FinMin seeks clarity on press note 1 of 2005 from Dipp

The Ministry of Finance has sought clarity on press note 1 of 2005 series from the Department of Industrial Policy and Promotion (Dipp), the apex policy making body for foreign investment under the Ministry of Commerce and Industry.

Press note 1 of 2005 requires a foreign company to get a “no objection” certificate from its Indian joint venture (JV) partners if it wants to pursue alone or with other partners in the same field of business.

The trigger has been two cases — Mercer Inc, New York and Putzmeister Concrete Pumps of Germany where the respective Indian partners have expressed their objection under press note 1.

Official sources said that the press note 1 of 2005 is valid for joint ventures struck before 2005. Dipp has neither renewed the series nor made it clear whether the press note content is valid for joint ventures made after 2005.

Without a clarification from the department, companies either make a personal hearing to foreign investment promotion board or first approach the court and then following court orders approach the Foreign Investment Promotion Board (FIPB) for hearing, in case there is contention for JVs made after 2005. “This has resulted in increase in the number of court cases which otherwise could have been solved by a simple clarification,” said an official.

Besides making it clear whether press note 1 applies to joint ventures made after 2005, the ministry has also sought clarity on monitoring such JVs from time to time. Sources explained that neither the commerce ministry nor the finance ministry had any mechanism to monitor the viability of such JVs.

The ministry gets appraised of the status of JV only based on the representations made by companies and their JV partners. “One really needs to check whether the JV is working properly as per the terms of agreement or not before accepting the objection made under press note 1,” said an official source.

While the finance ministry has written to Dipp for a clarification earlier, the discussions have been renewed now that the Ministry of Commerce has decided to rework the press notes in an abridged format.

Mercer Inc had applied for an approval from FIPB for foraying into insurance broking, which has been opposed under press note 1 by their Indian partner, Ramphal Trust. Official sources said both Ramphal and Mercer had personal hearing with FIPB. Ramphal had presented the business agreement with Mercer and pleaded that the proposal of Mercer attracted the conflict of interest clause in the press note 1 since the Ramphal Trust is also an insurance broking firm.

Putzmeister, Gmbh has applied to foray into the business of concrete pumps which has been opposed by Putzmeister Indian Private Ltd. Thereafter, Putzmeister India had approached the Delhi High Court, which has asked FIPB to study the case.