FIPB to withdraw rule on MNC subsidiaries
New Delhi: The Foreign Investment Promotion Board (FIPB) is actively considering formally withdrawing the mandatory rule requiring foreign investors to get the clearance from Indian JV partners, in case they decide to set an independent 100 per cent subsidiary.

Reviewing the disputes between Machino TSK Nippon Cables and its JV partner Madhusudhan Nippon, Concast Standard AG with Concast (India) Pvt. Ltd. and INA GmbH with Shriram Needle Bearing Industries Ltd., the FIPB recently allowed the three MNCs to set up its subsidiaries.

The FIPB rule actually mandates a foreign investor to obtain a 'no objection certificate' from his Indian JV partner to set up a 100 per cent subsidiary, if it had a technology/patent/trademark agreement with an Indian company signed earlier. The rule was adopted to check hostile takeovers. The three foreign companies had however, contended that they held clearances granted prior to the framing of rule. The Indian companies appealed to the FIPB, which finally conceded the case in favour of foreign companies.

The core group of secretaries also recently debated on the issue and decided to withdraw the rule. While deciding on the withdrawal, the committee of secretaries had noted that joint venture deals were commercial agreements, best left to the joint venture partners to resolve. The formal withdrawal of FIPB rule is considered significant for M&A activities in India, which has, so far, been restricted to only negotiated takeovers.
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