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9.0 AMENDMENT
IN SEBI REGULATIONS
9.1 As
in the case of FIIs, SEBI�s primary role in the venture capital fund is
envisaged as of a facilitator for growth rather than that of a regulator.
SEBI Regulations should encourage more venture capital investments in a
hassle free manner. The multiplicity of regulations, as far as possible,
should be avoided and one set of regulatory guidelines may be issued under
the aegis of one nodal agency for interface with the venture capital
investors which could be SEBI. SEBI Regulations should focus more on adequate
disclosure as investors in venture capital activities are institutions or
high networth individuals who are expected to have the capability of taking
an informed decision based on the disclosures. The regulatory requirement of
seeking approval of the placement memorandum from SEBI may be dispensed with
by strengthening the disclosure requirements. The SEBI Regulations also
provide in the case of a VCF incorporated as a trust for compulsory
registration of instrument of trust under the Indian Registration Act. As per
the provisions of Indian Registration Act, the registration of trust document
is optional. There are operational problems in the case of existing VCFs (in
existence before SEBI Regulations were notified) to register the document of
trust after lapse of four months period. It should be left to the choice of
the applicant whether to register the trust document and there should not be
any compulsion for registration of documents under the Indian Registration
Act under the SEBI Regulation. The venture capital activity is in nascent
stage in India as of today and many dimensions of it are still to be
unfolded. SEBI Regulations therefore should not curtail the flexibility of
investment by a VCF.
9.2 The
present regulatory framework permits the investment by VCF in sick industrial
undertaking needs a review. There are various agencies who are engaged in
restructuring, financing to sick industries and there is no acute necessity
for venture capital funds to invest mainly in sick industrial undertakings.
The VCF should focus on investment in green shoe high technology oriented,
knowledge based, research oriented industries, however, VCFs may also be
provided flexibility to participate in the restructuring process of sick
industries as and when required.
9.3
Recommendations
The
following amendments are recommended under the existing SEBI Venture Capital
Regulations :
- The definition of VCF
should be amended to include any other structures and also the funds set
up, scheme floated by a trust, company, body corporate or other legal
entities.
- The Regulation should make
provisions for registration of Foreign Venture Capital Investors (FVCI).
- The investment criteria
needs to be redefined to permit investment by VCF primarily in equity or
equity related instruments or securities convertible into equity of VCUs
and also by way of subscription to IPO and preferential offer in case of
companies to be listed or already listed. The limit of atleast 80% of
the funds raised by the VCF may be dispensed with and new investment
criteria as dealt under the heading Investment related issues may be
incorporated.
- The relaxations for
venture capital undertaking/funds under SEBI Takeover Code and SEBI
(Initial Public Offer) guidelines as dealt under the heading of Exit
related issues may also be incorporated.
- The provision for
investment in sick companies and financial assistance in any other
manner may be dispensed with.
- The existing provisions
for approval of placement memorandum by SEBI may be dispensed with but
the content of placement memorandum may be strengthened to include all
the significant information necessary for an investor to arrive at a
fair decision.
- SEBI regulations should be
amended to dispense with the requirement of registration of the
instrument of trust under the Indian Registration Act.
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