Hit by poor demand for its products, Floatglass India has sought for amendments to royalty payment terms to its joint venture partner Asahi Glass Company of Japan. This is the second time the company …
Hit by poor demand for its products, Floatglass India has sought for amendments to royalty payment terms to its joint venture partner Asahi Glass Company of Japan. This is the second time the company has sought amendments to the terms within a little more than a year. The company, which started commercial production in March 1995, has become a potentially sick company under the terms of section 23 of the Sick Industrial Companies (Special Provisions) Act, 1985. In a recent application to the government, the company has stated that the market demand for their product had been growing very slowly as the result of which supply exceeded demand. This build up of inventory has put tremendous strain on the overall performance of the company. The foreign partner is understood to have agreed to bail out the company through certain measures, which include amendment to the royalty payment agreement between the two companies. Measures are also being taken to improve the operations of the company, it has told the Foreign Investment Promotion Board (FIPB) in its request for amendment to royalty payment terms. Under the terms of the agreement between the two companies, Floatglass was to pay royalty to Asahi Glass for a period of eight years effective from the date of commencement of commercial production. The payment was to be made as and when the company started making net profits. As per the original agreement, Floatglass was to pay royalty at the rate of 4% from the date of commencement of manufacture (March 1995) to June 1995. Thereafter from July 1995 to March 1999, Floatglass would have paid royalty at the rate of 1% on net sales value of licences products manufactured and sold. From the period starting April 1999 to the end of the period of the pact, royalty was payable at the rate of 5%, which were subject to taxes. Last year, the terms were modified to allow Floatglass to pay royalty at the rate of 1%.