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TMI Blog2009 (7) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... and had pioneered manufacture of safety seat belts in India. 3. Takata is a foreign company. 4. FIPB by the order dated 3rd/4th August, 2000 had approved foreign exchange equity participation by Takata in Abhishek Auto Industries Ltd. to the extent of 30% amounting to Rs. 39 lacs by issue of shares for manufacture of safety products for passenger cars. Consequent thereto Takata had entered into agreements with the petitioners or Abhishek Auto Industries Limited on 22.12.2000. The agreements included a Shareholder's Agreement and a Collaboration Agreement for transfer of technology. 5. Learned counsel for the petitioners has submitted that FIPB by allowing Takata to manufacture automotive airbag modules and steering wheels in India through a Takata subsidiary has violated press notes 1 and 3 (2005 series). It is further submitted that FIPB has erred and has committed an error in granting approval by wrongly observing that the Collaboration Agreement and the Shareholder's Agreement related to automobile seat belts and not other automobile safety equipment. It is submitted that the FIPB, therefore, has committed a fundamental error, which goes to the root of the matter and this amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct." PRESS NOTE NO. 3 (2005 SERIES) "Subject: Clarification regarding Guidelines pertaining to approval of foreign/technical collaborations under the automatic route with previous ventures/tie-ups in India. 1. The Government, vide Press Note 1 (2005 series) dated 12.1.2005, notified fresh guidelines for approval of new proposals for foreign/technical collaboration under the automatic route with previous venture/tie up in India. According to these guidelines, prior approval of the Government would be required for new proposals for foreign investment/technical collaboration, in cases where the foreign investor has an existing joint venture or technology transfer/trademark agreement in the same field in India. 2. The Government had, earlier vide Press Note 10 (1999 Series) notified the definition of "same field" as the 4 digit National Industrial Classification (NIC) 1987 Code. It is hereby reiterated that for the purposes of Press Note 1 (2005 Series), the definition of 'same' filed would continue to be 4 digit NIC 1987 Code. 3. It is also clarified that proposals in the Information Technology sector, investments by multinational financial institutions and in the mining se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the foreign collaborator. This part of paragraph 2(i) indicates that "jeopardy" to the interest of the existing joint venture or existing partner or shareholders is the primary factor and concern, when FIPB considers a new proposal by the foreign investor. 9. I need not examine other paragraphs of Press Notes 1 and 3 as the same are not relevant. However, to be fair to the counsel for the petitioner, I may refer to paragraph 2(iii) of Press note 1 and paragraph 5 of Press Note 3 (2005 series). Learned counsel for the respondent-Takata could not counter that paragraph 5 of Press Note 3 (2005 Series) applies and that the parties would be governed by Press Note 1, in spite of the fact that the bilateral agreements were cancelled and the shares held by Takata were transferred to the petitioners. Paragraph 5 of Press Note 3(2005 Series) applies as the Collaboration Agreement and the Shareholder's Agreement between the parties were in force as on 12.1.2005. 10. With regard to paragraph 2(iii) of Press Note 1 (2005 series), learned counsel for the petitioners had submitted that the Government was conscious that Indian partners in past, due to lack of experience, awareness etc., had fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is normally exercised when there is illegality, irrationality or procedural impropriety. Illegality implies failure to understand the law. Irrationality applies when a decision is outrageous in its defiance of logic or acceptable moral standards succinctly referred to as "Wednesbury unreasonableness". Procedural impropriety occurs when principles of natural justice are violated or there is failure to act with procedural fairness, when relevant facts have not been taken into consideration and irrelevant material has been given undue weightage. 13. As stated above, the primary and main concern of FIPB while deciding whether a foreign investor should be allowed to make investment in India, when they already have a joint venture or technical collaboration agreement with the Indian partner in the same/allied field, is whether the said investment will jeopardize the interest of the Indian partner/shareholders/ joint venture. A perusal of the minutes of the 88th Meeting dated 12th January, 2007 would indicate that FIPB was conscious of the test/standard to be applied and need and requirement to ensure that interest of the Indian partner is not jeopardized. The press notes have been righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a share holder in the existing venture. It has also agreed to include supply of components and material for two new Maruti Suzuki models namely SX4 and Swift which were not supplied so far. This commitment is a goodwill gesture beyond what is required legally under the bilateral agreements between the parties. (v) The sale of shares held by the foreign collaborator to the Indian shareholders executed on Dec.22 2006 has also to be taken into account. 7.5. After careful examination of the arguments of both sides and on the basis of above mentioned observations the Board recommended that the proposal filed by M/s.Takata Corporation, Japan be recommended for approval and the undertaking given by the applicant before the board regarding the additional assistance beyond what was required by the Shareholders‟ and Collaboration be also made conditions of the approval." 14. In the circumstances, Takata had agreed to provide engineering assistance and components for four years from the date they ceased to be shareholders and even provide components and material for two new Maruti Suzuki models, viz., SX4 and Swift relating to seat belts. This is in spite of the fact that as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The original application filed by the foreign collaborator before FIPB also mentions that Abhishek Industries Limited is engaged in the business of manufacturing safety seat belt for passenger car at its factory in Gurgaon and has recently diversified its product range to add power window regulator both manual and automatic. The foreign collaborator ASSW had proposed to license its technical knowhow and expertise to the company to improve the product of the company," 16. At first blush, the argument is attractive but on deeper deliberation it commends rejection. The first FIPB approval dated 3rd/4th August, 2000 enabled Takata and the petitioners/Abhishek Auto Industries Limited to enter into collaboration/shareholders agreements and transfer of technology agreement in the field of "car safety products". The FIPB approval permitted and allowed the parties to enter into specific agreements for manufacture of "car safety products". Specific agreements were a matter of contract and could be for the one, two or more car safety products. Press Notes do not state that the field as mentioned in the approval is determinative. Rather the field mentioned in the collaboration agreement/techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an annual marketing and financial plan designed to achieve the above general objectives as soon as possible. It is agreed that this Business Plan will be further refined and expanded to replace this Business Plan as agreed between the parties in accordance with the Shareholders Agreement as soon as possible after completion of the review by the Joint Technical Review Team as referred to in Clause 3.1 of the Collaboration Agreement provided however that the above general principles shall remain. Notwithstanding Clause 11.3 of the Shareholders Agreement, Clauses 11.1 and 11.2 shall apply in relation to the business of the Company in implementing the above general principles." 19. The term "business" for the purpose of Shareholder's agreement, it at first broadly defined to mean manufacture and supply of car safety systems but restricted to services more particularly described in the business plan. The business plan as quoted above refers only to safety car seat belt parts and not other car safety equipments. 20. Clause 15.1 of the Shareholder's agreement incorporates a non-compete clause and provides that in case of termination of the agreement, Takata or Indian partners shall not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seat belts when the collaboration agreement and the Shareholder's agreement were entered into and thereafter till 2006 Abhishek Auto Industries Limited had not ventured into or expanded into other car safety products. Abhishek Auto Industries Limited till 2006 when the two parties separated did not manufacture any other automotive safety equipment. 23. It is possible, as urged by the learned counsel for the petitioners that the parties had contemplated that they would expand their business into other automotive safety equipments in future. However, FIPB after examining the relevant clauses of the Shareholder's agreement and the technology transfer agreement has arrived at an equally possible but a different finding. Merely because a different view is possible it will not be appropriate for a writ court to exercise power of judicial review and strike down the decision of FIPB. Case for procedural impropriety i.e. ignoring materials and relying upon irrelevant therefore fails. 24. In 2006, after termination of the agreements and transfer of shares held by Takata to the petitioners, Abhishek Auto Industries Ltd. has entered into collaboration/agreement with a U.S.A. company. Both th ..... 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