Will Franchisors be prevented from having more than one venture in India at the same time?
23 June 2008
The Foreign Investment
Promotion Board (FIPB) of the Government of India (that approves
projects or ventures involving foreign investment) has stated that
existing foreign investors can only make investments in a new
venture if they are able to demonstrate that the new venture will
not damage the prospects of their existing business partner in
India. The restriction applies to new ventures in the same
sector/field that are capable of damaging the prospects of the
foreign party's existing joint venture or collaboration with an
Indian party. This does not apply if the existing collaboration or
venture is defunct or either party has less than three per
cent shareholding.
Investors will need to obtain a No Objection
Certificate from their existing Indian business partner. Further,
the investor will have to satisfy the FIBP that the new venture
will not damage the interests of the existing business. This
protectionist move gives the Indian partner a worrying degree of
power over the foreign investor. Effectively the Indian partner may
be able to block the new investment.The FIPB recently rejected an
investment of over $15m that a US Corporation was going to make in
establishing a wholly owned subsidiary, after examining the impact
of this proposed venture on the existing Indian partner.
Multiple brand franchisors in the retail and
hospitality sectors are likely to be affected by this move as they
could be faced with objections from their existing local partners
when trying to take a second brand to the Indian market with a new
partner.
For further information, please contact
Mark Abell, Babette Märzheuser-Wood or Chris Wormald.