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Safeguarding Interests in Joint Ventures

Some important issues arising in management control of joint ventures are explained below:

	The most important fact concerning joint ventures is that the Indian corporate laws override any private contractual terms between the partners, unless such terms are addressed and reflected in the Articles of Association of the joint venture company.
	The joint venture company itself is not a party to the joint venture agreement until it has executed a mirror agreement with the foreign partner; and in the absence of a formal collaboration agreement between the implementing company and the foreign partner, the rights of foreign parties shall only be addressed by the Articles of Association and not by the agreements signed by the Indian partner prior to incorporating the entity.
	Indian companies are generally owner-managed or closely controlled through nominee Directors, except in widely public-held companies. Therefore the nomination rights of Indian and foreign shareholders are important in exercising control. Foreign partners must take care to negotiate nomination rights based on actual shareholding ratios and not to a blanker right irrespective of actual holdings of the partner
	Articles of Association often tend to restrict sale of shares for a minimum specified period (usually ten years), which may be beneficial to some partners but not always to others. Have clear clauses on the right to exit from a venture by selling to the remaining partners and provide them in the Articles of association.
	Joint venture agreements are private contracts and any rights and disputes between the founders must be addressed through the provisions of the agreements themselves. Given the slow process of legal settlements in India, provide for arbitration for settling partner disputes, which come under the purview of International Commercial Disputes.
	Take special care to see that the Articles provide for sending notices of meetings outside India (Indian Company law only requires notice to be sent within India) and for the appointment of Alternate Directors, who may be residents of India. Such rights do not exist automatically and must be provided specifically in the Articles of the Company
	Articles of companies may provide for special quorum in form of affirmative votes of specified Directors in some decisions, to safeguard interests of each partner

With due attention to the finer points of Indian laws during the negotiation stages, and with appropriate local advice, foreign entities can build in sufficient safeguards to protect their legitimate business interests in joint ventures, without getting into protracted litigation. However, care must be taken to select advisors having sufficient relevant expertise in solving joint venture problems, which is a nascent area in India.

However, problems can occur in joint venture structures despite adequate caution in the initial stages. Some of these problems between the Indian and foreign partners can have serious implications for the success of the venture, especially when they cannot be resolved by reference to the contractual provisions alone.

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