Joint Venture Agreement between three companies for construction of factory, process of production and sell of finished products by mutual arrangements between the parties
THIS AGREEMENT is made the............ day of............ BETWEEN [name of company] having its registered office at [address] (hereinafter called A) of the First Part [name of company] having its registered, office at [address] (hereinafter called B) of the Second Part and [name of company] having its registered office at [address] (hereinafter called Z) of the Third Part.
(1) A and B (hereinafter called the shareholders) wish to co-operate in a project for the construction and operation of a plant for the processing of [specify products] to be situated at............ with an annual capacity of............ (which plant including related facilities is hereinafter called the plant).
(2) The following agreements in relation to the said project have been entered into prior to or simultaneously with this agreement:
(i) An agreement for the supply of raw material for the plant between A B and Z (the raw material supply agreement);
(ii) An agreement between A B and Z for the acquisition of the products of the plant by A and B ;
(iii) An agreement between A and Z to make available technical data experience and other forms of technical information for the purposes of the said project ;
(iv) An agreement between B and Z under which B undertakes to provide certain services to Z.
NOW IT IS HEREBY AGREED as follows:
1. The shareholders have subscribed or will subscribe for shares in Z and the parties have entered into this agreement for the purpose of constructing and operating the plant and any expansion thereof and selling the products thereof (such purpose and activity being herein called the project).
2. (1) The shareholders have furnished or will furnish Rs......... capital to Z (hereinafter called the initial capital) by subscribing in cash at par for the following respective numbers and percentages of the issued ordinary shares of Z.
Shareholders No. of ordinary Percentages shares of Rs...... each
(These percentages are hereinafter collectively called project percentages and the percentage opposite each shareholder?s name is hereinafter called that shareholder?s project percentages).
(2) Z will give not less than fifteen days? written notice to the shareholders of the amounts of initial capital from time to time required for the construction of the plant (including amounts, expended prior to the date hereof) and the shareholders will furnish such amounts when required in proportion to their respective project percentages by subscribing in cash at par for the ordinary shares as aforesaid.
3. (1) Apart from the initial capital Z intends to raise the balance (amounting to Rs............ ) of the estimated costs of construction of the plant by way of longterm loans (hereinafter called long-term loans) from external sources but the terms of the long-term loans shall not include repayment guarantees by the shareholders.
(2) In the event that the initial capital and long-term loans are not together sufficient for the completion of the construction of the plant Z will endeavour to raise any sums required for such completion by way of loans from external sources and for the purposes of this sub-clause construction of the plant shall be deemed to have been completed............ days after the date on which the plant first becomes capable of producing at the rate of............ per [day]. If and to the extent that Z fails to raise such sums as aforesaid each shareholder will loan to Z its project percentage of such sums PROVIDED that the shareholders shall be under no obligation to make such loans to Z unless and until firm contracts have been entered into for the long-term loans on terms and conditions provided by both shareholders. The said loans from the shareholders shall bear interest at............ per cent per annum and shall be unsecured.
(3) In the event that the cost of construction of the plant amounts to less than Rs............ the initial capital and long-term loans will to the extent practicable be reduced by equal amounts.
(4) It is intended that so far as possible all working capital shall be furnished initially from bank overdrafts.
(5) Subject as provided in clause 7 hereof nothing contained herein shall impose or be deemed to impose any obligation on either of the shareholders to subscribe capital or make loans for or in respect of any expansion of the plant.
4. (1) Except in so far as by this agreement otherwise provided the conduct of the business of Z shall be governed in all respects by its memorandum and articles of association.
(2) Z will submit to the shareholders annually a budget of its expenditure and cash flow projections for the ensuring year.
(3) The parties hereto will take all necessary steps to procure?
(i) that no actions or decision of the board of directors of any subsidiary company of Z shall be implemented until ratified by the board of directors of Z and
(ii) if so requested by either of the shareholders that there shall be appointed to the boards of directors of every subsidiary company of Z the same directors as are for the time being the directors of Z appointed by that shareholder.
5. (1) The following matters shall only be undertaken with prior approval of both the shareholders.
(i) Any sale lease transfer mortgage pledge or other disposition of the undertaking of Z or its subsidiaries or any substantial part thereof.
(ii) Any petition or resolution to wind up Z.
(iii) Any increase or reduction in the capital of Z other than for an expansion of the plant provided in clause 7 hereof or otherwise as provided in this agreement.
(iv) The consolidation or amalgamation of Z with any other company association partnership or legal entity.
(v) Except as permitted under clause 7 hereof capital expenditure (other than expenditure required for completion of the construction of the plant) in excess of Rs............ in any one year.
(vi) Any borrowing by Z or its subsidiaries (other than the borrowing contemplated by this agreement) which would result in the total of such borrowings being in excess of Rs............ at any one time.
(vii) Any loans by Z or its subsidiaries to shareholders or to shareholders associated companies.
(viii) Any new undertaking by Z outside the scope of the project.
(ix) Any resolution altering the classification of the shares of Z or the rights pertaining to such shares.
(x) Any resolution altering the memorandum or articles of association of Z.
(2) Subject as hereinafter provided contracts between Z (or its subsidiaries) and the shareholders (or the shareholders? associated companies) shall be entered into only if such contracts would be fair and reasonable if entered into between unrelated parties and no contracts between Z (or its subsidiaries) and the shareholders (or the shareholders? associated companies) shall be entered into unless approved by both the shareholders PROVIDED that this sub-clause shall not apply to any contracts referred to in the recitals hereto.
6. The profits of Z available for distribution after making such provisions and transfers to reserve as shall be required to meet expenses or anticipated expenses of the construction or operation (including maintenance) of the plant shall be distributed annually by way of dividend in full except to the extent otherwise agreed from time to time by both the shareholders.
7. (1) Each shareholder shall have the right at any time during the term of this agreement to call on Z subject to any necessary governmental or local authority consent and subject also to obtaining any necessary contractual arrangements for a firm supply or sufficient additional raw materials and services to procure the expansion of the plant in order to increase its manufacturing capacity. Such rights shall be exercised by the shareholder concerned giving notice in writing to Z and to the other shareholder of its desire to expand the plant specifying the expansion proposed. The other shareholder may thereupon by giving notice in writing to Z and to the first mentioned shareholder within ninety days of receipt of the first mentioned notice indicate its desire to expand the plant.
If there are limitations as to the amount by which the manufacturing capacity of the plant can be feasibly expanded each shareholder’s expansion requirements shall be abated (as necessary) down to but not below its project percentage of the total feasible expansion.
(2) In the event of expansion being proposed by one or both of the shareholders as above Z and both the shareholders shall endeavour to negotiate a contractual arrangement for such expansion the degree of participation therein and the financing of the same on such basis as the shareholders consider advantageous at the time.
(3) In default of agreement being reached at such negotiations either or both of the shareholders desiring to proceed with the expansion (in this clause called the participating shareholder or participating shareholders as the case may be) may require Z to proceed with the expansion subject to the following conditions:
(i) the expansion shall be technically feasible and shall not unreasonably interfere with the completion of the plant or any prior expansion thereof;
(ii) if operating costs per unit of production are materially increased arrangements will be made for the payment of fair and reasonable compensation to meet any such increase to the shareholder not participating or to a shareholder who is participating in a proportion less than its proportion of ordinary shares in Z to the ordinary shares held by both shareholders prior to the expansion ;
(iii) each participating shareholder shall loan to Z its pro rata portion of the total capital cost of the expansion (including interest on such loans up to the completion of construction) and such loans shall be constituted by unsecured loan notes bearing interest at............ per cent per annum;
(iv) each participating shareholder shall enter into an agreement on substantially the same terms as the raw material supply agreement and the take or pay agreement so as to provide its pro rata proportion of additional raw material and to take or pay for its pro rata proportion of the production of Z ;
(v) at the time of the completion of the construction of the expansion a part of the loan or loans made to Z under paragraph (iii) of sub-clause (3) above shall be capitalised for the purpose of issuing ordinary shares at par to each participating shareholder. The part to be so capitalized and the number of ordinary shares to be so issued and allotted shall be such as shall result in the total issued ordinary shares of Z (after such capitalisation) being held by the shareholders in like proportions respectively to their total obligations to take or pay for the production of the plant under take or pay agreements in effect after the expansion. The part not to be so capitalised shall be repayable by equal annual instalments over a period of not less than............ years from the completion of the expansion ;
(vi) subject as hereinafter provided the ordinary shares to be issued as above shall?
(a) not be counted for the purposes of calculating whether a quorum is present at general meetings of Z or at meetings of its board of directors ;
(b) not be counted towards the percentage required for the purpose of appointing nominated directors of Z ;
(c) not carry voting rights at general meetings of Z ;
(d) not be counted for the purpose of calculating voting rights at meetings of the board of directors of Z ;
(e) not carry any right to participate in the distribution of any profits reserves or provisions earned created or set up prior to their issue; but otherwise they shall rank pari passu with the existing ordinary shares and be entitled to participate in any distribution of future profits PROVIDED that the above restrictions (a) to (d) inclusive shall only apply if and to the extent that the issue of the ordinary shares as a result of the expansion would cause Z to cease to be controlled directly or indirectly by persons and/or companies resident in India. PROVIDED FURTHER that if as a result of the issue of ordinary shares under this clause A shall become the holder of seventy-five per cent or more of the total issued ordinary shares of Z (including ordinary shares issued under this clause) then A shall so long as it continues to hold such seventy-five per cent have the right to appoint and remove the managing director of Z ;
(vii) In the event of any dispute as to the implementation of this clause the same shall be referred for decision to such person as may be nominated for that purpose by the President for the time being of the Incorporated Law Society of India and such person shall act as an expert and not as an arbitrator and his decision shall be final and binding on the parties hereto.
8. (1) If and whenever a shareholder desires to transfer any shares in Z held by it it shall give notice in writing (hereinafter called the transfer notice) to the other shareholder stating the number of shares which it desires to transfer the identity of the proposed transferee and price per share at which it proposes to transfer the shares.
(2) If the proposed transferee is an associated company of the proposing transferor the other shareholder shall forthwith consent in writing to the transfer for the purposes of the articles of association of Z and ?associated company?in relation to a proposing transferor means a wholly owned subsidiary of the proposing transferor or of any other company of which the proposing transferor is for the time being itself a wholly owned subsidiary PROVIDED ALWAYS that if at any time after such a transfer the transferee shall cease to be an associated company of the transferor the transferor shall procure that the transferee shall within one month thereafter re-transfer the shares comprised therein to the transferor or to an associated company of the transferor.
(3) If the proposed transferee is not an associated company of the proposing transferor the other shareholder shall be entitled by notice in writing given to the proposing transferor within period of thirty days from receipt of the transfer notice to purchase from it the whole (but not a part) of the shares comprised in the transfer notice at the price stated in the transfer notice PROVIDED that if by virtue of the provisions of this clause there shall be more than one other shareholder as aforesaid then in a case of competition for the shares comprised in the transfer notice they shall be sold under this sub-clause to those shareholders who wishto purchase the same and give notice as aforesaid in proportion (as nearly as may be and without increasing the number sold to any shareholder beyond the number which it wishes to purchase) to their existing holdings of shares but so that in any case not less than the whole of the issued shares comprised in the transfer notice shall be sold.
(4) If the proposed transferee is not an associated company of the proposing transferor and the other shareholder (or shareholders as the case may be) shall not elect in accordance with sub-clause (3) to purchase the whole of the shares comprised in the transfer notice then upon the expiration of the said period of thirty days such other shareholder (or shareholders) shall consent in writing for the purpose of the articles of association of Z to a transfer within ninety days of the date of the consent to the transferee specified in the transfer notice at a price not less than the price specified therein unless it (or they) shall within the said period of thirty days have given to the proposing transferor in writing a valid reason for objecting to the transfer.
(5) A ?valid reason for objecting to a transfer? shall mean a reason founded in good faith upon the legitimate business interests of the party giving the same supported by sufficient particulars of the respects in which it considers that such interests would by prejudiced by the transfer to satisfy a reasonable person that such party had not unreasonably refused consent to the transfer.
9. (1) If and whenever shares in Z shall be transferred pursuant to the preceding clause the following provisions shall apply with regard to the assignment by the transferor to the transferee and subsequent operation of certain rights and obligations under this agreement and under the ?raw material supply agreement? and the ?take or pay agreement.
(2) As regards this agreement:
(i) the rights conferred upon the shareholders under clause 4 (3) shall be assigned in proportion to the number of shares transferred and the transferee shall be obliged to comply with that clause ;
(ii) references in clause 5 to the approval of ?both the shareholders? shall not include the transferee but other references in clause 5 to ?the shareholders? shall be deemed to include the transferee ;
(iii) the reference in clause 6 to ?both the shareholders? shall be amended to include the transferee PROVIDED that the transferee shall after the transfer hold not less than ten per cent of the issued capital of Z ;
(iv) references to a ?shareholder? or ?shareholders? in clauses 7, 8, 9 and 11 shall include the transferee.
(3) As regards the raw material supply agreement and the take or pay agreement the transferee shall adhere to the provisions thereof and for the purposes thereof its ?contract percentage? and ?contract quantity? shall be proportionate to the size of its holding of the share capital of Z and the ?contract percentage? and the ?contract quantity? of the transferor shall be correspondingly reduced PROVIDED that the transferor shall guarantee the performance of the transferee’s obligations under each such agreement.
(4) The transferor shall be responsible for procuring the transferee to enter into and the transferor and other shareholders shall enter into such agreements as may be necessary to cause the transferee to assume the obligations and toassign to the transferee rights by way of direct contractual relationship so as to give effect to the provisions of this clause.
(5) Save as aforesaid none of the parties hereto will assign any of its rights or obligations hereunder without the consent of all the others.
10. The parties hereto will use their best endeavours to procure necessary permission under the Foreign Exchange Regulation Act for the time being in force necessary for the implementation of this agreement and if in any case a necessary permission is not obtained then the obligation under this agreement not thereby permitted to be performed shall not be extinguished but shall be suspended until such time as performance is permissible. Should it be permissible in respect of any obligation to make any payment to perform that obligation in a currency other than that in respect of which the obligation exists (but is not permitted to be performed) then if the party entitled to payment so elects payment shall be effected by payment of the equivalent amount (at the then prevailing rates of exchange) of such other currency as is permissible and is selected by the party entitled to payment,
11. (1) The shareholders and each of them will take all necessary action directly or indirectly to implement the project and the provisions of this agreement in all respects.
(2) With respect to the project each of the parties hereto desires to establish the principle that it will use its best efforts consistent with its best commercial interests to assist each or all of the other parties:
(i) in the event of any supplies of raw materials being unavoidably interrupted; and
(ii) by way of exchanges of raw materials or of the production of t he plant if the requirements of one or more of the parties can be satisfied by such exchanges.
12. The parties hereto will cause the rights and obligations under the raw material supply agreement and the take or pay agreement to be extended until the............ day of............ if it is provided to the satisfaction of ............ that the operations of the plant may be continued until that date on a reasonably profitable basis.
13. This agreement shall becomes effective on the date hereof and shall continue in force until the............ day of............
14. Nothing contained in or relating to this agreement shall constitute or be deemed to constitute a partnership between the parties hereto.
15. In entering into this agreement the parties hereto recognise that it is impracticable to make provision for every contingency that may arise in the course of the performance thereof. Accordingly the parties hereto hereby declare it to be their intention that this agreement shall operate between them with fairness and without detriment to the interests of any of them and if in the course of the performance of this agreement unfairness to any party is disclosed or anticipated then the parties hereto shall use their best endeavours to agree upon such action as may be necessary and equitable to remove the cause or causes of the same.
16. This agreement shall be construed and shall take effect in accordance with Indian law.
17. Any notice given hereunder shall be in writing and shall be delivered or sent by prepaid or registered or recorded delivery post to the registered address for the time being of the party to which it is addressed.
18. Any dispute between the parties under this agreement shall be referred to a single arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force.
19. This agreement is the entire agreement between the parties hereto as to the subject matter hereof and no amendments hereto shall be effective unless in writing and signed by or on behalf of each of the parties.
IN WITNESS ete.
[Common Seals and Signatures of authorized representatives of A, B and C]