1 Are joint ventures mandatorily required and commonly practised in India?
Under India’s foreign direct investment (FDI) regime (the Consolidated FDI Policy and the Foreign Exchange Management (Non-debt Instruments) Rules, 2019), a joint venture (JV) is legally required where foreign investment is capped below 100% or where wholly owned subsidiaries are not permitted. While most sectors are liberalised, mandatory JVs continue in certain sensitive or regulated sectors.
JVs remain common in sectors such as automobiles and renewable energy to facilitate market entry, technology transfer, cost sharing, and access to local distribution networks.
2 Which sectors legally mandate a JV through equity caps?
The sectors mandating JVs include:
Print media – FDI capped at 26% for news and current affairs publications, requiring a 74% Indian partner;
Multi-brand retail trading (MBRT) – FDI capped at 51% under the government route, requiring a 49% Indian partner, along with a 30% local sourcing requirement from Indian micro and small enterprises;
Public sector banking – FDI limited to 20%, effectively requiring majority Indian ownership (policy reforms under discussion);
Defence – up to 74% FDI permitted under the automatic route; investment beyond this requires government approval and is typically limited to cases involving advanced technology;
Strategic manufacturing (Press Note 3, 2026 Amendment) – investments from land-border countries in specified sectors (e.g., electronics, solar value chain, capital goods) may qualify and benefit from a 60-day fast-track approval, provided the investee remains majority owned and controlled by resident Indian citizens, effectively requiring an Indian JV partner.
3 What are the legal control limits in an Indian JV?
Control extends beyond majority shareholding and includes the ability to control management and key policy decisions.
Board composition – in mandatory JV sectors, the Indian partner must legally retain the right to appoint the majority of the directors. Granting such rights to a minority foreign holder violates the Foreign Exchange Management Act, 1999 (FEMA).
Management requirements – in sectors subject to foreign ownership restrictions, key managerial positions may be required to be held by resident Indian citizens.
Veto rights – protective veto rights (e.g., on capital changes or winding up) are permitted. However, if extended to operational matters (e.g., hiring or suppliers), they may be deemed ‘control’, risking non-compliance with sectoral caps.
4 How should deal structuring be executed for legal enforceability?
JV structuring must align contractual terms with statutory requirements.
Articles of association (AoA) – while the shareholders’ agreement governs inter se rights, certain provisions, including transfer restrictions and board rights, must be incorporated into the AoA to bind the JV company; otherwise, they are generally unenforceable against it.
Reserve Bank of India pricing (fair value rule):
Entry – foreign investors cannot subscribe below fair value;
Exit – cannot sell to residents above fair value; and
No assured returns – guaranteed exit prices or internal rate of return are void under the FEMA; pricing must follow internationally accepted valuation methods at the time of transfer.
Entity selection – a private limited company is standard for mandatory JVs. Limited liability partnerships are not permitted in sectors with FDI caps or performance-linked conditions (e.g., MBRT, print media).
5 What are the mandatory compliance filings for a JV?
A JV triggers mandatory filings, including:
Disclosure of commencement of business (INC-20A) – within 180 days of incorporation;
Return of allotment (Form PAS-3) – within 30 days of allotment (or within 15 days for private placement) with the Registrar of Companies;
Foreign currency-gross provisional return (FC-GPR) – within 30 days of issuance of shares to non-residents;
Annual return on foreign liabilities and assets – by July 15; and
Beneficial ownership disclosure – identification and reporting of individuals holding 10% or more (directly or indirectly) or exercising significant control.
