Indian company:
For registration and incorporation, an application has to be filed with the Registrar of Companies
(ROC). Once a company has been duly registered and incorporated as an Indian company, it is
subject to Indian laws and regulations as applicable to other domestic Indian companies.

Limited Liability Partnership:

To register an Indian LLP, you need to first apply for a Designated Partner Identification
Number (DPIN), which can be done by filing eForm for acquiring the DIN or DPIN.

Then you would then need to acquire your Digital Signature Certificate and register the same on
the portal. Thereafter, you need to get the LLP name approved by the Ministry. Once the LLP
name is approved, you can register the LLP by filing the incorporation form.
As a foreign company:
Foreign Companies can set up their operations in India through

 Liaison Office/Representative Office

 Project Office
 Branch Office

Such offices can undertake any permitted activities. Companies have to register themselves with
the Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Liaison Office/Representative Office:

The liaison office acts as a channel of communication between the principal place of business or
head office and entities in India.

Approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI).

Project Office:
Foreign Companies planning to execute specific projects in India can set up temporary
project/site offices in India. RBI has now granted general permission to foreign entities to
establish Project Offices subject to specified conditions.

Branch Office:
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up
Branch Offices in India for Exporting and Importing goods, carrying out research work,
representing a parent company, Etc.

A branch office is not allowed to carry out manufacturing activities on its own but is permitted to
subcontract these to an Indian manufacturer.

Limited Liability Partnership:

A foreign LLP can establish in India by filling Form 27 (Registration of particulars by Foreign
Limited Liability Partnership (FLLP)). The eForm has to be digitally signed by an authorized
representative of the FLLP.

There is no mandatory requirement to apply and obtain DPIN or DIN for Designated Partners of
FLLP but the DSC of the authorized representative is mandatory.

Foreign Direct Investment (FDI) Policy:

FDI under the automatic route (means no prior approval of RBI or Government of India is
needed) is now allowed in all sectors, including the services sector, except a few sectors where
the existing and notified sectoral policy does not permit FDI beyond a ceiling.

Automatic Route:
No prior approval is required for FDI under the Automatic Route. The only information to the
RBI within thirty days of inward remittances or issue of shares to Non Residents is required.

Government Approval:
Foreign Investment proposed not covered under the Automatic Route are considered for
Governmental Approval on the recommendations of the Foreign Investment Promotion Board
(FIPB).

According to the FDI Policy Circular of 2016, proposals for FDI would be filed online on FIPB
Portal.

Liabilities in Joint Ventures:

Under Partnership Act, 1932:
Each partner is liable for all acts of the business committed when he is a partner together with all
the other partners and even separately.

A retiring partner may discharge his liability to any third party before his retirement by arranging
for him and that third party.
The partner will be held liable for every act done by the firm before his retirement notice
becomes public.

The firm is not dissolved by the death of a partner, the estate of a deceased partner is not liable
for any act of the firm done after his death.

All the parties are liable for every act done by the firm before the dissolution notice becomes
public.

Except for the partner who dies, or who is bankrupt, or of a partner who, not having been known
to the person dealing with the firm to be a partner, or retires from the firm.

The partner after the dissolution of a partnership may carry the unfinished business to finish it.

Provided that the firm is in no case bound by the acts of a partner:

 who had been bankrupt.

 Who has after the verdict represented himself or knowingly permitted himself to be
represented as a partner of the bankrupt.

Under the Limited Liability Partnership Act, 2008:

Every partner of LLP is for the business of the LLP, the agent of LLP, but not of another partner.

A partner is not personally liable, directly or indirectly for an organization solely because of
being a partner of a limited liability partnership

Whenever a partner acts for an LLP in the course of business, an obligation whether arising in
contract or otherwise is solely the obligation of the LLP which is to be met out of its property

Section 28(2) provides that the provisions of 27(3) and 28(1):

  shall not affect the personal liability of a partner for his wrongful act or omission,
 but a partner shall not be personally liable for the wrongful act or omission of any other
partner of the limited liability partnership.

Liability of a Foreign Partner:

A foreign partner will have liability as per the domestic laws on the liability of partners in Joint
Ventures.

The foreign partner may also have liability under Reserve Bank of India & Foreign Direct
Investment laws and regulations.

WHAT ARE THE DIFFERENT WAYS IN WHICH A JV COULD BE STRUCTURED?

The JVs may be either contractual or structural, or both. They may be broad based or narrowly
defined and the main classification of JVs is as corporate JV and contractual JV.

A corporate JV is an arrangement whereby a separate legal entity is created in accordance with

the agreement of two or more parties. The parties undertake to provide money or other resources
as their contribution to the assets or other capital of that legal entity. This structure is best suited
to long-term, broad based JVs.

The contractual JV might be used where the establishment of a separate legal entity is not
required or the creation of such a separate legal entity is not feasible. This agreement can be
entered into in a short duration project involving a limited activity or where JV is for a limited
term.
 JOINT VENTURES

Company
Incorporated
Limited Liability Partnership (LLP)

Partnership Firm
Unincorporated
Structural Alliance/Cooperation Agreement

Now let us discuss these four most common structures employed to constitute a JV, along
with their advantages and disadvantages:

 COMPANY

Here the parties to the JV would create a joint venture company (“JV Co”), under the Companies
Act, 2013 (“Act”) and would hold the shares of such company in an agreed proportion. This
arrangement can also be termed as Corporate JV.

ADVANTAGES:

1. The liability of the parties are limited.

2. Procurement of domestic as well as foreign funding is flexible.

3. The company will survive as the same entity despite a change in its ownership.

4. Business expansion is easier.

DISADVANTAGES:

1. Formation is a complex task.

2. Annual compliances are way too many.

  LLP

LLPs are constituted under the Limited Liability Partnership Act, 2008 (“LLP Act”). The LLP
has the basic features of a corporation including separate legal identity. The LLP Act permits the
conversion of a partnership firm, a private company and an unlisted public company into an
LLP, in accordance with specified rules.

ADVANTAGES:

1. Liability of the partners is limited;

2. Flexibility to organise the internal structure;

3. Lesser compliance than a corporation.

DISADVANTAGES:

1. There are a lot of restrictions on the procurement of funds.

2. LLPs with FDI, are not eligible to make any downstream investments.

3. Much more compliance than a Partnership Firm.

 PARTNERSHIP FIRM

A partnership firm is created under the Partnership Act, 1932, and is in many respects simpler
than a company in terms of formation and compliances. A partnership represents a relationship
between persons who have agreed to share the profits of business carried on by all or any of them
acting for all. A partnership JV are unincorporated forms of JV which represent the business
relationship between the parties with a profit motive.

ADVANTAGES:

1. There are certain tax advantages;

2. There is hardly any requirement of compliance;

 3. Its formation is very simple;

4. Best suited for smaller projects.

DISADVANTAGES:

1. The partners have unlimited liability;

2. There is very limited capital;

 THERE IS NO STRATEGIC ALLIANCE

3. separate legal identity.

The most simple form of JV is to conclude a purely contractual arrangement like a cooperation
agreement or a strategic alliance wherein the parties agree to collaborate as independent
companies rather than forming a separate entity.

Strategic Alliance is for the furtherance of a common objective/goal, for a profitable venture,
proceeds of which are to be shared in an agreed ratio.

This type of agreement is ideal where the parties intend not to be bound by the formality and
permanence of a separate entity. Such alliances allow companies to acquire products, technology
& working capital, to increase production capacity and productivity. It provides the companies to
penetrate into a new market, wherein it was previously restricted due to shortage of funds,
technology or prohibitory regulatory framework.

ADVANTAGES:

 There is hardly any compliance required;

 There is no need to form a new entity;

 The parties enjoy independence;

 The documentations required are very less;

  It is significantly cost effective.
DISADVANTAGES:

 There are significant tax issues if it is not structured properly;

 Independence might make some parties less motivated to contribute.

What are the different Documents required for creating a JV?

The documents required for creating a JV can broadly be classified into

three categories:

1. Memorandum of Undertaking (MoU) or Letter of Intent (LoI)

2. Definitive Agreements (depending upon the chosen structure)

3. Other Agreements (such as Technology transfer agreements/BTA etc.)

Following table shows the different documentaions required under different
structures:
Vistara – TATA SIA Airlines Ltd. - Background and History

ntroduction
Tata Singapore Airlines (SIA) Airlines
Limited, popularly
known by the brand name ‘Vistara’
registered a loss of
`1,814 crores in the financial year
2019–2020. This was the
largest figure of loss for Vistara since
the company’s incep-
tion of operations in early 2015. While
many aviation
experts remain puzzled over the
company’s business model
and strategy, the company’s
management remains largely
positive over the company’s future
growth prospects. The
company’s financial health has
deteriorated considerably,
with increased operating expenses
significantly affecting
the company’s bottom line. The trends
suggest that the com-
pany has been losing money
consistently, while consuming
huge amounts of capital per year,
mostly funded by its par-
ent companies, Tata Sons and SI
ntroduction
Tata Singapore Airlines (SIA) Airlines
Limited, popularly
known by the brand name ‘Vistara’
registered a loss of
`1,814 crores in the financial year
2019–2020. This was the
largest figure of loss for Vistara since
the company’s incep-
tion of operations in early 2015. While
many aviation
experts remain puzzled over the
company’s business model
and strategy, the company’s
management remains largely
positive over the company’s future
growth prospects. The
company’s financial health has
deteriorated considerably,
with increased operating expenses
significantly affecting
the company’s bottom line. The trends
suggest that the com-
pany has been losing money
consistently, while consuming
huge amounts of capital per year,
mostly funded by its par-
ent companies, Tata Sons and SI
ntroduction
Tata Singapore Airlines (SIA) Airlines
Limited, popularly
known by the brand name ‘Vistara’
registered a loss of
`1,814 crores in the financial year
2019–2020. This was the
largest figure of loss for Vistara since
the company’s incep-
tion of operations in early 2015. While
many aviation
experts remain puzzled over the
company’s business model
and strategy, the company’s
management remains largely
positive over the company’s future
growth prospects. The
company’s financial health has
deteriorated considerably,
with increased operating expenses
significantly affecting
the company’s bottom line. The trends
suggest that the com-
pany has been losing money
consistently, while consuming
huge amounts of capital per year,
mostly funded by its par-
ent companies, Tata Sons and SI
ntroduction
Tata Singapore Airlines (SIA) Airlines
Limited, popularly
known by the brand name ‘Vistara’
registered a loss of
`1,814 crores in the financial year
2019–2020. This was the
largest figure of loss for Vistara since
the company’s incep-
tion of operations in early 2015. While
many aviation
experts remain puzzled over the
company’s business model
and strategy, the company’s
management remains largely
positive over the company’s future
growth prospects. The
company’s financial health has
deteriorated considerably,
with increased operating expenses
significantly affecting
the company’s bottom line. The trends
suggest that the com-
pany has been losing money
consistently, while consuming
huge amounts of capital per year,
mostly funded by its par-
ent companies, Tata Sons and SI
Emerging Economies Cases Journal
1 –14
© The Author(s) 2021
Reprints and permissions:
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DOI: 10.1177/25166042211028381
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Creative Commons Non Commercial CC BY-
NC: This article is distributed under the terms of
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NonCommercial 4.0 License
(http://www.creativecommons.org/licenses/by-
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attributed as specified on the SAGE and Open
Access pages
(https://us.sagepub.com/en-us/nam/open-access-
at-sage).
Management Case
Vistara: Turbulence for
the Tatas?
Amrit Mohapatra1 , Ashish
Chaurasia1, Tarana Jolly1 and
Gaurav Kumar Gupta1
Abstract
This case talks about Vistara, an
airline brand registered under the
name of Tata Singapore Airlines (SIA)
Airlines Limited,
which started as a joint venture
between Tata Sons and SIA Limited in
2013. While the company was
founded with the
intent to expand, as suggested by its
brand name, the airlines has failed to
register positive returns ever since its
inception
despite a 190% compound annual
growth rate (CAGR) in total revenue
from financial year 2016 to financial
year 2020.
While company’s ratios have shown a
dismal performance over the years, its
competitors and the market leader
have
shown better performance or at least
some form of leadership in one of the
operating aspects. In an industry
plagued
with problems such as fluctuating
crude oil prices, rising maintenance
and leasing costs, and other operating
costs, most
of the airline companies have
registered losses in recent years, the
magnitude of which has further
aggravated due to
COVID-19. Vistara will need to
revisit its short-term and long-term
strategies to expand its position in the
Indian as well
as the international aviation market.
Keywords
Aviation industry, strategy, financial
analysis, business environment
1Atal Bihari Vajpayee School of Management
and Entrepreneurship,
Jawaharlal Nehru University, New Delhi, Delhi,
India
Corresponding author:
Amrit Mohapatra, Atal Bihari Vajpayee School
of Management and
Entrepreneurship, Jawaharlal Nehru University,
New Delhi, Delhi
110067, India.
E-mails: amrit23_sme@jnu.ac.in;
amrit.mohapatra97@gmail.com
Learning Outcomes
There have been at least two or three
rounds of equity
infusion by the promoters, this clearly
indicates that the
original business plan was flawed
—Koushik Jagathalaprathaban, Partner,
AT-TV
 • Develop an understanding of the
functioning of the
Indian aviation industry.
• Understand Vistara’s bottlenecks
in registering prof-
itability and think holistically in terms
of possible
solutions to the problem from
financial and strategic
perspectives.
• Appreciate the importance of a
good business model
in the sustainability of a business in an
extremely
volatile and competitive business
environment.
I
Vistara is a joint venture of Tata Sons Private Limited and Singapore Airlines Limited (SIA),
wherein Tata Sons holds 51% stake in partnership and Singapore Airlines owns 49% stake. The
company is registered as TATA SIA Airlines Limited.

In 2013, two legendary brands, Tata Sons and Singapore Airlines, decided to fulfil a long-
cherished shared dream to bring forth a distinguished flying experience to air travellers in India.
With its strong historical ties with aviation, the Tata group had long wished to re-enter the
aviation sector, after Tata Airlines was renamed Air India and eventually, nationalised. Both, the
Tata group and Singapore Airlines were also firm believers in the growth potential of the Indian
aviation sector and hence tried to enter the market in the past; first, in 1994 by setting up a joint
venture to start an airline in India and then in 2000, teaming up to purchase stakes in Air India.
However, after the lifting of foreign investment restrictions in 2012, the partners once again
sought approval for a tie-up, which it obtained in October 2013. On November 5, 2013, Vistara’s
holding company, TATA SIA Airlines Limited, was incorporated.

The common goal of the joint venture is to redefine air travel in India to provide Indian travellers
a seamless and personalised flying experience that blends Tata’s and SIA’s service excellence
and legendary hospitality. The brand name ‘Vistara’ is derived from the Sanskrit word ‘Vistaar’
that means ‘a limitless expanse’. The name Vistara draws inspiration from the world that Vistara
inhabits, viz. the ‘limitless’ sky. The brand also draws stimulus from the image that passengers
most associate with a smooth and enjoyable flight – the endless, blue horizon they see through
the windows of an aircraft. As it aims to transform the flying experience of travellers in India,
Vistara christens its brand tagline as ‘fly the new feeling’.

On January 9, 2015, Vistara started its operations with a maiden flight from Delhi to Mumbai. In
a short span of time, Vistara has rapidly expanded its footprint, both in terms of network and
service proposition. Vistara connects 43 destinations in and outside of India, operates over 260
flights a day with a fleet of 54 aircraft including 41 Airbus A320, 5 Boeing 737-800NG, 5
Airbus A321neo and 3 Boeing B787-9 Dreamliner. Vistara has already flown more than 35
million happy customers since starting operations.