In order to constitute a joint venture agreement, the requirements prescribed under the Indian Contract Act and the Companies Act need to be fulfilled.
According to Reserve Bank of India, an Indian company may receive Foreign Direct Investment under the two routes as given under:
- Automatic Route
FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.
- Government Route
FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.
The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank
All joint venture proposals not falling within the Reserve Bank of India’s automatic route require approval of the Reserve Bank of India, The Foreign Investment Promotion Board(FIPB) or the concerned industry ministry, depending upon the quantum and nature of foreign investment.
Joint venture agreements have to be registered either with the RBI or Secretariat of Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP),
A Joint venture is classified into – unincorporated joint venture and incorporated joint venture. An unincorporated joint venture is a contractual joint venture and does not involve the incorporation process. Such a type of joint venture is generally like a partnership and is typically entered for a particular purpose. A joint venture formed by way of partnership is governed by the Partnership Act, 1932. An incorporated joint venture is one that uses a company established for the purpose of the joint venture, with the parties acquiring shares in the company. Incorporated Joint Venture Company is governed by the Companies Act, 1956.
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To know more about Commercial Contracts & Agreements in India, read below: