NEW DELHI JANUARY 12 The government on Wednesday scrapped Press Note 18, through which Indian businessmen have for years held foreign companies to ransom. Instead, Press Note 1, under which Indian firms must deal with their joint ventures (JVs) with foreign firms on their own steam, comes into force with immediate effect.

The protective Press Note 18 will not be available for Indian partners who enter into JVs after Wednesday, Commerce and Industry Minister Kamal Nath said on Wednesday. He said the move was to quell misgivings that India was placing obstacles before foreign investments.

Press Note 18 was a provision by which foreign companies entering into a JV with an Indian company needed to get a ‘‘no objection’’ from their Indian partner before they set up another JV with a new partner or even a 100 per cent owned company in the country. The provision was misused by Indian promoters who armtwisted their foreign partners even if their own JVs were languishing or defunct. The provision was seen as a severe disincentive by foreign companies to align with Indian partners with majority stake in the JV and was an impediment to FDI inflow.

‘‘A perception has grown that Press Note 18 is standing in the way of FDI. I do not entirely agree with this view. However, since the government wishes to make crystal clear its intention of facilitating FDI... therefore, it has been decided to substantially modify the applicability of Press Note 18,’’ Nath said. Nath’s statement also shows the difference within the government on the issue with the finance ministry pressing for its abolition while the commerce ministry was seeking its continuance.

Despite the scrapping of Press Note 18, the government has stopped short of going all the way. Several provisions of Press Note 18 will apply to the existing Indian-foreign JVs, though with substantial changes.

  Categories excluded from PN 18  

• Existing JVs • Sick or defunct JVs • JVs in which each partner has less than 3% • Registered VC funds ALSO: • Applies only for same field and not similar or allied fields • Onus to prove if the new JV will or will not affect existing JV lies with foreign and domestic partners

Also, both the foreign and Indian firms will have equal responsibility to decide the impact of the new business.

For existing JVs, Press Note 18 will not apply to sick companies, or to JVs in which one partner has less than 3 per cent share.

Nath has suggested in a statement that Indian firms entering JVs in future, should include a conflict of interest clause and stipulate an acceptable cooling-off period.

The industry, which was sharply divided over Press Note 18, on Wednesday welcomed the government’s decision. ‘‘It is exactly as we had wanted it,’’ said Ficci President and Apollo Tyres MD Onkar Kanwar, ‘‘It does not apply to existing JVs but only for future ventures, so it does not affect Apollo’s own tie-up with Michelin,’’ he added.

Industry association CII had also asked the government to retain protective clauses in Press Note 18 in the interest of Indian firms, which were often at a weaker footing than their foreign partners.