SEBI notifies new regulations for foreign VC investors

SEBI has recently amended the regulations for foreign venture capital investors.

Among the key changes are revised criteria for grant of certificate, eligibility, information required, renewal of registration, surrender of certificate and the obligations and responsibilities of a foreign venture capital investors.

Application for grant of certificate   

• An application for grant of certificate as a foreign venture capital investor should be made to a depository participant
• No entity can buy, sell or deal in securities as a foreign venture capital investor without a certificate granted by a designated depository participant

Eligibility criteria

The designated depository participant will consider the following to grant the certificate as a foreign venture capital investor:

• The applicant should be established outside India or in IFSC
• The applicant should be a citizen of the country whose market regulator has signed the multilateral MoU with SEBI
• In case of a bank applying, the central bank of its country should be a member of bank for international settlements
• The applicant or its beneficial owners should not be in sanctions list notified by the United Nations Security Council and should not be a resident in the country identified in the Financial Action Task Force as supporting money laundering or terrorism
• The applicant should be a fit and proper person based on SEBI regulations

Rejection of application and reconsideration

• The depository participant will communicate the reason for rejection of application in writing
• The applicant can apply for reconsideration of application within 30 days from the date of receipt of communication

Certificate of registration

• The depository participant will dispose the certificate of registration within 30 days of receipt of application or after any information asked for has been furnished, whichever is later
• The depository participant will remit the fee upon grant of certificate of registration

Conditions for validity of the certificate of registration

• Foreign VC investors should appoint a domestic custodian for custody of securities
• It should enter into an arrangement with a designated bank for operating a special non-resident rupee or foreign currency account
• The foreign venture capital investor must provide information asked for by the depository participant to review its eligibility to hold the certificate of registration
• If the foreign venture capital investor no longer satisfies any of the eligibility criteria, it should inform the board and depository participant within 7 working days

Renewal of registration and surrender of certificate

• The certificate of registration is permanent unless suspended or cancelled by the board or surrendered by the foreign venture capital investor
• The foreign VC investors will have to pay a renewal fee once every 5 years
• If an investor fails to pay the renewal fee along with the late fee to keep the registration active and does not have any investment in India, it would be considered that the investor has applied for surrender of its registration and its surrender will be processed by the depository participant
• If the investor fails to pay the renewal fee while having investment in India, the investor can pay the renewal fee with a late fee for each day of delay, provided that the late fee is up to one and half times the renewal fee
• Until the renewal fee is paid, the investor cannot make any new investment or sell existing investments. This also applies to investors who have been granted a certificate of registration before these regulations
• If the renewal fee is not paid within 30 days of date of expiry, the certificate of registration of the investor will be suspended or cancelled
• Any foreign venture capital investor who wishes to surrender its certificate of registration can do so to the depository participant

Appointment of custodian

• Any foreign venture capital investor or a global custodian acting on behalf of the investor has to enter into an agreement with a depository participant and a custodian before making any investment
• The custodian will be responsible for monitoring of investment of foreign venture capital investors in India, furnishing of periodic reports to the board, furnishing any information required by the board, any other condition specified by the board

Obligations and responsibilities of a foreign venture capital investor

• The investor will inform the board and the depository participant if it has provided any false or misleading information or if there is any change in the information provided to the board
• The investor must inform the board and the depository participant within seven working days if it has any penalty, litigation or proceedings, findings of inspections or investigations against it by an overseas regulator with the relevant timelines
• The investor is expected to have a PAN from the IT department
• The investor should go through the necessary KYC for its shareholders/investors