M&M had wanted 49 per cent foreign shareholding in the joint venture. However, due to the FDI cap of 26 per cent in the defence sector, this could not transpire.
Defence Land Systems is focused on the manufacture of up-armoured light vehicles, specialist military vehicles, mine protected vehicles, artillery systems and other selected land system weapons, support and upgrades.
The company intends to become a centre of excellence for artillery systems, and its existing business includes products such as the up-armoured Scorpio, the Axe, the Marksman and the Rakshak.
In a joint statement, they said that they have decided to end their three-year old partnership in the Indian defence sector with M&M set to acquire 26 per cent stakes of its partner in the joint venture company Defence Land Systems India (DLSI).
In DLSI, Mahindra Defence Systems (part of the Mahindra and Mahindra group) had 74 per cent stake while the global defence major had the remaining 26 per cent.
"Developments in both the industry environment and in customer procurement frameworks and acquisition strategies have led the shareholders to conduct a strategic review of the DLSI business," BAE Systems said in the statement.
"This decision is a reflection of the shareholders' belief that they can best meet emerging customer requirements and address the opportunities in this dynamic market with a flexible, tailored approach that was not easily facilitated by the structure of the existing joint venture entity," the statement added.
Commenting on the development, Brigadier (Retd) Khutub Hai, chairman and MD of Mahindra Defence Systems, "This is a strategic decision and will enable both the companies to approach opportunities individually and to offer customised solutions to meet the needs of the Indian defence land systems domain."
Dean McCumiskey, MD and chief executive (India) of BAE Systems, said, "Building domestic capabilities in partnership with Indian companies will remain a cornerstone of our strategy in India. We look forward to opportunities to collaborate with Mahindra and others to enhance the role of the private sector in the defence industry."
With inputs from PTI