Understanding Joint Ventures & Nissan Dispute


The joint venture of Nissan and Ashok Leyland has been in news despite the successful venture ‘Dost’. It is not uncommon to see that an association between group of persons (natural or legal entities), who enter into an agreement to do business together or to undertake a particular project, without losing their independent corporate structures as joint ventures result in creating frictions in the end. However, it is also true that joint venture is good business model not only as it minimizes the risk factors involved in entering into a new business area, but also reduces the costs involved. The business model allows a foreign company to enter into a foreign jurisdiction and unlocks potential business opportunities by providing new learning experiences, which is especially helpful in emerging countries such as India. Joint ventures can be domestic joint ventures, which have all the partners of same nationality and in international joint ventures they are of different nationalities. The article examines briefly the about joint venture in light of current news of upheaval in Nissan Ashok Leyland issue cropping up.

A. Types of Joint Ventures

A joint venture may take place between corporations, limited liability companies, partnerships, or any other type of legal entities. It may be for a short period, or for several years. The purpose of a joint venture determines its type or mode. Some of the fundamental types of joint ventures in India are described below. JV helps in formation of new product. A joint venture may be classified into the following types, on the basis of how it is constituted.

  1. Joint Venture for Strategic Alliance without creating a new entity/ Unincorporated:
      Joint Working Group
    • Co-development and Co-Production Agreement
    • Co-Production Agreement
    • Transfer of Technology and Collaboration Agreement
  2. Creating a new entity/Incorporated: To start a new business activity. Such an arrangement helps in combining complementary research and development technologies.

B. Starting Joint Venture in India

Joint Ventures involves sharing of profit, loss and control in a particular business. It is a short duration special purpose business vehicle. The members in joint ventures are known as Co-Ventures. It’s a temporary business activity. Joint ventures in India require governmental approvals, if there is a foreign partner or an NRI or PIO partner. The approval can be obtained either from Reserve Bank of India or Foreign Investment Promotion Board (FIPB). In case, a joint venture is covered under automatic route, then the approval of Reserve bank of India might be required. In other special cases, not covered under the automatic route, a special approval of FIPB is required and then no further RBI permission is to be sought. The business commences by selection of JV Partner strictly depends on proper due diligence on the financial, legal and commercial front. The due diligence should include study of:

  • Company background & history
  • Status & compliances for group companies
  • Finance, tax, accounting
  • Borrowings, loans, investments
  • Manufacturing, marketing, distribution
  • Contracts, licenses, approvals
  • Corporate compliances
  • Properties
  • Litigations & disputes
  • Pollution & potential threats
  • Employees & HR
  • Ownership
  • IPR rights

After deciding on the JV Partner, then go ahead to sign a Memorandum of Understanding and Non-Disclosure Agreement containing a broad vision of business plan. The FDI guidelines are important in any such joint venture. All parties should enter into shareholders agreement, Memorandum of Association and Article of Association in line with Share Holders Agreement and other sector wise guidelines and ensure sector-wise compliance. While structuring the JV Agreements the following should be outlined:

  • Share each party and Composition of the Board
  • Who and how the JV will be operated & managed?
  • Valuation of IPR
  • Pay out policy – Dividend/ Buy back
  • Representation & warranties
  • Compensation policy for senior management team
  • Non compete Clauses
  • Taxation and Penalties
  • Equity Participation– 11%, 26%, 51%, 76%
  • Contribution by partners: financial, bank guarantees technical, R&D support, manufacturing, marketing, day to day management
  • Minority Protection – Affirmative vote, right to buy out, proper exit route
  • Restriction on Transfer of Shares: Transfer includes all actions relating to shares & voting rights, lock in period, general restrictions, inter se transfer, affiliate, pledge & hypothecation in ordinary course of business
  • Special Rights relating to shares: Tag along, Drag along, Right of first refusal, pre-emption right.
  • Dead lock resolution: One party should have clear right to decide, third party reconciliation, out right purchase, distribution of assets by demerger, Put call option, Seal Bid method
  • Arbitration: Dispute, appointment of arbitrators, jurisdiction, award, decree, enforcement
  • Force Majeur: Natural calamities beyond the control of the parties
  • Exit Route, Winding up/ Termination/ Closure :Sun set clause, events, procedure, right of the parties after terminations, compensation. Conditions precedent to closing, Closing events & procedures
  • Jurisdiction
  • Severability

The JV various compliances under following law applicable laws are required to be done as well:

  • Industrial Policy
  • FDI Regulations
  • FEMA Guidelines
  • Company Act, 2013
  • SEBI Laws
  • Listing Agreements
  • Indian Contract Act
  • Stamp Act
  • IPR laws
  • Compliances under the Competition Act

C. The Recent JV in Dispute

Ashok Leyland is the second largest commercial vehicle manufacturer in India. It had teamed up Japan’s Nissan Motors in 2007-08 to develop and manufacture Light Commercial Vehicles, under both the Ashok Leyland and Nissan brands, in the 2.5 to 7.5 tonne segment. The JV resides in three separate companies for vehicle manufacturing, power train manufacturing and technology development. In the flagship, Ashok Leyland Nissan Vehicles Ltd, Leyland has a majority 51% stake with Nissan as a junior partner with 49% equity. The shareholding is just the opposite in Nissan Ashok Leyland Powertrain Pvt. Ltd., the entity for engine making for all the JV models, which is owned 51% by Nissan and 49% by ALL. The third is Nissan Ashok Leyland Technologies Pvt. Ltd. for the technology development and R&D Company which is equally owned in 50:50 by the two partners.

Nissan Ashok Leyland Technologies Ltd (NALT) is an equal joint venture between Nissan Motor Co. of Japan and Ashok Leyland, has moved the Board for Industrial and Financial Reconstruction (BIFR) due to financial constraints. Of recently, as per reports carried in major newspaper, Hinduja group’s flagship company Ashok Leyland Ltd has moved a district court near Chennai over a legal dispute with its joint venture partner Nissan.

The joint venture between Japanese auto major Nissan and Hinduja group flagship Ashok Leyland for small trucks has already hit a tax bump over non-fulfillment of export obligations. The Directorate of Customs and Intelligence has slapped a Rs 202-crore tax demand on the venture and has threatened to seize factory machines of Renault-Nissan’s plant which imported them for the JV in Oragadam.

Admist the storm, JV’s first launch ‘Dost’ for Ashok Leyand was an instant hit, but has since been tottering. Its second launch a van Evalia badged by Nissan and Stile by Ashok Leyland failed to make a mark in the market. The future of the JV is yet to be seen in light of the storms.


Choosing a right partner in JV is the prime point of success however, the same is complex legal and financial due diligence exercise. Despite the issue that arise like in Nissan Motor, the joint venture still happens to be a popular model for doing business by way of partnership for achieving a particular goal or series of goal. Although joint venture agreements are agreements in perpetuity, however it last so long as parties continue to do business. So, in situations where one party may decide to pull out of joint venture agreement, in such a situation the outgoing party will have to make first option of purchase of its share to other party of the venture. If it fails, then the outgoing party will have option of getting on board the new party who would step in shoes of outgoing party.

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