2014

Indo-Japan Trade & Investment

Bulletin April Issue

Japan Desk, Corporate Professionals

Indo-Japan Trade & Investment Highlights

India’s AEG Group's Indian subsidiary to sell its manufacturing facility to Japan's

Toshiba Mitsubishi-Electric

India's Coromandel to form JV with Japan's Yanmar, Mitsui

India's Stumpp, Schuele & Somappa Springs spins coil spring business into JV with

Japan's Mitsubishi Steel

Japan's Suntory, India's Tilaknagar in race to buy Imperial Spirits

Meidensha Corp buys 23% stake in Prime Electric

TCS, Mitsubishi to create new Japan IT services firm

Japan's Rakuten planning acquisitions to enter India

Omron Automation opens 1st automation centre in India

India, Japan meeting on amphibious aircraft deal in Tokyo

Nissan India to scale up Chennai plant capacity

Japan's LINE Corporation in talks with Indian telcos for collaborations

Daiichi and Docomo exit, but India remains a hot market for the Japanese

Knowledge Centre

DEEMED PUBLIC COMPANY: Analysis of Applicability of Companies Act, 2013

on Indian Subsidiary of Companies Incorporated Outside India

INDEX

AEG Group's Indian subsidiary to sell its manufacturing facility to Japan's Toshiba

Mitsubishi-Electric

AEG Power Solutions Group, the sole subsidiary of the holding company 3W Power S.A.,

headquartered in Zwanenburg in the Netherlands and is the global provider of power electronics

systems and solutions. The Group has sold recently its Bangalore-based subsidiary AEG Power

Solutions India Pvt Ltd (AEG PS) to Japan's Toshiba Mitsubishi-Electric Industrial Systems

Corporation (TMEIC). TMEIC was formed from the merger of the industrial systems departments

of Toshiba Corporation and Mitsubishi Electric Corporation. The firm manufactures and sells

variable frequency drives, motors and advanced automation systems for a range of industrial

applications. This transaction comes in the wake of AEG PS's restructuring plans and increased

focus on its core areas of competitive strength. AEG PS is happy to have Toshiba as its partner that

will continue to provide to its customers an equally high standard of capability and expertise as

well as give a long and prosperous future for the well deserving Indian colleagues.

India's Coromandel to form JV with Japan's Yanmar, Mitsui

India's Coromandel International Limited, the crop protection products manufacturer is forming a

joint venture with two Japanese firms namely, Yanmar Co Ltd and Mitsui & Co Asia Pacific Pte

Ltd, to manufacture rice transplanters and harvesters. Coromandel International and Yanmar each

will own 40 per cent stake in the JV, and Mitsui will hold the remaining 20 per cent stake. The

proposed project is estimated to have a capital cost of Rs 40 crore. Coromandel will provide an

edge to the deal through knowledge of farming practices, connect with the farmers to market the

equipment and also use its relationship with promoter Murugappa Group’s engineering firm to set

up the manufacturing base and to aboriginal the production of the equipment over a period of time.

Indo-Japan Trade & Investment Highlights

The JV agreement also provides possibility of engaging in sales and after sales services of other

Yanmar brand machinery with mutual agreement of parties. Coromandel’s managing director, Mr.

Kapil Mehan is hoping that the development of cost competitive agriculture manufacturing

capability will allow the company to further expand its farm mechanisation services through its

retail outlets.

India's Stumpp, Schuele & Somappa Springs spins coil spring business into JV with Japan's

Mitsubishi Steel

India-based automotive springs manufacturer Stump, Schuele & Somappa Springs Pvt Ltd (SSSS)

has spun off its coil spring business into a joint venture with Japanese firm Mitsubishi Steel Mfg

Co Ltd (MSM). Established in 1960, SSSS is a part of MG Brothers Group, which is engaged in

varied businesses such as transportation & auto dealerships, agriculture and real estate etc. MSM

is engaged in the manufacturing and sale of steel products and is operating in five business

segments including specialty steel products, spring, fabricated materials, equipment & device

segment and others. The JV firm is in the process of manufacturing coil springs and stabiliser bars.

For manufacturing construction machinery recoil springs, the Indian firm has formed a separate

JV with MSM. The manufacturing facility will be based out of Chennai, India.

Japan's Suntory, India's Tilaknagar in race to buy Imperial Spirits

Suntory, the leading beverages maker of Japan and India's Tilaknagar Industries, based in Mumbai,

are competing to purchase their rival Imperial Spirits, which was put on sale by private equity

fund, Lighthouse Funds. The development comes after the world's biggest spirits maker Diageo

purchased India's largest liquor maker United Spirits.

Meidensha Corp buys 23% stake in Prime Electric

Meidensha Corporation, the Japan-based capital goods manufacturer, has signed a joint venture

agreement with India’s power equipment manufacturer, Prime Electric Ltd for acquiring a minority

stake of 23 per cent in the Indian company. Prime Electric is a part of diversified business Prime

Group of Companies having manufacturing facility at Hyderabad, Andhra Pradesh and is one of

the leading manufacturers in the area of large capacity power transformers.The company has a

broad customer base in India and is looking to expand its operations to reach markets in other

countries. Meidensha Corp was founded in year 1897 and is engaged in manufacturing and selling

capital goods including generators, substation equipment, electronic equipment, and information

equipment in Japan and globally.

TCS, Mitsubishi to create new Japan IT services firm

Tata Consultancy Services (TCS), India's largest outsourcing firm and Japan's Mitsubishi Corp are

teaming up to create a Japanese software services provider with an estimated annual revenues of

$600 million. Under the agreement, TCS Japan, Nippon TCS Solution Center and IT Frontier

Corp will merge to create the provider. This transaction signifies TCS's serious commitment to the

Japan market. Through this deal, TCS will have a strong local presence and full range of global

capabilities to serve the Japanese corporations effectively and to contribute to its growth in Japan's

market and Mitsubushi will effectively complement TCS's deep domain knowledge, technology

expertise and strong execution track record. Initially, TCS Japan will hold a 51 percent stake in the

new company and the rest 49 per cent will be held by Mitsubishi Corp. Under the agreement, TCS

Japan will have an option to raise its holding in the future.

Japan's Rakuten planning acquisitions to enter India

Rakuten, the membership-based Internet services company of Japan is planning to enter the Indian

market and is expected to launch its services in India within a period of about eight months. Its

been said that the company is contemplating its options of setting up operations in travel and

hospitality sector. It is also considering an acquisition for setting up back-end solutions such as

logistics. Rakuten will be competing against all travel services websites in India such as

MakeMyTrip ,Yatra, Cleartrip and GoIbibo that have started pushing hospitality related services

to increase revenues. Rakuten will be competing against Indian companies in the e-commerce

space such as Flipkart and Snapdeal and foreign companies such as Amazon and eBay. Last year,

the company had also launched its eBook reader Kobo in India in partnership with Crossword

bookstores, WHSmith and Croma chain of electronic stores.

Omron Automation opens 1st automation centre in India

Japan's Omron Automation belonging to Omron Corporation group has opened its automation

centre in Mumbai, India, which is the first automation centre in India, and the fifth in the world.

On the inaugration of the plant, Sameer Gandhi, managing director of Omron Automation, India

talked about the industrial automation sector and the significance of providing a hands-on exposure

to the associates to help them achieve what they have not been able to do so far through their

manufacturing establishments.Through this initiative, the company is confident of achieving

relevant traction in many industries. The centre aims at showing Omron’s expertise in the

technology in order to enable the customers to test their ideas, experience and understand how the

company may become more competitive in their respective fields in the industrial automation

sector. The centre would be hosting more than ten experts as software, hardware and application

specialists.

India, Japan meeting on amphibious aircraft deal in Tokyo

India and Japan are set to discuss procurement of the Japanese US-2 amphibious aircraft by India

during the working-level meeting between the two countries in Japan. Japan had recently removed

its self-imposed ban on exporting defence equipments. For some time, India and Japan have been

discussing the sale of these aircrafts. On the proposed sale of the amphibious aircraft, the first

meeting of the Joint Working Group was held in December in India. These aircrafts are required

by the Indian Navy to look after its island territories in Andaman and Nicobar and Lakshadweep.

As per Japan's changed policy on sale of defence equipments, it will prohibit the export of weapons

to the countries whcih are involved in conflicts and exports will be permitted only if they serve

the purpose of contributing to international cooperation and its security interests.

Nissan India to scale up Chennai plant capacity

Nissan Motor India Private, wholly owned subsidiary of Japan's Nissan Motor, will set up

additional manufacturing capacity at its Chennai plant in furtherance of its plans to increase the

localisation in Indian market. The plant, which Nissan had set up in India along with with Renault,

has a capacity of manufacturing about 4,00,000 units and now the company is adding another

80,000 units to its capacity this year. As the company has been able to utilize the current capacity

to its maximum, the capacity addition is needed in view of the growing domestic demand. No new

investment would be required for the proposed capacity enhancement, but, an additional shift will

be added by the company. Nissan and Renault together have invested about Rs 4,500 crore1 in

India so far.

Japan's LINE Corporation in talks with Indian telcos for collaborations

Japan's LINE Corporation is holding talks with several Indian telecom service providers to forge

collaborations, including in carrier billing and special bundled data packages. LINE seeks to

promote its instant messaging and voice app to compete with its rivals such as WhatsApp, Viber

and WeChat.n LINE was launched in India in July, 2013, when it has 18 million of its 400 million

users worldwide. Besides partnerships with telcos, LINE is dedicately focusing on content

partnerships in India for paid stickers and official brand accounts.

Daiichi and Docomo exit, but India remains a hot market for the Japanese

Japan's Daiichi Sankyo and NTT Docomo decided to exit their Indian investments raising concerns

over regulatory hassles in India. Despite, the Japanese investors are willing to tap into India's

consumer growth story and a lot more merger & acquisition (M&A) deals are expected to be seen

in near future. The disinvestment by the two Japanese majors tends to give an impression that the

Japanese investors are being cautious on their India plans, however, when one observes the deals

carefully, they are signing in sectors ranging from finance to food & beverages. The former

president of Lupin Ltd. and advisor to many Japanese drug companies, Satish Khanna has clarified

that Daiichi Sankyo's or Docomo's exit should not be interpreted as a lack of Japanese interest in

India as the Japanese are very much keen to actively participate in the growing Indian market's

multiple industries. Not long ago, Mitsui Global Investments invested in a start-up launched by

Arumugam Mahendran and Netprice.com is looking to tap into India's payment solution space

1 1 Crore = 10 Million

with its investment in CitrusPay, an Indian mobile payments solutions provider. Also, Suntory

Holdings, has been looking to buy out an Indian alcohol manufacturer. Apart from these, Tata

Consultancy Services too has joined hands with Japan's Mitsubishi Corp to merge their subsidiaries

and form a new IT services company. At present, more than 1,000 Japanese companies are present

in India and a few of their Indian subsidiaries have become market leaders in their respective

sectors.

DEEMED PUBLIC COMPANY: Analysis of Applicability of Companies Act, 2013 on

Indian Subsidiary of Companies Incorporated Outside India

The much awaited Companies Act, 2013 ('New Act') and Rules thereunder have finally been

notified by the Ministry of Corporate Affairs, Government of India, to replace major parts of the

Companies Act, 1956 ('Old Act'). With the enactment of the New Act, the corporate legal

environment in India has acquired a more stringent face. It demands few cumbersome compliances

and creates ambiguity in certain areas but its virtues outweigh the problems it brings. As for foreign

investors, the New Act has brought immense relief.

If a company incorporated outside India intends to carry on its business in India by incorporating

a subsidiary company in the country, then naturally its subsidiary company will have to comply

with the Indian company law in addition to other local laws. As per the Old as well as New Act, a

private subsidiary of a public company is deemed as a public company and is therefore required

to comply with all the provisions applicable to public companies under the Indian company law.

It implies that practically, an Indian public company is not allowed to do business through a private

subsidiary and the very inclination of doing business in form of a private company originates from

the fact that the Indian company law grants various exemptions and privileges to private companies

pertaining to disclosure requirements and other compliances. Ordinarily, the Indian company law

is applicable only on the companies incorporated in India, including companies incorporated as

foreign companies i.e. the companies having a place of business in India.

However, under the Old Act, Indian subsidiaries of the foreign companies were also deemed to be

public companies if their holding companies would satisfy the criteria of being a public company

in India under the Old Act. The New Act seeks to change that position by giving discretion to the

foreign companies as to the form and type of subsidiary they want to incorporate in India.

Knowledge Center

Therefore, the foreign companies, even if compliant with the public company criteria under the

Indian laws, are free to incorporate their Indian subsidiaries in the form of a private company.

Under the Old Act:

Section 3(1)(iv) specifically provided that a private subsidiary of a public company will be deemed

as a public company for all purposes of company law. It is indisputable that the Indian company

law is applicable to the companies formed and registered under the Old Act and any previous act

and will therefore not apply to a company incorporated outside India. However, Section 4(7) of

the Old Act was the enabling provision in this respect that defines how and when a foreign

company may be considered to be a public company for its subsidiary in India. It provides that an

Indian subsidiary of a foreign company will be deemed to be a public company only if such foreign

holding company would be a public company if incorporated in India. The test is to ascertain

whether such foreign company, as per its charter documents or AoA, will be a public company in

India under the companies act for the time being in force i.e. whether or not its charter contains

the restrictions imposed by the law regarding right to transfer shares, restrictions on number of

shares, invitation to public to subscribe to share, debentures, deposits, as provided under law.

Therefore, if the foreign company had the forenamed restrictions in its AoA, it was implied that

such company if had been incorporated in India with the same charter documents, will have the

status of a public company and hence, so will its subsidiary in India.

Under the New Act:

Like Section 3(1)(iv) of the Old Act, Section 2(71) of the New Act also provides that a private

subsidiary of a public company will be deemed as a public company. Interestingly, unlike Section

4(7) the Old Act, the New Act does not lay down any test or criteria to determine the status

(public/private) of a company incorporated outside India. Therefore, in the absence of any

corresponding provision of Section 4(7) of the Old Act, applicability of Section 2(71) could not

be extended to the companies incorporated outside India and thus, such companies cannot be

considered as a public company in India, which implies that now a subsidiary of a company

incorporated outside India will not be deemed as a public company for the purpose of the New

Act.

Going into the history of the New Act, it started with the Concept Paper notified by the Ministry

of Company Affairs in 2004, as well as the J. J. Irani Committee Report that also made a reference

to this question. Concept Paper had provided a draft bill which provided for the definition of 'public

company' which was in line with the definition under the Old Act. The definition provided that

any company which is a subsidiary of a public company or a body corporate incorporated outside

India, if incorporated in India, to be a public company within the meaning of this Act, shall be a

public company. However, the draft bills did not include any reference to the definition as

discussed above.

Conclusion:

The New Act does not specifically exempt the subsidiaries of the foreign companies from the

applicability of the provisions of deemed public company. Similarly, the New Act doesn’t have

any enabling provision to extend the applicability of provisions governing a deemed public

company under section 2(71). Consequently, the New Act enables a foreign company to decide

the form of its subsidiaries in India regardless of the form and structure of such foreign company.

DISCLAIMER:

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Though the author has made utmost efforts to provide authentic information, however, the material contained in this document does not

constitute/substitute professional advice that may be required before acting on any matter. The author and the firm expressly disclaim all and any

liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be

done by any such person in reliance upon the contents of this document.

CONTACT US

PANKAJ SINGLA

Japan Desk, Corporate Professionals

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