Investment Management Department
IMD/SB/15987/04
July 21, 2004
HSBC (Custody and Clearing)
Central Service Center
S.K. Ahire Marg, Worli
Mumbai 400 030
Sub : Your request under the SEBI (Informal Guidance) Scheme, 2003.
This has reference to the correspondences resting with your letter dated July 15, 2004 wherein you had sought interpretive letter on the following questions in connection with your activities as sub-custodian of Foreign Venture Capital Investors (FVCIs) who invest in Indian Venture Capital Undertakings (VCUs) or Indian Venture Capital Funds (VCFs) who in turn invest in VCUs –
1. Whether, acting in the capacity of a domestic custodian, you need to obtain certain confirmations from your client (FVCI) as part of due diligence.
2. If yes, can the client give confirmation on behalf of the company (i.e., the relevant VCF or VCU).
In light of the provisions in regulation 14(2)(a) of the SEBI (Foreign Venture Capital Investors) Regulations, 2000, you had contemplated obtaining declarations from the FVCI to the effect that all conditions as per the SEBI and RBI Regulations have been met with and all investments are within the investment limits as prescribed in the SEBI Regulations. You had also contemplated obtaining certain declarations from the relevant VCFs and VCUs.
Our views on your request for informal guidance are given as follows –
Regulation 14 (2) of the SEBI (Foreign Venture Capital Investors) Regulations, 2000 provides that the FVCI shall ensure that the custodian take steps for monitoring investment of foreign venture capital investors in India.
While the custodian is expected to maintain highest standard of professionalism in the discharge of its duties, it has to be noted that compliance with this obligation depends on all the surrounding circumstances of which the intermediary concerned alone would be aware and which it alone would be the best person to judge. As such, it would not possible for the Investment Management Department of SEBI to render informal guidance on whether a particular course of action by the intermediary would satisfy this obligation. Thus the interpretive letter as sought for by you cannot be given.
Therefore, your request is rejected under para 8(viii) of the Informal Guidance Scheme. A sum of Rs. 20,000/- is being refunded to you in terms of para 9 of the Scheme.
Yours faithfully,
Sumit Bhatnagar
Manager