At present, Xerox holds 40 per cent in the total capital of Modi Xerox Ltd.

The company has also proposed consolidation of holdings of Xerox in India, consequent to the merger of MXL and Modi Xerox Financial Services Ltd (formerly called Indian Xerographic Systems Ltd) into Xerox ModiCorp Ltd (XMC).

This is for a better synergy and utilisation of the facility, to facilitate the latest digital technology and expand software development activities.

Sources said that the government while approving the acquisition of Xerox into Modi Xerox Ltd, has raised queries regarding the change in activity of the merged company since it has not taken the requisite approvals. The activity of the merged company is being changed to fundingand leasing, which is purely a non-banking financial activity.

Modi Xerox Financial Services Ltd will, therefore, have to take Foreign Investment Promotion Board (FIPB) approval for the activities undertaken by it as it has 40 per cent foreign equity and be regulated under the NBFC policy. The change of name from Indian Xerographic Systems, which was set up to market products in the USSR, has been approved by the industry ministry.

Significantly, the government has also stipulated that Xerox Corporation's wholly-owned subsidiary--Xerox Investment India Pvt Ltd will take all requisite approvals for downstream investments.

It has been agreed between the Indian company and foreign collaborator that neither Xerox nor any Xerox subsidiary in India or any other Indian company (other than MXL, MXFS or MXC), use the `Xerox' trademark for such business activities for so long as Xerox holds a majority stake in MXL, MXFC and MXC.

The Indian partners have also submitted a no-objection certificate and theproposal is also supported by a board resolution from Modi Xerox Ltd.

Earlier, the proposal had got stuck with the FIPB as it was not supported by a board resolution. However, the FIPB had received a note which stated that the special resolution had been passed a an extra-ordinary general meeting of Modi Xerox which approved a preferential allotment in favour of Xerox Corporation and/or its wholly-owned subsidiaries in the country.

Prior to the merger/amalgamation of MXL and MXFC into XMC, Xerox Ltd will be allowed to increase the equity in MXL up to 50 per cent plus one equity share from the existing 40 per cent.