Indian company wins lawsuit against German JV partner

July 29th, 2008 - 6:16 pm ICT by IANS  

Pune, July 29 (IANS) Aquarius Engineers Pvt. Ltd., a Pune-based hi-tech construction equipment company, has won a legal battle against its German joint venture partner for setting up a subsidiary in India without obtaining prior approval. Holding the Aichtal-based German company Putzmeister AG’s action of setting up its subsidiary in India without obtaining the requisite approval while remaining a joint venture partner with its Indian partner illegal, the Delhi High Court directed it to pay a fine and litigation cost totalling Rs.100,000.

Giving details of Putzmeister’s “dubious” dealing with them, Aquarius promoters M.S. Bhadbhade and A.V. Dixit told reporters here that the German company entered into a JV agreement with them to set up Putzmeister India Private Limited in Goa in 1997 for manufacture of concrete pumps.

“Initially, the equity ratio was 76:24 percent with majority stake with us with an understanding to make it a 50:50 JV later,” Dixit said, explaining that it was done because “unfamiliar with Indian market, Putzmeister was nervous in the beginning”.

“With the JV making excellent progress within seven years, thanks to an all-time high demand for construction equipment in India, Putzmeizer sought 65 percent stake in the company and we acceded to the demand in November 2005, diluting our stake to 35 percent,” said Bhadbhade.

However, the German partners wanted more so they went ahead and formed their own wholly- owned subsidiary by the name Dynajet Machinery India Ptv. Ltd in Goa itself.

The new company started making the same products without obtaining any prior approval, as required by the government of India under the industrial policy guidelines, Bhadbhade added.

“As if that was not enough, Putzmeizer AG availed the automatic route via Reserve Bank of India for making initial investment in the wholly owned subsidiary,” explained Dixit.

On learning about the new subsidiary, Aquarius promoters filed a writ petition in the Delhi High Court against Putzmeister AG, which the German company challenged with another writ petition.

“Our contention was that a company already into a JV agreement cannot have another subsidiary doing business in the same field and cannot take automatic route of RBI for making FDI,” Dixit said, adding that prior approval of the Foreign Investment Promotion Board (FIPB) was mandatory.

Upholding the Aquarius contention, Justice Ravindra Bhat of the Delhi High Court ruled July 1 that Putzmeister AG engaged itself in an ill-advised litigation and that its conduct has to be deprecated.

According to Dixit, the case assumes significance for it will prove exemplary for other Indian investors who are in similar situation given the money power held by multinational companies.

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