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Author - Pramendra Tomar 

India became an attractive investment destination having strategic advantages and lucrative commercial incentives. It lures the world by its unique mix of the colossal internal market and availability of the world's best skills. India has a lot to offer from both producers' and consumers' perspective to foreign investors or businesses.

To enter India, they find Joint Venture (JV) with an Indian company the most suitable business vehicle as it swiftly opens gates of market access, local knowledge and a quick start. Indian businesses have proved themselves as aggressive investors too and exhibited their ambition for overseas expansion.

Joint Ventures in India

A JV may be an arrangement in which two or more companies come together in co-operation to achieve a commercial goal. Such JV may be acted upon either an entirely new or an existing business which might benefit significantly by the arrival of the new partner. Thus, a JV may be recapitulated as a synergetic or cooperative alliance between two or more businesses where resources (brand, marketing, customer-base etc.) of the parties to the JV get shared in a harmonizing fashion. 

It is not necessary to formalize the JV or to instrumentalize a formal contract between its parties every time. It may be an informal understanding between its parties as well. The core of the JV remains with yielding benefits for its parties by presenting a platform to accomplish their business goals which, otherwise, would be difficult or economically impractical to achieve independently.

Purpose or Advantages of Establishing A Joint Ventures

Forming a JV with an idyllic partner brings to the plate various rapid ways to achieve and utilize complementary resources or capabilities of the other partner(s), access newly available markets, leverage the better brand, or diversify into the new businesses. A JV alliance can negate various deficiencies and stumbling blocks such as product quality, technology, infrastructure, management processes and more with a foreign strategically-fit counterpart. JVs can yield many such purposes or advantages, of which,  a few are: 

• Access to Market
• Business Diversification Flexibility
• Complementary Resources
• Exploiting Capabilities / Expertise
• Responsibilities and Liabilities Sharing

Entering or Establishing A Joint Venture

A JV comes with, or its formation involves, various issues such as legal, business, liabilities, tax and culture since being an alliance (possibly) between legal entities (including resources) established in two different global regions. Here is a brief list of the matters a business much know and consider in detail before entering in a JV:

• Purpose and duration of the joint venture
• The counterpart and its national culture
• Roles and responsibilities of the parties
• Applicable laws on the joint venture
• Advisor selection criteria and process
• The agreement: Composition
  • Board of directors
  • Management committee
• Clear performance indicators matrix
• Record keeping methodology and practices
• Indemnity and Contingencies 
• Dispute Resolution
• Exit point indicators and Exit plan 

A JV involves different legal implications concerning the situation of either party,  regulatory or sectoral issues. Thus, legal advisory becomes a must while forming or entering in a JV.

Management of a Joint Venture Company

It is important to have Memorandum of Association (MoA) as well as Articles of Association (AoA) as charter documents of the company according to the Companies Act, 2013. Constituting the management, its control, and safeguards should be agreed upon and as mentioned in the Memorandum of Understanding (MoU). In India, the JV agreement does not bind the JV company lest its terms are included in the AoA of the JV company.

While considering possible conflicts in the future, the parties in the JV should include a provision in the agreement asserting that the parties will amend the MoA and AoA accordingly if the AoA is uneven with the provisions mentioned in the JV agreement.

Joint Venture Law in India

India does not enforce separate laws or principles to govern establishing, conducting or terminating JVs. Perhaps, the agreements to regulate a JV must be read, practised and complied with general principals and rules of India in force. There are certain stages and actions for which approvals from the government are a must. 

In India, Joint ventures require governmental approvals in case of a foreign, NRI or PIO partner is involved. If a joint venture comes under the automatic route, the approval of the Reserve Bank of India (RBI) might be required. In other cases not covered under the automatic route, special approval only from the Foreign Investment Promotion Board (FIPB)  would be necessary.

Investment proposals of up to 74% foreign equity in more than 30 high priority areas outlined by the government of India receive automatic approval within two weeks. Perhaps it needs application made to the RBI. For greater than 74% of equity and areas other than mentioned above are open for investment, but require government approval. For such cases, an application has to be filed with the Secretariat for Industrial Approvals, which gets a response within six weeks.

The FIPB also serves to major investment proposals or cases excluded from the existing policy parameters. It provides a single-window clearance to proposals without being restricted by any predetermined parameters. 

Conclusion

At present, India is one of the fastest emerging economies in the world, and its largest domestic markets give it a unique boost in its position. The legal situation has expressively improved since the era of 1991 of restrictive economic policies.  The Indian market presently is yielding on the quality of offerings. The JVs become a great way to bridge this gap in this framework. They facilitate utilizing the bests available in the collaboration and enable to take advantage of the setup to be beneficial for the parties involved in it.

The Bilateral Investment Agreement underwrites investments made into India. Moreover, India upholds various international treaties and trade arrangements as a party to them. India has entered into bilateral investment treaties with over 70 countries, further strengthening its commitment to international trade. JVs are a great way to go for while taking advantage of India's low-cost operating environment and a huge domestic market.