Press Note 18 requires a foreign company to obtain a no-objection certificate (NoC) from its domestic partner, before setting up a wholly-owned subsidiary on a similar line of business.
CII is of view that Press Note 18 is a significant policy instrument in the hands of Indian entrepreneurs. It, however, feels that genuine grievances of foreign investors may be discussed. Press Note 18 may be modified, but should not be scrapped as it serves a useful purpose, CII director general N Srinivasan told FE.
Ficci has, however, said that it would oppose any move to scrap the note. When contacted, secretary-general Amit Mitra said, We have not yet received any official intimation from the government. But Ficci is against any move to scrap the note.
The note has been opposed by foreign investors who feel that in some cases domestic companies use it for arm-twisting purposes.
Investment proposals by foreign majors have been rejected by the government as domestic partners often refuse to give NoC and make a case before the Foreign Investment Promotion Board (FIPB) for rejecting the companys investment plans in a wholly owned subsidiary.
Countries like the US have a conflict of interest clause for all joint venture (JV) agreements. The clause protects the interests of domestic companies by providing a cool-off period to them, before the foreign partner breaks up the JV and sets up a wholly owned unit on similar lines, Dr Mitra added.
Admitting that there were certain complaints by foreign investors, he said, These issues can always be discussed and resolved.
Press Note 18 was drafted in 1998, when Honda of Japan expressed its intention to float a wholly-owned subsidiary for manufacturing motorcycles, while its existing joint venture with Munjals, Hero Honda, was already making them.