Joint Ventures Between Indian and Foreign Companies: Key Legal Issues, FDI Rules and How to Structure the Deal (2026 Guide)

By CS Komal Dubey, Sharma Kemp Chambers 

In brief: A joint venture between an Indian and a foreign company is lawful and common, but it sits across four bodies of law at once: foreign exchange regulation (FEMA and the FDI Policy), company law, competition law and the law of contract and arbitration. Most JV disputes that reach the courts trace back to decisions made in the first term sheet: the vehicle chosen, the entry route, the governance rights, and the exit mechanism. This guide sets out the issues that deserve attention before signing.

Why joint ventures are used

Foreign businesses enter India through joint ventures for practical reasons: access to distribution, land, licences, regulatory relationships and local knowledge. Indian partners seek capital, technology and brand. In sectors where foreign ownership is capped, a JV with an Indian partner may be the only permissible way in.

A JV is a commercial relationship, but the law treats it through its legal form. The choice of form determines the tax position, the regulatory approvals required, the governance rights available and the way a dispute will be resolved.

1. Choosing the structure

Structure	How it works	Points to weigh
Incorporated JV (private limited company)	Both partners hold shares in a new company, governed by a shareholders’ agreement (SHA) and articles of association	The most common route. Clear regulatory treatment; limited liability; governance rights can be written into both documents
Limited liability partnership (LLP)	Partners contribute capital to an LLP	Foreign investment in LLPs is permitted only in sectors where 100% FDI is allowed under the automatic route, subject to the applicable conditions. Verify the current position for your sector
Contractual JV	The parties co-operate under a contract with no new entity	Light to set up, but liability is not ring-fenced and there is a risk of the arrangement being treated as an association of persons for tax and other purposes
Acquisition of a stake in an existing Indian company	Foreign partner subscribes to or buys shares in the Indian partner’s business	Pricing, due diligence and reporting rules under FEMA apply in full

For most commercial ventures, an incorporated JV in the form of a private limited company is the sensible default.

2. Foreign investment rules: entry route, sectoral caps and pricing

Foreign investment into an Indian company is governed by the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (the NDI Rules), the Consolidated FDI Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT), and Reserve Bank of India (RBI) directions.

Entry route. Most sectors permit foreign investment under the automatic route, meaning no prior government approval. Some sectors require government approval, and some have a ceiling on foreign ownership. The sector in which the JV company will actually operate decides the route, not the sector of the foreign partner’s home business. A JV that holds licences in several sectors must satisfy the most restrictive one.

Pricing. For shares issued to a non-resident, the issue price must generally not be lower than fair value determined under internationally accepted pricing methodology. For a transfer from a non-resident to a resident, the price generally cannot exceed that fair value. This matters at exit, as discussed below.

Reporting. Issues and transfers of shares involving non-residents must be reported to the RBI within prescribed timelines, using the forms and the portal the RBI currently prescribes. Late reporting attracts a compounding process and fees, and in practice a defective filing can complicate later transfers and dividend repatriation. Check the current forms and timelines at the time of closing.

Downstream investment. If the JV company later invests in or acquires another Indian company, the JV may itself be treated as foreign-owned or controlled, and the downstream investment rules will then apply.

Partners from land-border countries: Press Note 3

Under Press Note 3 of 2020, an investor from, or with beneficial ownership in, a country sharing a land border with India requires government approval for any investment. The Government amended these rules in March 2026. As we read the published material, the position is now as follows.

Situation	Position after the 2026 amendment
Direct investment by an entity from a land-border country	Government approval still required, whatever the size of the stake
Indirect investment where land-border beneficial ownership in the investing entity is non-controlling and up to 10%	Automatic route, subject to sectoral caps and conditions; the Indian investee must report the investment to DPIIT
Land-border beneficial ownership above 10%	Government approval still required
Specified manufacturing sectors (capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer) where the investee is Indian-owned and controlled	Approval to be decided within 60 days

“Beneficial owner” is tied to the definition in the Prevention of Money-laundering Act, 2002 and its Rules. If your foreign partner has any shareholder, fund investor or parent from a land-border country, take advice on this before you sign a term sheet, because it can decide whether the deal closes in weeks or months. The notification text should be read directly, as this area is still developing.

3. Two documents, one venture: the SHA and the articles

A JV company is governed by its articles of association and, between the partners, by the shareholders’ agreement. The two must say the same thing. Where they do not, the company is bound only by its articles, and a right that appears in the SHA alone may bind the partners as a matter of contract but not the company itself.

Indian courts have taken differing views on whether restrictions on share transfers in an SHA, such as pre-emption and rights of first refusal, are enforceable in a public company. In Messer Holdings v Shyam Madanmohan Ruia (Bombay High Court, 2010), a division bench held that such restrictions agreed among shareholders are enforceable between them even where the articles do not contain them. Other courts had taken a stricter view. The position was later addressed by statute through an amendment to Section 58(2) of the Companies Act, 2013, which provides that a contract between two or more persons about the transfer of securities is enforceable as a contract. For a private company, the safer course remains to incorporate the key rights into the articles as well, by special resolution, and to say so in the SHA.

4. Governance: where JVs are won and lost

Partners typically negotiate the following:

Issue	What to settle
Board composition	Number of nominee directors for each side, quorum, who chairs, and whether the chair has a casting vote
Reserved matters	A list of decisions requiring the consent of both partners, such as budget approval, new borrowings, related-party transactions, change of business, new share issues and senior appointments
Management	Who appoints the managing director and the CFO, and the reporting lines
Funding	Initial contributions, future capital calls, dilution if a partner does not contribute, and shareholder loans
Information rights	Management accounts, audit rights, access to books
Deadlock	What happens when the partners cannot agree on a reserved matter

Reserved-matter lists need care. Too short, and the minority partner has no protection. Too long, and the company cannot operate without constant consent. A 50:50 JV with a long reserved list and no deadlock mechanism is the commonest source of disputes we see.

Deadlock should be dealt with expressly. Common mechanisms include escalation to senior management, mediation, a cooling-off period, and then a buy-sell mechanism (a “shotgun” clause) or a call/put option at an agreed valuation. If none is provided, the remaining options may be a winding-up petition on the just and equitable ground, or a petition for oppression and mismanagement before the National Company Law Tribunal, both of which are slow and damaging to the business.

5. Exit: the issue FEMA makes harder

Exit clauses are where Indian law departs most noticeably from the practice in other jurisdictions.

• Pre-emption and right of first refusal (ROFR): the partner who wishes to sell must offer the shares to the other partner first.
• Tag-along: a minority partner can join a sale by the majority.
• Drag-along: the majority can compel the minority to join a sale to a third party.
• Call and put options: a right to buy the other’s shares, or to require the other to buy.
• Lock-in: a period during which neither partner may sell.

The central difficulty is that Indian foreign exchange rules do not permit a foreign investor to be guaranteed an assured return or an assured exit price on equity. The NDI Rules require that a transfer by a non-resident to a resident be at a price not exceeding fair value at the time of exit. A put option under which the Indian promoter must buy the foreign partner’s shares at a fixed premium or guaranteed return is therefore open to challenge.

The courts have not struck down such arrangements wholesale. In the Delhi High Court’s decision in the Tata/NTT Docomo dispute, the court treated a negotiated floor on the exit price as a form of downside protection and a pre-agreed measure of damages for breach, rather than as an assured return, and the award was allowed to be enforced. Other decisions have similarly distinguished between exercising a put option and claiming damages for breach of the agreement under Section 73 of the Indian Contract Act, 1872. These are fact-specific decisions, and a JV document that relies on them should be reviewed by counsel who can test the clause against the current rules.

Practical points when drafting exit clauses:

1. Express the price as “the higher of” or “the lower of” fair value determined at the time of exit by an independent valuer, rather than a fixed return.
2. Provide for the foreign partner’s remedy for breach as damages, not as a mandatory buy-back at a premium.
3. Allow for exit by sale to a third party, an IPO or a liquidity event, so that the exit does not depend on a single route.
4. Build in the required RBI reporting and pricing certification as a condition of closing any transfer.

6. Competition law: does the JV need CCI approval?

A JV can be a “combination” requiring prior approval of the Competition Commission of India (CCI) if it meets the financial thresholds, or if it falls within the deal value threshold introduced in September 2024.

Test	Position
Deal value threshold	A transaction valued above Rs 2,000 crore, including direct, indirect, immediate and deferred consideration, requires CCI approval if the target has “substantial business operations in India”
Substantial business operations (non-digital)	India turnover or gross merchandise value above 10% of the global figure and above Rs 500 crore
De minimis exemption	Targets with Indian assets below Rs 450 crore or Indian turnover below Rs 1,250 crore are generally exempt, but the exemption does not apply where the deal value threshold is met

The thresholds are revised from time to time, so confirm the current figures. A transaction that requires CCI approval cannot be completed before approval is obtained, and gun-jumping carries penalties.

Separately, the ongoing JV’s conduct is subject to the Competition Act’s rules on anticompetitive agreements. A JV between competitors that restricts output or divides markets, beyond what is reasonably necessary for the venture, can fall foul of the Act.

7. Non-compete and exclusivity

JV partners usually agree not to compete with the venture. Section 27 of the Indian Contract Act, 1872 makes void any agreement in restraint of trade, and Indian courts have generally held that a post-termination non-compete is unenforceable, while a restraint operating during the term of the agreement is easier to defend. A foreign partner that expects a post-exit non-compete to be enforced in India should not assume it will be. Reliance is better placed on confidentiality obligations, intellectual property protection and a carefully limited exclusivity during the life of the venture.

8. Intellectual property and technology

If a foreign partner contributes brand or technology, decide at the outset whether it is assigned to the JV or licensed. A licence should state the territory, the field of use, the term, quality control, royalty and what happens on termination or exit. Royalties and technical fees paid abroad should be checked against the FEMA current account rules and tax withholding requirements. Registering the licensed trademarks and recording the licence in India protects both sides.

9. Tax: points for early advice

Tax is outside the scope of a legal guide, but it shapes structure. Points to raise with a tax adviser before signing include withholding tax on dividends, interest and royalties, the effect of the applicable double taxation avoidance agreement, transfer pricing on transactions between the JV and its partners, and the tax treatment of an exit.

10. Dispute resolution: choosing a seat and a law

Most cross-border JV agreements provide for arbitration. The principal choices are:

Choice	Considerations
Seat in India	Part I of the Arbitration and Conciliation Act, 1996 applies; courts have wide interim powers; awards are enforced as domestic awards after the Section 34 window
Foreign seat (for example Singapore or London)	Neutral to both sides and familiar to foreign partners; the award is enforced in India under Part II as a foreign award, which requires the seat to be in a country notified by the Central Government as a Convention territory
Governing law	The SHA can be governed by foreign law, but the articles, the Companies Act matters and the FEMA rules will still be governed by Indian law

Indian courts take a pro-enforcement approach to foreign awards. The Supreme Court has held that, at the enforcement stage under Section 48, the court does not review the merits of the award, and the grounds for refusal, including public policy, are read narrowly (see, for example, Vijay Karia v Prysmian Cavi e Sistemi SRL, 2020). A party may still seek interim relief from an Indian court in aid of a foreign-seated arbitration, unless the agreement excludes it. Matters of corporate law that are for the NCLT, such as oppression and mismanagement, are a separate question, and the drafting should state clearly how arbitration and statutory remedies are meant to interact.

Common mistakes

1. Treating the term sheet as non-binding while it contains binding exclusivity, confidentiality and costs clauses.
2. Starting due diligence on the Indian partner late, or not at all.
3. Signing an SHA that is not reflected in the articles.
4. Drafting a put option with a guaranteed return and assuming it will be enforced as written.
5. Overlooking the Press Note 3 position because the land-border shareholder sits several layers up the chain.
6. Failing to plan for deadlock in a 50:50 venture.
7. Choosing a foreign seat without considering where assets are located and where the award will be enforced.

A pre-signing checklist

• Confirm the sector, entry route, any foreign ownership cap and licensing requirements.
• Map every upstream shareholder of the foreign partner for Press Note 3 purposes.
• Test the structure against the CCI thresholds.
• Fix the valuation approach and the FEMA pricing and reporting steps.
• Agree reserved matters, funding, deadlock and exit before signing, not after.
• Align the SHA and the articles.
• Settle the IP and technology arrangements in writing.
• Choose the dispute resolution clause with the enforcement route in mind.
• Take tax advice on withholding, transfer pricing and exit.

Illustrative scenario

This scenario is hypothetical and is included only to show how the issues interact.

A European component manufacturer agrees to form a 49:51 JV with an Indian industrial group. The SHA grants the foreign partner a put option, exercisable after five years, at the original investment plus 12% a year. The reporting is completed, and the business grows slowly. At year five the foreign partner exercises the put. The Indian partner objects that the price exceeds fair value and that FEMA bars it from paying more. The foreign partner commences arbitration seated in Singapore. The outcome will turn on how the clause was drafted (option or damages), the evidence of fair value, and whether the court is persuaded that the clause is a pre-agreed measure of loss rather than an assured return. A clause drafted on the “fair value at exit” basis would have avoided the argument.

Frequently asked questions

Can a foreign company own 100% of a company in India? In many sectors, yes, under the automatic route. In others, foreign ownership is capped or needs government approval. The sector in which the Indian company operates decides this.

Is a shareholders’ agreement enforceable in India? Generally yes, as a contract between the parties. For the company itself to be bound, the key rights should also be in the articles of association.

Can an Indian court enforce a put option for a foreign investor? It can depend on the drafting and facts. FEMA does not allow an assured return on equity, but courts have distinguished between a prohibited assured return and a pre-agreed measure of damages for breach. Draft with care.

Do JVs need CCI approval? Only if the transaction meets the asset, turnover or deal value thresholds. Always check at the term sheet stage.

What happens if the JV partners cannot agree? The agreement should provide for escalation, mediation and a buy-sell or exit mechanism. Without one, the partners may be left with a winding-up or oppression petition.

Can a foreign partner be bound by a non-compete after leaving the JV? Post-termination non-competes are generally difficult to enforce under Section 27 of the Contract Act. Restrictions during the term are easier to uphold.

Should the JV agreement provide for arbitration abroad? Often it does, and the resulting award is enforceable in India under Part II of the Arbitration Act if the seat is in a notified Convention territory. The choice should be made with enforcement in mind.

Sources

• India’s Press Note 3 Revision Unlocks China-Linked Capital in 2026, India Briefing
• India Resets Border FDI Controls, Nishith Desai Associates
• India eases FDI rules under Press Note 3, BDO India
• Competition Commission of India Provides Updated Deal Value Threshold, Morgan Lewis
• Enforceability of Put Options in Investment Agreements Under Indian Foreign Exchange Laws, Naik Naik
• Enforceability of Contractual Restrictions on Transfer of Shares, Cyril Amarchand Mangaldas
• Enforcement of Foreign Arbitral Awards under the Arbitration and Conciliation Act 1996, Bar & Bench
• Foreign Exchange Management (Non-debt Instruments) Rules, 2019; Consolidated FDI Policy (DPIIT); Competition Act, 2002; Companies Act, 2013; Indian Contract Act, 1872; Arbitration and Conciliation Act, 1996

This article is for general information and is not legal advice. Foreign investment, competition and tax rules change frequently, and each venture should be reviewed on its own facts.

If you are planning a joint venture with an Indian or foreign partner, or are already in a dispute over one or wish to learn more about the topic, contact CS Komal Dubey at Sharma Kemp Chambers for more information.