SECURITIES AND EXCHANGE BOARD OF INDIA (FOREIGN VENTURE CAPITAL INVESTORS) REGULATIONS, 2000

[Mr. M. GOVINDARAJAN]

REGULATIONS:

In exercise of the powers conferred by Sec.30 (1) of SEBI Act, 1992 the Securities and Exchange Board of India ('SEBI' for short) made the 'Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000 ('Regulations' for short) came into effect from 15.09.2000.

The Regulations define the term 'Foreign Venture Capital Investor' as an investor incorporated, established outside India, is registered under these regulations and proposes to make investment in accordance with these regulations. Regulation 2(1)(l) defines the term 'venture capital fund' as a fund established in the form of a trust, a company including a body corporate and registered under the SEBI (Venture Capital Fund) Regulations, 1996, which

has a dedicated pool of capital;

raised in the manner specified under the regulations; and

invested in accordance with the regulations.

Regulation 2(1)(m) defines the term 'Venture Capital undertaking' as a domestic company-

whose shares are not listed in a recognized stock exchange in India;

which is engaged in the business of providing services, production or manufacture of articles or things, but does not include such activities or sectors which are specified in the negative list by the Board, with the approval of the Central Government, by notification in the Official Gazette in this behalf.

REGISTRATION:

The procedure for registration of foreign venture capital investor under these regulations is as follows:

The applicant shall make an application to the Board inform A;

The application fee is US $ 2,500 payable by bank draft in favor of 'The Securities Exchange Board of India' payable at Mumbai.

The Board has to consider the eligibility conditions for registration as detailed below:

Ø      The applicant's track record, professional competence, financial soundness, experience, general reputation of fairness and integrity;

Ø      Whether the applicant has been granted necessary approval by the RBI for making investments in India;

Ø      Whether the applicant is an investment company, investment trust, investment partnership, pension fund, mutual fund, endowment fund, university fund, charitable institution or any other entity incorporated outside India;

Ø      Whether the applicant is an asset management company, investment manager or investment management company or any other investment vehicle incorporated outside India;

Ø      Whether the applicant is authorized to invest in venture capital fund or carry on activity as a foreign venture capital investors;

Ø      Whether the applicant is regulated by an appropriate foreign regulatory authority or is an income tax payer, or submits a certificate from its banker of its or its promoter's track record where the applicant is neither a regulated entity nor an income tax payer;

Ø      The applicant has not been refused a certificate by the Board;

Ø      Whether the applicant is a fit and proper person. (For the purpose of determining whether an applicant or the foreign venture capital investor is a fit and proper person the Board may take into account the criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008).

The Board may require the applicant to furnish such further information as it may consider necessary;

An application which is not complete in all aspects shall be rejected by the Board after giving the applicant an opportunity to remove, within thirty days of the date of communications, the objections indicated by the board.  The Board may, on being satisfied that it is necessary to extend the period not beyond ninety days;

If the Board is satisfied that the applicant is eligible for the grant of certificate, it shall send an intimation to the applicant;

On receipt of intimation the applicant shall pay the Registration fee of US $ 10,000 by means of demand draft in favor of 'The Securities and Exchange Board of India' payable at Mumbai;

If the required fee is paid the Board shall grant a certificate of registration in Form B;

The certificate is granted subject to the following conditions:

Ø      It shall abide the provisions of the SEBI Act and these regulations;

Ø      It shall appoint a domestic custodian for the purpose of custody of securities;

Ø      It shall enter into an agreement with a designated bank for the purpose of operating a special non resident rupee or foreign currency account;

Ø      It shall forthwith inform the Board in writing if any information or particular previously submitted to the Board found to be false or misleading in any material particular or if there is any change in the information already submitted.

If the board is of the opinion that a certificate should be rejected, it may reject the application after giving the applicant a reasonable opportunity of being heard. The decision of the Board shall be communicated to the applicant.  Any applicant whose application has been rejected shall not carry on any activity as a Foreign Venture Capital Investor.

INVESTMENT CRITERIA:

All investments to be made foreign venture capital investors shall be subject to the following conditions:

It shall disclose to the Boards its investment strategy;

It can invest its total funds committed in one venture capital fund;

It shall investments as enumerated below:

Ø      At least 66.67% of the investible funds shall be invested in unlisted equity shares or equity linked instruments of Venture Capital Undertaking;

Ø      Not more than 33.33% of the investible funds may be invested by way of:

·        subscription to initial public offer of adventure capital undertaking whose shares are proposed to be listed;

·        debt or debt instrument of a venture capital undertaking in which the foreign venture capital investor has already made an investment by way of equity;

·        preferential allotment of equity shares of a list company subject to lock in period of one year;

·        it shall disclose the duration of life cycle of the fund;

·        special purpose vehicles which are created for the purpose of facilitating or promoting investment in accordance with these regulations.

The investment conditions and restrictions shall be achieved by the foreign venture capital investor by the end of its life cycle.

GENERAL OBLIGATIONS AND RESPONSIBILITIES:

The following are the general obligations and responsibilities of the Foreign Venture Capital Investor:

Every foreign venture capital investor shall maintain for a period of eight years books of account, records and documents which shall give a true and fair picture of the state of affairs of the Foreign Venture Capital Investor;

He shall intimate to the Board, in writing, the place where the books, records and documents are being maintained;

The Board may at any time call for any information with respect to any matter relating to its activity;

Where any information is called for the same shall be furnished within the time specified by the Board;

Foreign Venture Capital Investor or a global custodian acting on behalf of the foreign venture capital investor shall enter into an agreement with the domestic custodian to act as a custodian of securities for foreign venture capital investor;

He shall ensure that domestic custodian takes steps for-

Ø      Monitoring of investment of foreign venture capital investors in India;

Ø      Furnishing of periodic reports to the Board;

Ø      Furnishing such information as may be called for by the Board.

He shall appoint a branch of a bank approved by the RBI a designated bank for opening of foreign currency denominated accounts or specified non resident rupee account.

INSPECTION AND INVESTIGATION:

The Board may, suo motu or upon receipt of information or complaint, cause an inspection or investigation to be made in respect of conduct and affairs of any foreign venture capital investor by an officer whom the Board considers fit for any of the following reasons:

to ensure that the books of account, records and documents are being maintained by the foreign venture capital investor in the manner specified in these regulations;

to inspect of investigate into complaints received from investors, clients or any other person, on any matter having a bearing on the activities of the foreign venture capital investor;

to ascertain whether the provisions of the Act and these regulations are being complied with by the foreign venture capital investor; and

to inspect and investigate suo motu into the affairs of a foreign venture capital investor in the interest of the securities market or in the interest of investors.

It shall be the duty of every foreign venture capital investor is to produce to the Inspecting officer such books accounts and other documents in his custody or control and furnish him with such statements and information as the said officer may require for the purpose of inspection and investigation. He should give all such co-operation as may be required in connection with the inspections or investigations and shall furnish such information sought by the inspecting of investigating officer in connection with the inspection or investigation.

The Inspecting or Investigating Officer shall, for the purpose of inspection or investigation, shall have the power to examine on oath and record the statement of any person responsible for or connected with activities of Foreign Venture Capital or any other person associated having relevant information pertaining to such Foreign Venture Capital Investor. The said Officer shall have also the power to get authenticated copies of documents, books, accounts of foreign venture capital investor from any person having control or custody of such documents, books or accounts. On completion of inspection or investigation he shall submit a report to the Board.

The Board may after considering the report and after giving a reasonable opportunity of hearing to the Foreign Venture Capital Investor, require it to take such measure or issue such directions as it deems fit in the interest of capital market and investors, including directions in the nature of-

requiring the person concerned to dispose of the securities or disinvest in a manner as may be specified in the directions;

requiring the person concerned not to further invest for a particular period;

prohibiting the person concerned from operating in the capital in market in India for a specified period.

SUSPENSION OF CERTIFICATE:

The Board may suspend the certificate where the Foreign Venture Capital Investor:

contravenes any of the provisions of the Act or these regulations;

fails to furnish any information relating to its activity as a Foreign Venture Capital Investor as required by the Board;

furnishes to the Board information which is false or misleading in any material particular;

does not submit periodic returns or reports as required by the Board;

does not co-operate in any enquiry or inspection conducted by the Board.

CANCELLATION OF CERTIFICATE:

The Board may cancel the certificate granted to a Foreign Venture Capital Investor:

when the foreign venture capital investor is guilty of fraud or has been convicted of an offence involving moral turpitude'

he has been guilty of repeated defaults;

he does not continue to meet the eligibility criteria laid down in these regulations;

contravenes any of the provisions of the Act or these regulations.

No order of penalty or cancellation of certificate shall be imposed on the Foreign Venture Capital Investor except after holding an enquiry in accordance with the procedure specified in Chapter V of the SEBI (Intermediaries) Regulations, 2008. Any person aggrieved by an order of the Board under these regulations may prefer an appeal to Securities Appellate Tribunal in accordance with Section 15T of the Act.