JV Update: BEL – Safran Hammer 50:50 Joint Venture in India

Introduction

In a significant development with substantial strategic and legal ramifications, Bharat Electronics Limited (‘BEL’), a Navratna public sector undertaking under the Ministry of Defense, Government of India has entered into a Joint Venture Agreement (‘JVA’) to establish a Joint Venture Company (‘JV Co.’) with Safran Electronics & Defense (‘SED’), an affiliate of the French multinational Safran S.A., for domestic manufacturing of guidance kits of Highly Agile Modular Munition Extended Range (‘HAMMER’), a smart precision guided air-to-ground weapon in India.  Further, BEL and SED signed a master production agreement that sets out the terms for transfer of production of HAMMER in India.[1]

The Joint Venture: Structure and Governance

The JV Co. will be incorporated as a private limited company under the Companies Act, 2013 with BEL and SED each holding 50% (fifty percent) equity.[2] The collaboration represents substantive development in India’s pursuit of defense self-reliance under the broader ‘Aatmanirbhar Bharat’ framework. The JV Co. is structured with a perfectly symmetric shareholding and a four-member board along with a chairman who holds no casting vote. The initial authorized capital is a nominal INR 1,00,000 (Rupees one lakh) scalable to INR10,00,00,000 (Rupees ten crore) as operations grow.[3]

The operational core of the JVA is establishment of a ‘centre of excellence’ to serve as a technology partner and a teaming partner specifically responsible for manufacturing, supply, maintenance and repair of HAMMER guidance kits. The primary end-users under the JVA are the Indian Air Force and the Indian Navy. HAMMER’s compatibility has also been confirmed for the Light Combat Aircraft Tejas, which expands the domestic user base and is a significant detail for long-term production economics. According to the trajectory, important sub-assemblies, electronic components, and mechanical parts will be gradually localized to a level of about 60% (sixty percent) and BEL will lead the final assembly, systems integration, testing and quality checks.[4]

Key Takeaways

While the JV deal is currently subject to domestic regulatory and administrative approvals in India and France, its structure warrants careful consideration. The 50:50 collaboration, while equitable, requires certain key clauses that needs to be incorporated precisely in the JVA for smooth functioning and operational efficiency of the joint venture in future. Since there are no statutory mechanisms for deadlocks, in scenarios like these, unambiguous and well drafted deadlock resolution mechanism and reserved matters clauses become really crucial.  The JVA should provide for a curtailed list of reserved matters to ensure non-fundamental issues do not lead to deadlocks. Furthermore, it should provide for stage wise deadlock resolution mechanisms including negotiations, involvement of senior officials, mediation and lastly triggering of exit mechanisms to effectively resolve deadlocks. Although presently in its nascent stage, as this JVA progresses to execution, the thoroughness of its governance framework will be as determinative of its success as the intended objective of localization.

[1] BEL and Safran sign Joint Venture Agreement and Master Production Agreement for HAMMER Production in India – BEL

[2] BEL and France’s Safran to jointly manufacture HAMMER precision | DD News

[3] https://nsearchives.nseindia.com/corporate/BEL_15022026195557_Lettersigned.pdf

[4] BEL Approves JV with Safran for HAMMER Weapon System