The core group of India“s Foreign Investment Promotion Board (FIPB) ruled on 5 October 2006 in favour of US glass major Guardian Industries which is looking to set up a 100% Indian subsidiary.
Guard…
The core group of India“s Foreign Investment Promotion Board (FIPB) ruled on 5 October 2006 in favour of US glass major Guardian Industries which is looking to set up a 100% Indian subsidiary. Guardian already has an Indian joint venture, Gujarat Guardian. Under Indian law, in order to set up a wholly-owned company, US-based Guardian needs to obtain no-objection certificates from all local partners holding at least 3% in its existing JV. Modi Rubber, with a 22% stake in Gujarat Guardian, initially refused to provide the required certificate, it was reported in August 2006. A decision on Guardian“s proposal was deferred by the FIPB in September 2006 after the Finance Ministry said that it had not received a valid no-objection certificate (NOC) from Modi Rubber. The government was split with the Department of Industrial Policy and Promotion (DIPP), responsible for FDI policy, suggesting that the FIPB could proceed since it did not see any threat to Gujarat Guardian. DIPP had, however, suggested that Guardian should give an undertaking that Gujarat Guardian“s business would not be affected by the new venture. The core group, which met on 5 October 2006, heard both Guardian International and Modi Rubber, and concluded that the new venture would not affect the existing company and did not violate press note 1. “The contract between Modi Rubber and Guardian was outside the purview of FIPB and therefore the core group had no mandate on the issue”, an official said. Sources said that the core group“s observations should only be treated as recommendations; endorsement is required from the FIPB before the finance minister can approve the move. However, the decision could have an impact on similar disputes as it is being seen as a dilution of Press Note 1 norms, which provide protection for local partners from foreign players who leave JVs to set up a venture in the same sector or wish to buy out local partner“s stake in an existing company.