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Government allows Indian subsidiaries of foreign music firms to pay royalty details>>
De Nocil barred from paying royalty on formulation to foreign partner details>>

1. Prior approval from RBI for foreign investment proposals in joint ventures no longer needed

The Reserve Bank of India (RBI) has notified during 1998, that general permission under the Foreign Exchange Regulations Act, 1973 (FERA) would be available for all foreign investment proposals. Thus, an Indian company setting up a joint venture need not seek prior RBI approval either for receipt of funds from its foreign collaborators of for issue of shares to them, if its proposal complies with the requirements of the RBI's automatic route, or is approved by the SIA/FIPB.

Within 30 days of receipt of funds from a foreign investor/collaborator, the Indian firm has to declare the following in a letter to the concerned Regional Office of the FBI:

[1] Name of the foreign investor.

[2] Country of residence or incorporation of the foreign investor.

[3] Date of receipt of remittance and its rupee equivalent.

[4] Name and address of the bank in India through whom the remittance is received.

[5] If the funds are received on the basis of a SIA/FIPB approval, the number and date of such approval letter.

Within 30 days from the date of issue of shares to a forign investor/collaborator, the Indian firm has to file the following documents with the concerned Regional Office of the RBI:

[1] One copy of Form ISD

[2] One copy of Form FC(RBI), if it is a case of automatic approval or a certified copy of the approval letter issued by SIA/FIPB.

[3] Original Foreign Inward Remittance Certificate (FIRC) evidencing receipt of funds.

[4] Memorandum and Articles of Association of the issuer company.

[5] Original certificate by a Chartered Accountant, containing particulars of shares issued, date of issue, number of shares, and the issue price.

[6] Certified copy each of the Board Resolution, Special Resolution (if applicable), and Statutory Auditor's certificate (listed company) or a Chartered Accountant's certificate (unlisted company) about the fair value of the shares issued.

[7] Certified copy of the Board Resolution, to be passed in the case of a SIA/FIPB approval, confirming compliance with the conditions stipulated in the SIA/FIPB approval letter.

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2. Export - Import Policy amended to allow imports of new items

The Government of India has announced the amended Export-Import policy (1997-2002) on
March 31, 1999.

Following are some of the salient features of the amended policy:

894 items, including food items have been moved into free list of imports while 414 items have been placed under special import licence list and another 116 items decanalised.
Free Trade Zones will become operational from July 1, 1999.
Annual advanced licence system has been introduced.
Service sector has been given greater importance. Threshold limit for recognition of Service Export House has been fixed at 1/3rd of the level recommended for merchandise exports.
Electronic filing of applications has been allowed to cut down costs of transactions.
EOU/EPZ (Export Oriented Unit/Export Processing Zone) scheme will be rationalised further.
'Green card' provision (offering a number of facilities) will be offered to exporters who export 50 per cent of their products, worth minimum Rs 1 crore.
Additional facilities will be offered for gems and jewelry exports.
Facilities under duty exemption scheme has been extended to more ports.
No additional custom duty will be charged on import of capital goods under zero duty EPCG scheme in marine and electronic sectors.

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3. Govt. allows Indian subsidiaries of foreign music firms to pay royalty to parent

The Government of India has decided to permit royalty payments on reproduction of foreign music by the wholly-owned Indian subsidiaries of the foreign companies.

The current guidelines do not allow royalty payment by the wholly-owned Indian subsidiaries to their foreign parent.

However, now an exception has been made in case of the music industry.

The proposal for such royalty payment was first forwarded by Polygram India, a wholly-owned subsidiary of Polygram International Holding BV of the Netherlands, which has been cleared by the Foreign Investment Promotion Board. easily.

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4. De Nocil barred from paying royalty on formulation to foreign partner

The Foreign Investment Promotions Board (FIPB), of the Government of India has disallowed De Nocil Crop Protection from making royalty payments to its foreign technology partner, Dow Agrosciences, on the total sale value of one its formulations - chlorpyriphos .

As per the technical tie-ups and the royalty payments thereof, De Nocil had been allowed to make a lumpsum payment of Rs.4.25 crores (US$9,77,011 approx.), net of taxes, to be paid in four instalments. As per FIPB's policy, the royalty payments were to be calculated on the general formula of 5 per cent on internal sales and 8 per cent on exports, net of taxes. These levels were to be for a period of seven years.This structure did not permit royalty payments other than on the sale of the product.

De Nocil claimed that part of the production of chlorpyriphos technical was captively consumed and used for formulation and sought FIPB's approval for:

Payment of royalty on the value of "chloropyriphos technical used in formulations" and not on the total sales value of the item or on any amount exceeding the sale value of the production of the item at their plant of 3000 tonnes annual capacity.

FIPB based its decision to reject De Nocil's request on the Department of Chemicals and Petrochemicals' recommendation pointing out that:

FIPB's policy did not permit royalty payments on basic products and formulations;
Distinguishing between total sales and the value of chlorpyriphos used did not make the royalty payments within policy; and
Royalty payments on the basic products and the formulation would double the actual amount that should be paid.

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