JOINT VENTURE AND SHAREHOLDERS AGREEMENT

1.             Information of Joint  venture Company

 

1.             Local  and foreign (or  else Local along) shall  take all necessary steps for   the incorporation of a (type of corporation to be formed ) corporation under the laws of (jurisdiction of incorporation ), which said corporation  shall be   hereinafter referred to as the “Joint Company’

 

2.             Local  and foreign  (or  else Local  alone) shall cause  the Joint Company to be duly organized in  accordance with the terms of this  Agreement, with (name for the documents of incorporation, under the law of the jurisdiction of incorporation, such as “Statutes”  “Letters Patent of Incorporation”, “Memorandum and Articles of Association” etc.), which  in the English  translation shall read in substantially the form schedule attached hereto.

 

3.             The costs  of incorporating  the Joint Company shall be brone equally (or accordingly to some other formula) by foreign  and Local.

 

4.             If any of the provisions contained in the said Schedule should not be approved by the appropriate authority for inclusion in the documents of incorporation of the Joint Company, then the parties agree to   make such amendments  thereto  as shall be acceptable  to the said  appropriate  authority without altering their  purpose or intention, or failing such amendment, to take all such other steps and do  such other things, including the execution  of any other agreements as may be necessary, to achieve the interest  and purpose of  such of the provisions as may not  have been found acceptable by the said   appropriate  authority.

 

2.             Payment for equity participation

 

In payment for the shares of the Joint Company  to be acquired  by Foreign (Local ) at the time  of incorporation  of the Joint Company (or, within-days after the incorporation  of the Joint Company), Foreign (Local) shall assign and transfer to the Joint Company), Foreign (Local) shall assign  and transfer  to the  Joint  company.

 

1.             Cash : (amount ) in cash.

2.             Machinery and Equipment : All the machinery and equipment  set forth in Schedule-annexed hereto, which  said machinery shall become the sole property  of the Joint company, free and clear of all liens, charges and claims of any king whatsoever.

3.             Land : The absolute title, free and clear of  all liens, charges and claims  of any kind whatsoever, to the real property and all  buildings   and  other  structures  thereon, including all fixtures, equipment and machinery located therein situated  at (municipal address) which said real property, buildings structures, fixtures,  equipment and machinery are more specifically described  in the  schedule annexed hereto.

 

4.             Industrial Property :

 

(a)           Assignment

(i)            PATENTS :           Foreign’s  entire right, title and interest in and to all unexpired  patents and patent applications theretofore  issued  or assigned  to or filed by Foreign  anywhere in the  world to the Licensed Products or to the production, manufacture or  use thereof (a list of such patents and patent  applications heretofore issued or  assigned to or filed  by Foreign being set   out in the attached Schedule), together with all rights which Foreign then has to apply for  patents in the territory on inventions relating to the  Licensed  Products or to their production,  manufacture  or  use, and  including  all of  Foreign’s  rights  with respect to patents  which may thereafter   issue  anywhere  in the territory   or any  such patent applications and with respect of divisions, patents  of addition, continuations, renewals, reissues and extensions of all  such patents, patent applications and patents which may  issue on such patent applications ;

 

(ii)           TRADE MARK AND TRADE NAME : Foreign’s  entire right, title  and interest in and  to all rights in the territory which it  then has to all of the following  trade marks and trade names, namely : (to all the trade marks and trade names set out  in the attached Schedule);

 

(b)           Licenses : 

Foreign shall enter  into a Licence Agreement with the Joint company in the form as set out  in Schedule-hereto annexed, under  which  said Licence Agreement  the Joint Company shall  become  the exclusive licensee for the world for all unexpired patents  and patent applications of foreign for the Licensed Products or to the production, manufacture  or use thereof, together with all  rights  which Foreign  then  has to apply for patents  in the territory on inventions relating to the Licensed  Products or to their  production,  manufacture or use, and including  all of Foreign’s  rights  with respect  to patents which may thereafter  issue anywhere in the territory or  any such patent applications  and with respect  to divisions, patents to addition, continuations, renewals, re-issue and extensions of all such patents, patent applications and  patents  which may issue on such  patent applications ;

 

(c)           Sub-licenses :

Foreign’s  entire right , title and interest in and to all rights in the territory which it then  has under patents owned by others relating to the Licensed products or to their production manufacture or use , a list of Foreign’s  present right under such patents  being set out in the attached  Schedule.

 

5.             Technical Date : 

Foreign’s entire  right, title and interest in and to the sue in the territory of all Technical Date which Foreign  is then entitled  to use anywhere in the world ; and thereafter during  the term of this Agreement, Foreign  shall   assign  and transfer   promptly   to the Joint company any and all rights in the territory  with respect  to Technical Date  relating  to the Licensed Products and all other products being manufactured  by the Joint  Company, which  Foreign  shall acquire during  such term incidental  or relating to  such  products;   foreign  shall take all such action and shall execute all  such documents as the Joint Company referred to above, including, without limitation, the full and complete disclosure to the Joint Company of Foreign’s  Technical  Data, and lists of Foreign’s  distributors and customers for all  of the  Licensed products and other products  produced or sold by foreign which may be similar to the products manufactured  or sold from time to  time by the Joint Company.

 

In the above Section, the term “Technical Data” shall mean formula, inventions, whether or not patentable, secret processes and technical  information relating  to the products  and to the  production, manufacturing,  engineering and test data, specifications, application, instructions,  information, regarding uses, raw materials and methods for controlling and  analysing quality  and sample copies  of advertising  and publicity materials,  except that information received in confidence from others or information forbidden to be disclosed  by virtue of any  law  or governmental  regulation  restricting  the dissemination of such  information shall not be included.

 

Note:      Indian government does not normally  allow adjustment of share Capital against equipment or know-how fee transferred  by the foreign  party to Indian Joint Venture Company.

 

3.             Decision by Board of Directors

 

A.            Simple majority :  All decisions of the Board of Directors shall require  an affirmative  vote of at least (number-it should be half  of the total  number of  directorship plus one ) directors.

                                                OR

Unlike  joint ventures in India, Joint venture undertakings are established abroad by the Indian  entrepreneurs for building up an export  potential  for their  products manufactured  through foreign collaboration in the developing   countries  where there is a  favorable political   climate  and  a demand for the Indian products. For this  purpose, the Government offers the following opportunities:

 

(i)            opportunities to increase the export  potential of the Indian company;

 

(ii)           facility of  repatriation to India of capital  and dividend and royalty and remuneration earned outside India from  joint ventures;

 

(iii)          incentives under the Income-tax Act.

 

(iv)          Compliance with requirements for setting up joint ventures.-The following requirements  will have to be complied  with for setting up joint ventures abroad :

 

(a)           Under  Companies Act.-Since the Government’s  policy is to  encourage only  the corporate bodies to invest  in joint ventures abroad  application should be made to the Central Government,  Department of Company Affairs under section 372 (4) if the Companies Act, 1956 in Form  34-B prescribed  under the Companies (Central Government’s) General Rules  and Forms, 1956. [Form No. 1 below].

 

(b)           Under FERA.- Section  27 of Foreign Exchange Regulation Act, 1973, requires  that persons resident in India including firms and companies (other than foreign nationals) should obtain  prior permission of the Government of India to  associate   themselves with, or participate in, whether as promoters  or otherwise, any concern outside India engaged in, or intending to engage in,  any activity of a trading, commercial or industrial nature, whether such concern is a body corporate  or  not.  The application has to be made in the prescribed  Form  PFCE (See Form No. 31 in Chapter 12).

 

(c)           Approval of Reserve bank.-An application has to be made to the Reserve Bank of India in the prescribed Form  GRI/EP (Form Nos. 2 and 3 below) for export of plant and machinery and other capital goods or  equipment  from India towards  the Indian collaborator’s  contribution to the ventures abroad.

 

(d)           For sending representatives.-If the Indian company sends  its representative  abroad for purposes of the overseas venture, application has  to be  made to the Reserve Bank of India  for exchange in the prescribed  Form     TRB 2 (Form No. 4 below).

 

(e)           Remittance of  cash.-If the Central Government permits  remittance of cash towards   equality  participation on the overseas concern, application for release of foreign exchange  will have to be made in the prescribed Form A 2, (Form No. 5 below).

 

(f)            Holding shares and securities  abroad

 

(f)            Holding shares and securities  abroad –An application has to be made  n the prescribed  Form   FADI  (Form No. 6 below) to the Controller,  Exchange Control Department, Reserve Bank  of India, Central Office (Foreign Accounts Division ) Bombay-1 for licence to hold the shares or securities abroad.

 

(ii)           Tax  concessions under Income-tax Act.-The following tax concessions and incentives are provided by the Income-tax Act in  respect of joint  venture abroad :

 

 (a)          Deduction  of 50% (25% up to 31.3.1987) of profits and gains from projects outside India.-Section 80 HHB  of the Income-tax Act, inserted  w.e.f. 1.4.11983, provides  for a deduction of 50% (25%  up to 31.3.1987) of  profits  and  gains of an Indian  company or a non-corporate  resident assessee derived from the  business  of execution  of a foreign  project –undertaken by the  assesee in pursuance  of  a contract entered  into with the Government of a foreign State  or any statutory or  other  public authority or agency  in a foreign  State or a foreign enterprise  if the  following  conditions are fulfilled:

 

(a)           The foreign  project  must be a project for construction of any buildings,  road, dam,  bridge or other structure  outside India or the assembly  or  installation of any machinery or plant outside India, or the  execution  of such other work    which  may be prescribed.

 

(b)           The consideration  for the execution  of the foreign project is payable in convertible foreign   exchange.

 

(c)           The assessee keeps  separate  accounts of such profits  and gains from the foreign  project. Where  the assessee is a person other than an Indian company  or co-operative  society, the accounts are audited by an accountant, and a report of such audit in the prescribed  form and  signed and verified by such accountant  is furnished  along with his return of  income.

 

(d)           An amount  to  equal 50% of such profits  and gains  is debited to the  profit

 

(c)           The assessee keeps  separate accounts of such profits and gains from the  foreign  project. Where  the assessee is a person other than an Indian  company or co-operative  society, the accounts   are audited by an accountant, and a report of such audit in  the prescribed  form and  signed and verified  by such accountant  is furnished along with his  return  of income.

 

(d)           An  amount equal to 50% of such profits and gains is debited to the profit and loss account of the previous year  of the  assessee and credited  to a reserve account   is to be    utilised  by the assessee during  a period  of five years  next following  for the purpose of its business. It  should not be distributed by way of dividend or profits.

 

(e)           An equal  amount of 50%  of such profits and gains  is brought  by the assessee  into India  in convertible foreign  exchange in accordance  with the  provisions of the Foreign Exchange Regulation Act. 1973,  within six  month from the end  of the previous  year. Where  the amount brought  into India  in  convertible  foreign exchange falls  short  of 50% , deduction allowed will be limited  to the amount  credited or  brought  into India.

 

(b)           Deduction of 50% of royalties, commission, etc., received from foreign enterprises.-Under Section  80-O  of the Income-tax Act, a  deduction  of an amount  equal  to 50% of income  by way of royalty, commission, fees or  any similar payment received  by an Indian company from the Government  of a foreign  State  or a foreign  enterprise in consideration for the use  outside India of  any patent, invention, model, design, secret formula or process, or  similar property  right, or information concerning industrial, commercial or  scientific  knowledge, experience  or skill made available or provided or agreed to be  made available or provided  to such Government  or enterprise  by the assessee, or in consideration of technical  services rendered  or agreed to be rendered outside India to such Government or enterprise by the assessee,  is allowed.

 

                For  availing this deduction, the following conditions will have to be satisfied:

 

(i)            such income should  be received  under an agreement approved  by the Board up to 31.3.1989 or by the Chief Commissioner or the Director  General from 1.4.1989.

 

(ii)           such, income should be received in  convertible foreign exchange  in India, or having been  received  in convertible foreign exchange outside India, or having  been converted into  convertible foreign  exchange outside India, is brought  into India, by or on behalf  of the assessee in accordance  with any law  for the time being in force for regulating payments and  dealings in foreign exchange.

 

(iii)          such income should  be received in India within  a period of six months form the  end  of the previous year or within such further  period as the Chief Commissioner or  Commissioner may allow.

 

                Section 80-O does not specify  who the party of the other part to the  agreement should be. It is, therefore,  difficult  to  imply that the party  of the other part must be the Government of  a foreign State or an foreign  enterprise. Even  in terms of the objects of the section there is no reason why the agreement should  be restricted to one entered into with the Government of a foreign State or a foreign enterprise. Regardless of who the party of the other part is, if the conditions of the section have been complies with,  there  will be an augmentation of the foreign exchange resources of the country. [Petron Engg. Constructions (P.) Ltd. v.  CBDI, (1987) 34 Taxman 401 (Bom)].

                Further, the words “the Government  of a foreign State or foreign enterprise’ must be read together. The words  ‘foreign enterprise’ must  take colour  from the words ‘the Government  of a foreign State.’ The words  ‘foreign enterprise’ cannot, upon an interpretation of section 80-O, be held to  apply to an establishment or undertaking or branch or unit of an Indian  company in a foreign country. Such establishment, undertaking, branch or  unit may well be an ‘enterprise’ but it is not a ‘foreign enterprise’ within  the  meaning of these words as used in section 80-O .[Petron Engg. Constructions (P.) Ltd. v.  CBDT, (1987) 34 Taxman  401 (Bom)].

 

                However,  there is nothing in section 80-O  which requires that the agreement should necessarily be between  the assessee and the foreign party. If the conditions set out in section 80-O are fulfilled, the  agreement would qualify for approval. [Indian Hume Pipe Co. Ltd. v. CBDT, (1986) 27  Taxman 90 (Bom)].  If the agreement  is entered  into by the Indian company with a  foreign  Government but the Indian company appoints  an  Indian  contractor  to execute the work under the agreement, there would be sufficient  compliance with the provisions of section 80-O and the  agreement  would deserve approval. [Ganon Dunkerely & Co. Ltd. v. CBDT, (1986) 156 ITR 162 (Bom)].

 

                The very  object  of the section is that the identity  of the Indian company must be different from that  of the foreign company and that the managing or running a  foreign  company   by the  Indian company would not amount to rendering of technical services,  because  when the Indian  company manages or runs  the foreign company, then the identity of the Indian company would be lost  and, therefore, the remuneration obtained  from managing or running  a  foreign  company would  be  in the nature of profits while section 80-O  restricts itself  to  income  by way of royalty, commission or  fees  and excludes  all  other  types of remuneration. [J.K. (Bombay) Ltd. v. CBDT, 91979) 118  ITR 312 (Del), distinguished  in Oberoi  Hotels (India) (P). Ltd. v. CBDT,  (1982) 135 ITR 257 (Del) in connection with managing a modern  hotel].

 

                It may   be noted  that  technical  services  should be rendered  outside India and  not in India, e.g.,  testing samples of products in laboratory in India would  not amount to rendering   technical  services outside India. [Scarle (India)  Ltd. v. CBDT, (1984) 145 ITR 573 (Bom)].

 

                The information received  from Indian consultants by the British  Broadcasting  Corporation, (BBC) on  attitudes  of the Indian audience for use by the  BBC  can be said to be used outside India. [E.P.W..Da Costa v. Union of India, (1980) 121 ITR 751 (Del)].

 

                The information  received   from Indian consultants  by the British Broadcasting  Corporation, (BBC)  on attitudes of the Indian audience  for use by the  BBC can be said  to be used outside India. [E.P.W.Da  Costa v. Union of India, (1980) 121 ITR 751 (Del)].

 

©             Deduction in respect  of remuneration of Indian technician for services outside  India.-A  technical  who is a citizen of India  is entitled  to the deduction  from his   remuneration  received  by him in foreign  currency  from any employer (being a foreign  currency from  any employer (being a foreign  employer  or an Indian  concern) for any services rendered by him  outside  India for a period of 3 years, of the higher of the following :

 

(i)            50% of remuneration, or