FIPB eases defence FDI norm

No rejection of a proposal only because applicant or group company under investigation anywhere; clears applications on new basis

The Foreign Investment Promotion Board (FIPB) has decided not to reject proposals from a foreign company only because it or any of its group companies or their parent is under investigation in the country or abroad. The move is expected to pave the way for many foreign companies in the defence sector to make a comeback. They had not pushed plans in India for a joint venture or had even withdrawn from one because of the earlier bar.

For instance Selex ES, the defence technology arm of Finnmeccanica, which is under investigation, had withdrawn an application to set up a JV with Hyderabad-based Data Patterns. After the change in the government's stance, it is mulling a return to the FIPB.

Also, Pune-based Bharat Forge had set up Elbit Advanced Systems Pvt Ltd in a joint venture with Israel-based Elbit Systems Land C41 Ltd. This was to make artillery guns, howitzers, ammunition and tactically protected vehicles. The Israeli company was to put in a 26 per cent stake and invest $6 million over three years. The proposal was first discussed at FIPB in March this year and then deferred thrice, due to lack of clarity on the earlier policy.

In the above case, the ministry of home affairs had at an FIPB meeting some weeks earlier, said Elbit Systems had acquired the assets of Israeli Military Industries (IMI) Aircrafts Division through a subsidiary. It mentioned that IMI had been blacklisted by the Ministry of Defence for 10 years in March 2012. It also brought to the notice of the board that Soltam Systems, another wholly owned subsidiary of Elbit Systems since 2010, was blacklisted by the Philippines government in July 2012 for a year, for failure to deliver goods. Also, Soltam was allegedly involved in some questionable deals in Kazakhstan.

The board, however, took the view that the proposal in question was not the issue which was investigated. The law would take its course and the current FIPB consideration was without prejudice to any existing or future civil or criminal proceedings against the foreign investor or its parent company. On that basis, it cleared the proposal, subject to the usual considerations.

FIPB took a similar decision on a JV between AW and Tata Sons which undertakes final assembly of both the civil and military version of the AgustaWestland 119 Ke helicopter, through Indian Rotocraft Ltd. The new proposal had sought permission from the government to give permission for assembly of an upgraded version of the AW119 Kx model.

The ministry of defence told FIPB it had no objection to the specific proposal but AW was a wholly owned subsidiary of Finnmeccanica, being investigated for alleged corruption. FIPB, however, decided the issue being investigated related to the AW101 helicopter model, not to the new proposal.

It said the law would take its course and their clearance would be without prejudice to any existing or future civil or criminal proceedings against the foreign investor or its parent. It also opined that the request by the applicant for a change in the name of an upgraded model was only technical in nature and approved the proposal.

BREATHER FOR INVESTORS

• FIPB not to reject FDI proposals in defence just because any of the group companies or their parent is under investigation in the country or abroad
• Clearance will be given without prejudice to any existing or future civil or criminal proceedings against the foreign investor or its parent
• Elbit Advanced Systems Pvt Ltd,  a joint venture between Bharat Forge, and an Israeli company, was cleared by FIPB, despite questions that the foreign group has bought a company which has been blacklisted by Indian defence ministry for 10 years
• Tata and AgustaWestland joint venture also cleared by FIPB, saying the helicopter sought to be assembled in India is not under investigation. Augusta is part of Finnmeccanica, being investigated for alleged corruption