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Tata Motors, Ashok Leyland clash over JV

Surajeet Das Gupta & Swaraj Baggonkar | March 18, 2009 02:19 IST

Strong differences have arisen between Tata Motors [Get Quote] and Ashok Leyland [Get Quote], the country's two largest commercial vehicle makers, over a joint venture involving construction equipment and tractor manufacturer John Deere.  

Tata Motors subsidiary Telco Construction Equipment Company Ltd (Telcon) has opposed a proposal to the Foreign Investment Promotion Board (FIPB) from John Deere for a joint venture with Ashok Leyland to distribute and market its construction equipment in India.

Telcon, a 60:40 joint venture between Tata Motors and Japan's Hitachi Construction Machinery, held a technology licence agreement with John Deere to manufacture loaders. It has refused to give the US company the no-objection certificate it requires under India's foreign direct investment guidelines (called Press Note 1) to allow it to set up a joint venture with Ashok Leyland, on grounds that the new company is in the same or allied field.

The proposal was discussed late last month and the FIPB recommended that the hearing be deferred to March 20. A committee has been set up to hear all the parties concerned and advise the board. The committee comprises officials from the departments of industrial policy and planning, heavy industries and economic affairs and FIPB directors.

In a strongly-worded letter to the FIPB, Telcon said the company had signed a licence agreement with John Deere to manufacture backhoe loaders in India in October 1996. The agreement was to expire in July 2006, so, in November 2005, Telcon's management wrote to the US major to continue the association and to allow Telcon to use the John Deere trademark.

Telcon said it received no reply from the company, so a reminder was written in December 2007, which also went unanswered. On March 2008, however, John Deere wrote a letter, charging Telcon with violating its trademark and threatening legal action if Telcon did not stop using it. Telcon said it immediately stopped doing so and wrote to John Deere in March and August 2008, seeking to continue the relationship. It said it had no information on John Deere's "intention for forging an alliance with Ashok Leyland".

In its submission to the FIPB, Telcon stated that it was now "manufacturing similar products in India" using its own technology and "technology legally acquired". So, any threat in the form of organised and improved technology in the same product or product lines would certainly affect the company's business adversely.

The proposed joint venture between Deere and Ashok Leyland in construction equipment, the letter said, could "further dampen business spirits within the country" and damage its economy on a large scale.

When asked about the issue, Ashok Leyland Managing Director R Seshasayee said: "It will be inappropriate for me to make a comment on this issue because it is a case for John Deere." Tata Motors did not reply to an email.

John Deere, in its submission to FIPB has stated that the licence agreement with Telcon expired in July 2006 and was not in existence on the date it sought approval for the joint venture with Ashok Leyland, so the new proposal would not, in any way, jeopardise the interests of any existing joint venture.

The US company also has a joint venture with Larsen & Toubro (L&T) to make agricultural equipment. Initially a 50-50 venture, John Deere now holds a majority stake and L&T 2 per cent. Deere has clarified that since this joint venture is not in the same field as its proposed alliance with Ashok Leyland, the Press Note 1 stipulations will not be triggered.

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