LAW & MULTINATIONAL COMPANIES Shruti Reddy, SoL, UPES

JOINT VENTURE- ONE OF THE MANY

MODES OF INVESTMENTS
 MEANING OF JOINT VENTURE
• Association of 02 or more individuals or business entities who combine and pool
their respective expertise, financial resources, skills, experience and knowledge in
furtherance of a particular project or undertaking
• Long term, particular project, new venture, existing venture
 BENEFITS OF JOINT VENTURE

Facilitates Facilitates
Capital Risk Mitigation Efficiencies
Financing

Spreads Expands
technology and marketing reach
know how of company
 PLAUSIBLE GOVERNING LAWS

The Companies Act, 2013

The Indian
The Indian Contract Act, 1872 Partnership Act,
1932

The Foreign Exchange The Income Tax Act,

Management Act, 1961 Other allied laws
1999
 Incorporating a separate
JVC

Joint venture companies

(JVC)

Investing in share capital

of existing co.

Joint venture options Partnerships

Unincorporated
organizations (Contractual
Arrangements)- Joint
Venture Agreement (JVA)
TYPE OF JOINT VENTURE ON BASIS OF CONSTITUTION

Joint Venture
Agreement

Unincorporated JV

Joint Venture
Partnership
Joint Venture

Example- AirAsia India

Incorporated JV Malaysia-based
AirAsia Berhad (51%)
and Tata Sons (49%)
TYPE OF JOINT VENTURE ON BASIS OF TERRITORY
Example: Aavantika
Gas Limited
Domestic JV
GAIL (India) Limited
and HPCL
Joint Venture
Example: Mahindra-
International/Foreign Renault (France)
JV
TYPE OF JOINT VENTURE ON BASIS OF STRATEGY
Joint Venture
Example: Tata Global Beverages- Tata
Production JV Sons & PepsiCo of USA- Himalayan
brand of spring water

Example: Mahindra- Renault (France)-

Marketing JV for production and commercialization
of Logan

Buying Collaboration
 TYPE OF JOINT VENTURE ON BASIS OF AREA OF
OPERATION
Joint Venture

Inbound JV Outbound JV

Operations outside Operations+ Mix of all- cater to

To serve domestic India, foreign manufacture in domestic market+
market markets targeted India, foreign export goods
market targeted
 OTHERS BrahMos Aerospeace: India’s Defense Research and
Technical JV Development Organization (DRDO) and Russia’s NOP
Joint Venture Mashinostoryenia- surface-to-surface, air and sea-
launched variants of BrahMos missiles

Financial JV Bharti AXA General Insurance Co Ltd: Bharti Enterprises

and insurance major from France, AXA

JV without equity participation

Special Purpose Vehicles- Ratnagiri Gas and Power Pvt Ltd (RGPPL) formed by
Infrastructure Projects GAIL (India) and NTPC- revival of Dabhol Power Plant

Mumbai Metro: DMRC & Reliance Energy Ltd.

Public- Private Partnerships (BOO, Hyderabad International Airport (GMR Infrastructure
BOT, BT, BLT, BTO) Ltd., Govt. of AP, AAI, Malaysia Airports Holdings
Berhad)
JOINT VENTURE INVOLVING FOREIGN
INDIVIDUALS/ CORPORATIONS
 NATIONAL LAW- FOREIGN EXCHANGE MANAGEMENT
ACT, 1999
• Purpose: to consolidate and amend the law relating to foreign exchange with the objective of
facilitating external trade and payments and for promoting the orderly development and
maintenance of foreign exchange market in India
• Repealed Foreign Exchange Regulation Act, 1973 in 1998; FEMA came into force on 01-06-2000
• FEMA: refers to civil offences only; consistent with framework of WTO and Foreign Trade Policy of
India
• Draconian perspective of FERA:
a. Everything is prohibited, unless specifically permitted
b. Imprisonment for minor offences
c. Presumption of guilt, unless proven otherwise
• Paradigm change from “regulation” to “management”: liberalization of foreign exchange controls
and liberalization of restriction on foreign investment
 GOLDEN RULE OF FEMA
All capital account
transaction
prohibited unless
permitted

All current account

transactions
permitted unless
prohibited
 CURRENT ACCOUNT TRANSACTIONS (S. 5)
• Definition: S. 2 (j): "current account transaction" means a transaction other than a capital
account transaction and without prejudice to the generality of the foregoing such
transaction includes -
i. payments due in connection with foreign trade, other current business, services, and
short-term banking and credit facilities in the ordinary course of business,
ii. payments due as interest on loans and as net income from investments,
iii. remittances for living expenses of parents, spouse and children residing abroad, and
iv. expenses in connection with foreign travel, education and medical care of parents,
spouse and children
• Any person may sell or draw foreign exchange to or from an authorised person if such
sale or drawal is a current account transaction
• Central Government may, in public interest and in consultation with the Reserve Bank,
impose such reasonable restrictions for current account transactions as may be prescribed
• Examples of current account transactions: payment for import of goods; booking with
airlines/shipping
 CAPITAL ACCOUNT TRANSACTIONS (S. 6)
• Definition: S.2 (e): "capital account transaction" means a transaction which alters the assets or liabilities, including
contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident
outside India, and includes transactions referred to in sub-section (3) of section 6

• Any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction
subject to the permissible classes and quantum transactions stipulated by RBI in consultation with the CG

• Transactions within the ambit of Section 6:

(a) transfer or issue of any foreign security by a person resident in India;

(b) transfer or issue of any security by a person resident outside India;

(c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person
resident outside India;

(d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;

(e) any borrowing or lending in rupees in whatever form or by whatever name called between a person
resident in India and a person resident outside India;
CONTD.
(f) deposits between persons resident in India and persons resident outside India;

(g) export, import or holding of currency or currency notes;

(h) transfer of immovable property outside India, other than a lease not exceeding five years, by a
person resident in India;

(i) acquisition or transfer of immovable property in India, other than a lease not exceeding five
years, by a person resident outside India;

(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred -

(i) by a person resident in India and owed to a person resident outside India; or

(ii) by a person resident outside India.

FOREIGN INVESTMENT IN INDIA
 GOVERNING LAW
• Foreign Exchange Management Act, 1999 and Regulations thereunder
 Inbound investments: Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2017
 Outbound Investments: Foreign Exchange Management (Transfer or Issue of
any Foreign Security) Regulations, 2004
• FDI Policy revised from time to time by Department of Industrial Policy and
Promotion (DIPP)
• Current updates (2017): FIPB (responsible for approval route) abolished,
introduction of Foreign Investment Facilitation Portal (FIFP); competent authorities
established under concerned ministries
 Foreign Investment in India

Automatic Route Approval Route (Prior

approval of
(Prior approval of
government required)
government/RBI Ex: Mining, Defense,
not required) Banking, etc
 MEANING OF CERTAIN KEY WORDS
• Foreign Investment means any investment made by a person resident outside
India on a repatriable basis (return of money to their own country) in capital
instruments (equity shares, debentures, preference shares and share warrants
issued by the Indian company) of an Indian company or to the capital of an LLP

• Foreign Direct Investment (FDI) is the investment through capital instruments by a

person resident outside India
(a) in an unlisted Indian company; or
(b) in 10 percent or more of the post issue paid-up equity capital of a listed
Indian company.