Template Description

This Foreign Collaboration Agreement template is a comprehensive document designed to formalize the partnership between an Indian company and a foreign company. It is a 5-page MS Word document essential for companies involved in cross-border ventures that require the exchange of technical know-how, designs, training, and ongoing technical and managerial support. The template is structured to meet the guidelines issued by the Central Government of India, ensuring compliance with legal requirements.

Understanding a Foreign Collaboration Agreement

Introduction:

A Foreign Collaboration Agreement is a formal arrangement between an Indian company and a foreign entity, facilitating the exchange of technical know-how, designs, and training, along with continuous technical, administrative, and managerial services. These collaborations play a crucial role in enabling Indian companies to leverage advanced technologies and expertise from abroad to improve their production processes and product quality.

Guidelines for Drafting a Foreign Collaboration Agreement:

The Central Government of India has issued guidelines to streamline and regulate these agreements:

• Investment: For equity participation, the foreign collaborator must bring the value of shares in cash.

• Lump Sum Payment: Payments for technology transfer should be made in three installments:

1. One-third upon Central Government approval of the agreement.
2. One-third upon the transfer of technical documents.
3. One-third upon the commencement of commercial production.

• Royalty: Royalty is calculated on the net ex-factory selling price, excluding excise duties and imported components. The typical rate ranges from 3% to 5%, depending on the technology. Fixed royalties are preferred in some cases.

• Duration of Agreement: The agreement is typically valid for up to eight years, with an initial approval for five years, either from the agreement date or the start of commercial production.

• Renewal/Extension: Applications for renewal or extension are considered on merit by the Central Government.

• Remittances: Remittances to foreign collaborators are allowed based on prevailing exchange rates.

• Sub-licensing: Sub-licensing of technical know-how to other Indian parties is generally permitted but requires Central Government approval. Terms must be mutually agreed upon.

• Exports: The agreement should not restrict the Indian party from exporting products, except where the foreign collaborator has specific licensing arrangements.

• Procurement of Capital Goods: The Indian party should have no restrictions on procuring capital goods, components, spares, or raw materials. Control over pricing and selling arrangements must remain with the Indian collaborator.

• Technicians: The terms, number, and remuneration of technicians from both parties are subject to the Reserve Bank of India's approval.

• Training: The agreement must provide for training Indian technicians in the foreign collaborator’s facilities, especially in research and development.

• Exploitation of Indian Patents: Compensation for the use of Indian patents should be ensured, allowing the Indian company to continue manufacturing post-agreement without additional payments.

• Consultancy: Indian consultancy firms should be preferred, with foreign consultancy allowed only in special cases.

• Brand Name: Foreign brand names can be used on exported products but should not be mandated for those sold within India.

• Indian Laws: All agreements are subject to Indian laws and require Central Government approval.

Conclusion:

These guidelines ensure that foreign collaboration agreements are fair, compliant, and beneficial to both parties, fostering mutual growth and technological advancement.