Govt plans to scrap Press Note 1

The government is planning to scrap Press Note 1, allowing foreign companies to invest in sectors where they already have a joint venture without obtaining a no-objection certificate (NOC) from their current partner. The NOC condition is applicable for JVs set up before January 2005 and the Foreign Investment Promotion Board (FIPB) clearance is mandatory in such cases. The Department of Industrial Policy & Promotion (DIPP) is of the view that PN1 delays investments by MNCs due to which companies have now started bypassing India to invest in China. Several companies like Danone have been facing the heat in India due to the PN 1 stipulation. Officials feel that getting FIPB approval and NOC from Indian partners is a time-consuming exercise, which is a hurdle to multinational companies keen to invest in India. The move has support from pro-liberalisation wings of the government like the finance ministry. In many cases, Indian promoters involved in joint ventures also block their foreign partners on grounds which are insufficient, it is felt. “If the government scraps the requirement, the move would definitely go a long way in attracting FDI. It would also send a very positive signal to foreign investors for investing in India,” a DIPP official said. Since it is felt that attracting FDI is getting tougher now due to indications of a global economic slowdown, the department wants to send positive signals to global investors. Last year, the finance ministry had asked DIPP to review the regulation. The department is now planning to write to the finance ministry, expressing support for doing away with the archaic regulation. However, DIPP may insert a clause which would make foreign investors follow a mandatory lock-in before getting into a new joint venture in the same field, in which the investor is already present. Press Note 1 has been a bone of contention between Groupe Danone and the Wadia Group. The French company has been trying to get a no-objection certificate from the Wadias to make fresh investments in India. Earlier, the VK Modi Group was locked in a dispute with its US partner Guardian over Press Note 1. The American company wanted to set up a subsidiary and the Modis opposed it since it could affect the business of Gujarat Guardian, in which they own 21%. FIPB cleared the US company’s proposal without an NOC from the Modis, but the proposal got stuck in litigation. Press Note 1 was formulated in 2005 to dilute an earlier government provision called Press Note 18, which stipulated that the foreign company had to furnish a NOC from an Indian partner if it planned to set up a wholly-owned subsidiary in an allied field. Press Note 1 has restricted the need for an NOC to the same activity only. In addition, joint ventures formed after January 2005 are not subject to Press Note 1. By Ms.Bobby Aanand, Metropolitan Jury.

"Loved reading this piece by Ms. Bobby Anand?
Join LAWyersClubIndia's network for daily News Updates, Judgment Summaries, Articles, Forum Threads, Online Law Courses, and MUCH MORE!!"

Join our Telegram group

Join our Whatsapp group