Govt pulls up UK co for violating FDI norms

NEW DELHI: In one of the first instances of violation of FDI norms related to Press Note 18, spotted by the government, a showcause notice has been sent to an international company.

It accuses the company of operating a wholly-owned subsidiary in the same field as its existing joint venture without obtaining prior approval of the government.

The ministry of commerce and industry has sent a showcause letter to UK -based Expomedia Group pointing out the violation of FDI policy and the Foreign Exchange Management Act (FEMA). Expomedia is a UK-based company engaged in the business of exhibition and event organisation.

It has an existing JV with local partners in International Trade Expo Centre(ITEC) and has also formed a wholly-owned subsidiary India Exhibition Management (IEM) in the same field.

The letter sent by the ministry of commerce & industry, a copy of which is available with ET, has pointed out that India Exhibition Management has been established as a wholly-owned subsidiary by the same investor who is at present having an existing collaboration in India in the same field: ���The above company has been set up without the prior approval of the government.���

The letter goes on to add that this is prima-facie, a violation of the FDI policy notified by the government and the provisions of the FEMA Act, 1999. The ministry has given two weeks to Expomedia to explain as to why action should not be initiated against it for violation of the notified FDI policy and FEMA.

���Pending your reply and decision thereon, you shall not to continue with any activity in violation of the notified FDI policy and FEMA,��� according to the letter sent last week. When contacted, Raj Manek, managing director of Expomedia Events India, said, ���There has been no violation of any norms.

We have already sent our reply to the government.��� The genesis of the case lies in the joint venture ITEC which was formed between the local partner Mukesh Sharma and Roger Shashoua, chairman of Expomedia Group in 1998-99. The JV is engaged in the development, management, operation of exhibition centre and organisation of international exhibitions.

This JV has set up a convention centre which is located at Noida near Delhi and is already operational. Expomedia had floated a wholly-owned subsidiary called India Exhibition Management to be engaged in similar business activities.

This company was registered two years back. It is learnt that the local partner had objected to the creation of the new subsidiary in the same field. As per the provisions of the Press Note 1(���05), the government had modified the provisions of Press Note 18 which required a no-objection certificate from the local partner if a new separate venture is being established by a foreign company.

However it was primarily applicable to new ventures. The existing ventures would qualify under the modified norms if either of the partners has less than 3% stake in the venture which is not applicable in this case as both the partners own more than 3% of the equity.

This apart the clause also relaxed the provisions for venture capital funds and for cases where the JV was defunct or sick. Expomedia Group, which is listed on the Alternative Investment Market of the London Stock Exchange, operates in countries such as Poland, Russia, Germany, Netherlands, Hungary, Serbia & Montenegro and the UK apart from India.