CASE NOTE
Zippers Karamchari Union vs. Union of India & Ors.
Writ Petition (Civil) No. 781 of 1996 before the Supreme Court of India
In Zippers Karamchari Union vs. Union of India & Ors. (commonly referred to as the YKK case) the Supreme Court of India refused to set aside the approval granted to the Japanese giant YKK Corporation for setting up an integrated plant in India for the manufacture of zip fasteners which were:
a) Low technology items;
b) The industry was reserved for the small scale sector;
c) The approval by the Government of India was for a hundred percent wholly owned subsidiary in India; and
d) There were no export obligations on YKK's part.
Since 1973 the zip fasteners were reserved for the small-scale industry and consequently big corporations could not manufacture such products.
In 1986 the Government of India had come out with a notification striking a distinction between small-scale industries and those which used "integrated plants". The latter were exempted from the embargo.
In the year 1991 there was a new Industrial Policy which eased foreign investment in select areas where the Government felt that they would provide access to high technology or world markets.
Under normal circumstances the Government of India permits foreign corporation to set up wholly owned corporations only where there is high technology or there are export obligations. This was an unusual situation where there were no such commitments. Consequently, the indigenous industry through trade unions, challenged the Government's action on the following grounds:
a) that the notification striking a distinction between small-scale industries and integrated plants was not rational and consequently being discriminatory and arbitrary was ultra vires Article 14 of the Constitution of India.
b) The new Industrial Policy itself was bad since without any export obligations there was no question of the investment proposal 'providing access to world markets'.
The court rejected these contentions and Held:
a)In the field of trade and commerce the courts should not lightly interfere with the wisdom of the government unless the policy is contrary to the Constitution or to any law or is wholly arbitrary;
b)The distinction between zip fasteners manufactured by small-scale industries and those manufactured by integrated plants was rational as integrated plants were known to improve the quality of the product and in such industries the investment was 'heavy'.
c) The approval did result in "... access to high technology or world markets" since YKK had acquired a worldwide reputation in the manufacture of zip fasteners and was known to use high technology. [QQ]
For this reason a large number of Indian exporters were using YKK zips to meet the standards required by international markets. In the domestic market a number of counterfeit zip fasteners had appeared showing that the product manufactured by YKK was in great demand in India. Use of such counterfeit zippers had made international buyers wary of sourcing such garments from India. Hence, the approval granted by the Government to YKK would overcome these hurdles and was therefore neither illegal nor contrary to the Industrial Policy of 1991.
Comment:
Before this judgment a proposal for manufacturing low technology items like zip fasteners by a wholly owned subsidiary of a multi national would not be allowed by the Government of India, unless there were major export obligations. However the court states that high technology may not only be with regard to the type of product (e.g. the difference between computers and cosmetics) but even in the size of the operation.
Thus, for a product, namely zip fasteners which would normally be considered low technology the court considers the setting up of an integrated plant as heavy industry and this is seen as high technology giving the industry a potential to access world markets and consequently the Government has the freedom to get out of the shackles of restrictive provisions, which in the past would have limited zip fasteners to the small scale sector.
The clear message is that "...if the Indian industry wants to compete with other countries the export industry will have to improve upon the quality of its goods."
This article is correct to the best of our knowledge as at the time of its publication. However, it is written as a general guide. Therefore specialist advice should be always be sort.
FOR FURTHER INFORMATION PLEASE CONTACT:
HEAD OFFICE ADDRESS:
Zippers Karamchari Union vs. Union of India & Ors.
Writ Petition (Civil) No. 781 of 1996 before the Supreme Court of India
In Zippers Karamchari Union vs. Union of India & Ors. (commonly referred to as the YKK case) the Supreme Court of India refused to set aside the approval granted to the Japanese giant YKK Corporation for setting up an integrated plant in India for the manufacture of zip fasteners which were:
a) Low technology items;
b) The industry was reserved for the small scale sector;
c) The approval by the Government of India was for a hundred percent wholly owned subsidiary in India; and
d) There were no export obligations on YKK's part.
Since 1973 the zip fasteners were reserved for the small-scale industry and consequently big corporations could not manufacture such products.
In 1986 the Government of India had come out with a notification striking a distinction between small-scale industries and those which used "integrated plants". The latter were exempted from the embargo.
In the year 1991 there was a new Industrial Policy which eased foreign investment in select areas where the Government felt that they would provide access to high technology or world markets.
Under normal circumstances the Government of India permits foreign corporation to set up wholly owned corporations only where there is high technology or there are export obligations. This was an unusual situation where there were no such commitments. Consequently, the indigenous industry through trade unions, challenged the Government's action on the following grounds:
a) that the notification striking a distinction between small-scale industries and integrated plants was not rational and consequently being discriminatory and arbitrary was ultra vires Article 14 of the Constitution of India.
b) The new Industrial Policy itself was bad since without any export obligations there was no question of the investment proposal 'providing access to world markets'.
The court rejected these contentions and Held:
a)In the field of trade and commerce the courts should not lightly interfere with the wisdom of the government unless the policy is contrary to the Constitution or to any law or is wholly arbitrary;
b)The distinction between zip fasteners manufactured by small-scale industries and those manufactured by integrated plants was rational as integrated plants were known to improve the quality of the product and in such industries the investment was 'heavy'.
c) The approval did result in "... access to high technology or world markets" since YKK had acquired a worldwide reputation in the manufacture of zip fasteners and was known to use high technology. [QQ]
For this reason a large number of Indian exporters were using YKK zips to meet the standards required by international markets. In the domestic market a number of counterfeit zip fasteners had appeared showing that the product manufactured by YKK was in great demand in India. Use of such counterfeit zippers had made international buyers wary of sourcing such garments from India. Hence, the approval granted by the Government to YKK would overcome these hurdles and was therefore neither illegal nor contrary to the Industrial Policy of 1991.
Comment:
Before this judgment a proposal for manufacturing low technology items like zip fasteners by a wholly owned subsidiary of a multi national would not be allowed by the Government of India, unless there were major export obligations. However the court states that high technology may not only be with regard to the type of product (e.g. the difference between computers and cosmetics) but even in the size of the operation.
Thus, for a product, namely zip fasteners which would normally be considered low technology the court considers the setting up of an integrated plant as heavy industry and this is seen as high technology giving the industry a potential to access world markets and consequently the Government has the freedom to get out of the shackles of restrictive provisions, which in the past would have limited zip fasteners to the small scale sector.
The clear message is that "...if the Indian industry wants to compete with other countries the export industry will have to improve upon the quality of its goods."
This article is correct to the best of our knowledge as at the time of its publication. However, it is written as a general guide. Therefore specialist advice should be always be sort.
FOR FURTHER INFORMATION PLEASE CONTACT:
HEAD OFFICE ADDRESS:
Anand & Anand
1, Jaipur Estate
Nizamuddin East
New Delhi- 110013
Tel: (91 11) 4619639; (91 11) 4615833; (91 11) 4623148;
(91 11) 4641749; (91 11) 4645067; (91 11) 4645078
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