Japan's Honda Motor Company is yet to receive the mandatory no-objection certificate from its Indian partner, Hero Honda Motors Ltd, for setting up a wholly owned subsidiary in the country.
As a result, the Foreign Investment Promotion Board has deferred taking a decision on the proposal, which merits the notice of Press Note 1, 2005.
"There is no fight between the partners and no dispute. It is only a procedural matter," said Sunil Kant Munjal, a director in a number of companies in the Hero group, including Hero Honda Motors Ltd.
The Japanese company has proposed to set up a wholly owned subsidiary named Honda Motor India Pvt Ltd with a foreign equity of 100 per cent amounting to Rs 10-15 crore (Rs 110-150 million). Honda has four operating ventures in the country at the moment.
These are Hero Honda Motors Ltd with 26 per cent foreign equity, Honda Siel Cars India Ltd with 99.9 per cent, Honda Siel Power Products Ltd with 66.67 per cent and Honda Motorcycle and Scooter India Pvt Ltd, a wholly owned subsidiary.
Siel Holdings Ltd, the Indian partner in two joint ventures with Honda, has provided the no-objection certificate to Honda for the proposed venture.
Honda has now proposed to set up the wholly owned subsidiary to use its management expertise in the areas of spare parts operation management, exports operation management and other strategic business planning management functions.
The new company will manage the wholesale spare parts business of Honda Siel Cars Ltd, followed by the other joint ventures in due course.
It may be recalled that recently, a number of cases of foreign partners in Indian joint ventures seeking to wholly own subsidiaries have come to light.
In two cases, that of US glass-maker Guardian Industries and Japanese Takata Corporation, their Indian joint venture partners declined to provide the mandatory no-objection certificate and opposed the setting up of the wholly owned subsidiaries on the grounds that the new entities would work in the "same field" and therefore jeopardise the interests of the existing joint venture.
However, in the case of Guardian Industries, the FIPB later cleared the proposal, while the Takata proposal was deferred.
In January 2005, the government reviewed the guidelines of Press Note 18 (1998 series), which mandated approval for all new proposals for foreign investment, technical collaboration where the foreign investor has or had any previous joint venture, technology transfer and trademark agreements in the same or allied field in India.
Accordingly, the revised guidelines contained in Press Note 1, 2005, specified that new proposals for foreign investment and technical collaboration would be allowed under the automatic route, subject to sectoral policies.
Prior approval of the government will be required only in cases where the foreign investor has an existing joint venture, technology transfer or trademark agreement in the "same" field.