|
(VENTURE CAPITAL FUNDS)
REGULATIONS, 1996
|
|
| In exercise of the powers conferred by section 30 of the Securities
and Exchange Board of India Act, 1992 (15 of 1992) the Securities and Exchange
Board of India hereby, makes the following regulations. · CHAPTER I (Preliminary) · CHAPTER II (Registration Of Venture Capital Funds) · CHAPTER III (Investment Conditions And Restrictions) · CHAPTER IV (General Obligations And Responsibilities) · CHAPTER V (Inspection And Investigation) · CHAPTER VI (Procedure For Action In Case Of Default) · First Schedule - Form (A,B) · Second Schedule |
|
| CHAPTER I PRELIMINARY Short title and commencement 1.(1) These regulations may be called the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. (2) They shall come into force on the date of their publication in the Official Gazette. Definitions 2. In these regulations, unless the context otherwise requires, - (a) "Act" means the Securities and Exchange Board of India Act, 1992 (15 of 1992); (b) "certificate" means a certificate of registration granted by the Board under regulation 7 ; (c) "company" means a company incorporated under the Companies Act, 1956 (1 of 1956); (d) "economic offence" means an offence to which the Economic Offences (Limitation of Prosecutions) Act, 1974 (12 of 1974) applies for the time being; (e) "enquiry officer" means an enquiry officer appointed by the Board, under regulation 33 ; (f) "Form" means any of the forms set out in the First Schedule; (g) "Government of India Guidelines" means the guidelines dated September 20, 1995 issued by the Government of India for Overseas Venture Capital Investments in India as amended from time to time; (h) "inspecting officer" means an inspecting officer appointed by the Board under regulation 25 ; (i) "Schedule" means a schedule annexed to these regulations; (j) "sick industrial company" has the same meaning as is assigned to it in clause (o) of sub-section (1) of section (3) of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); (k) "trust" means a trust established under the Indian Trusts Act, 1882 (2 of 1882) [or under an Act of Parliament or State Legislation};1 (l) "units" means the interest of the investors in a scheme of a venture capital fund set up as a trust, which consist of each unit representing one undivided share in the assets of the scheme; (m) "venture capital fund" means a fund established in the form of a company or trust which raises monies through loans, donations, issue of securities or units as the case may be, and makes or proposes to make investments in accordance with these regulations. 1 Inserted by the Securities and Exchange Board of India (Venture Capital Funds) Amendment Regulations, 1999 dated November 17th, 1999 vide S.O. 1118 (E). |
|
| CHAPTER II
REGISTRATION OF VENTURE CAPITAL FUND Application for grant of certificate proposing 3.(1) Any company or trust to carry on any activity as a venture capital fund on or after the commencement of these regulations shall make an application to the Board for grant of a certificate. (2) Any company or trust, who on the date of commencement of these regulations is carrying any activity as a venture capital fund without a certificate shall make an application to the Board for grant of a certificate within a period of three months from the date of such commencement: Provided that the Board, in special cases, may extend the said period upto a maximum of six months from the date of such commencement. (3) An application for grant of certificate under sub-regulation (1) or sub-regulation (2) shall be made to the Board in Form A and shall be accompanied by a non-refundable application fee as specified in Part A of the Second Schedule to be paid in the manner specified in Part B thereof. (4) Any company or trust referred to in sub-regulation (2) who fails to make an application for grant of a certificate within the period specified therein shall cease to carry on any activity as a venture capital fund. (5) The Board may in the interest of the investors issue directions with regard to the transfer of records, documents or securities or disposal of investments relating to its activities as a venture capital fund. (6) The Board may in order to protect the interests of investors appoint any person to take charge of records, documents, securities and for this purpose also determine the terms and conditions of such an appointment. Eligibility Criteria 4. For the purpose of the grant of a certificate by the Board the applicant shall have to fulfil in particular the following conditions, namely:- (a) if the application is made by a company, - (i)memorandum of association has as its main objective, the carrying on of the activity of a venture capital fund; (ii) it is prohibited by its memorandum and articles of association from making an invitation to the public to subscribe to its securities; (iii) its director or principal officer or employee is not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant; (iv) its director, principal officer or employee has not at any time been convicted of any offence involving moral turpitude or any economic offence. (v)it is a fit and proper person.2 (b) if the application is made by a trust, - i. the instrument of trust is in the form of a deed and has been duly registered under the provisions of the Indian Registration Act, 1908 (16 of 1908); (ii) the main object of the trust is to carry on the activity of a venture capital fund; (iii) the directors of its trustee company, if any, or any trustee is not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant; (iv) the directors of its trustee company, if any, or a trustee has not at any time, been convicted of any offence involving moral turpitude or of any economic offence; (v) the applicant is a fit and proper person.3 (c) if the application is made by a body corporate (i ) it is set up or established under the laws of the Central or State Legislature. ii. The applicant is permitted to carry on the activities of a venture capital fund. iii. The applicant is a fit and proper person. iv. The directors or the trustees, as the case may be, of such body corporate, if any, is not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant.]4 (d) the company or trust has not been refused a certificate by the Board or its certificate has been suspended under regulation 30 or cancelled under regulation 31.5 Furnishing of information, clarification 5. The Board may require the applicant to furnish such further information as it may consider necessary. Consideration of application 6. An application which is not complete in all respects shall be rejected by the Board: Provided that, before rejecting any such application, the applicant shall be given an opportunity to remove, within thirty days of the date of receipt of communication, the objections indicated by the Board. Provided further that the Board may, on being satisfied that it is necessary to extend the period specified in the first proviso, extend such period by such further time not exceeding ninety days. Procedure for grant of certificate 7. (1) If the Board is satisfied that the applicant is eligible for the grant of certificate, it shall send an intimation to the applicant. (2) On receipt of intimation, the applicant shall pay to the Board, the registration fee specified in Part A of the Second Schedule in the manner specified in Part B thereof. (3) The Board shall on receipt of the registration fee grant a certificate of registration in Form B. Conditions of certificate 8. The certificate granted under regulation 7 shall be inter-alia, subject to the following conditions, namely:- (a) the venture capital fund shall abide by the provisions of the Act, the Government of India Guidelines and these regulations; (b) the venture capital fund shall not carry on any other activity other than that of a venture capital fund; (c) the venture capital fund shall forthwith inform the Board in writing if any information or particulars previously submitted to the Board are found to be false or misleading in any material particular or if there is any change in the information already submitted. Procedure where certificate is not granted 9. (1) After considering an application made under regulation 3, if the Board is of the opinion that a certificate should not be granted, it may reject the application after giving the applicant a reasonable opportunity of being heard. (2) The decision of the Board to reject the application shall be communicated to the applicant within thirty days. Effect of refusal to grant certificate 10. (1) Any applicant whose application has been rejected under regulation 9 shall not carry on any activity as a venture capital fund. (2) Any company or trust referred to in sub-regulation (2) of regulation 3, whose application for grant of certificate has been rejected under regulation 9 by the Board shall, on and from the date of the receipt of the communication under sub-regulation (2) of regulation 9, cease to carry on any activity as a venture capital fund. (3) The Board may in the interest of the investors issue directions with regard to the transfer of records, documents or securities or disposal of investments relating to its activities as a venture capital fund. (4) The Board may in order to protect the interests of the investors appoint any person to take charge of records, documents, securities and for this purpose also determine the terms and conditions of such an appointment. 2 Inserted by SEBI (Venture Capital Funds) Amendment Regulations, 1998 notified on January 5, 1998 vide S.O. 19(E). 3Ibid 4Inserted by the Securities and Exchange Board of India (Venture Capital Funds) (Amendment) Regulations, 1999 dated November 17th, 1999 vide S.O. 1118 (E). 5Earlier clause (c ) renumbered as clause (d) by the Securities and Exchange Board of India (Venture Capital Funds) Amendment Regulations, 1999 dated November 17th, 1999 vide S.O. 1118 (E). |
|
| CHAPTER III
INVESTMENT CONDITIONS AND RESTRICTIONS Minimum investment in a venture capital fund 11. (1) A venture capital fund may raise monies from any investor whether Indian, foreign or non-resident Indian. (2) No venture capital fund set up as a company or any scheme of a venture capital fund set up as a trust shall accept any investment from any investor which is less than five lakh rupees: Provided that nothing contained in sub-regulation (2) shall apply to investors who are,- (a) employees or the principal officer or directors of the venture capital fund, or directors of the trustee company or trustees where the venture capital fund has been established as a trust; or (b) non resident Indians; or (c) persons or institutions of foreign origin. Restrictions on investment by a venture capital fund 12. All investments made or to be made by a venture capital fund shall be subject to the following restrictions: (a) the venture capital fund shall not invest in the equity shares of any company or institution providing financial services; (b) at least 80 percent of funds raised by a venture capital fund shall be invested in:- (i) the equity shares or equity related securities issued by a company whose securities are not listed on any recognised stock exchange: Provided that a venture capital fund may invest in equity shares or equity related securities of a company whose securities are to be listed or are listed where the venture capital fund has made these investments through private placements prior to the listing of the securities. (ii) the equity shares or equity related securities of a financially weak company or a sick industrial company, whose securities may or may not be listed on any recognised stock-exchange. Explanation: For the purposes of this regulation, a "financially weak company" means a company, which has at the end of the previous financial year accumulated losses, which has resulted in erosion of more than 50% but less than 100% of its networth as at the beginning of the previous financial year. (iii) providing financial assistance in any other manner to companies in whose equity shares the venture capital fund has invested under sub-clause (i) or sub-clause (ii), as the case may be. Explanation: For the purposes of this regulation, "funds raised" means the actual monies raised from investors for subscribing to the securities of the venture capital fund and includes monies raised from the author of the trust in case the venture capital fund has been established as a trust but shall not include the paid up capital of the trustee company, if any. Prohibition on listing 13. No venture capital fund shall be entitled to get its securities or units, as the case may be, listed on any recognised stock exchange till the expiry of three years from the date of the issuance of securities or units, as the case may be, by the venture capital fund. |
|
| CHAPTER IV GENERAL OBLIGATIONS AND RESPONSIBILITIES Prohibition on inviting subscription from the public 14. No venture capital fund shall issue any document or advertisement inviting offers from the public for the subscription or purchase of any of its securities or units. Private placement 15. A venture capital fund may receive monies for investment in the venture capital fund through private placement of its securities or units. Placement memorandum 16. (1) The venture capital fund established as a trust shall, before issuing any units file with the Board a placement memorandum which shall give details of the terms subject to which monies are proposed to be raised from investors. (2) A venture capital fund established as a company shall, before making an offer inviting any subscription to its securities, file with the Board a placement memorandum which shall give details of the terms subject to which monies are proposed to be raised from the investors. Contents of placement memorandum 17. (1) The placement memorandum referred to in sub-regulation (1) of regulation 16 shall contain the following, namely:- (a) details of the trustees or trustee company of the venture capital fund; (b) details of entitlement on the units of the trust for which subscription is being sought; (c) details of investments that are proposed to be made; (d) tax implications that are likely to apply to investors; (e) manner of subscription to the units of the trust; (f) the period of maturity, if any, of the scheme; (g) the manner, if any, in which the scheme is to be wound up; (h) manner in which the benefits accruing to investors in the units of the trust are to be distributed; (i) details of the asset management company, if any, and of fees to be paid to such a company. (2) The placement memorandum referred to in sub-regulation (2) of regulation 16 shall contain the following, namely:- (a) details of the securities that are being offered; (b) details of investments that are proposed to be made; (c) details of directors of the company; (d) tax implications that are likely to apply to investors; (e) manner of subscription to the securities that are to be issued; (f) manner in which the benefits accruing to investors in the securities are to be distributed; and (g) details of the asset management company, if any, and of fees to be paid to such a company. Circulation of placement memorandum 18. The placement memorandum referred to in regulation 16 may be issued for private circulation only after the expiry of twenty one days of its submission to the Board: Provided that if, within twenty one days of submission of the placement memorandum, the Board communicates any amendments to the placement memorandum, the venture capital fund shall carry out such amendments in the placement memorandum before such memorandum is circulated to the investors. Changes in the placement memorandum to be intimated to the Board 19. Amendments or changes to any placement memorandum already filed with the Board can be made only if,- (a) a copy of the placement memorandum indicating the changes is filed with the Board; and (b) within twenty one days of such filing, the Board has not communicated any objections or observations on the said amendments or changes. Maintenance of books and records 20. (1) Every venture capital fund shall maintain for a period of ten years books of accounts, records and documents which shall give a true and fair picture of the state of affairs of the venture capital fund. (2) Every venture capital fund shall intimate the Board, in writing, the place where the books, records and documents referred to in sub-regulation (1) are being maintained. Power to call for information 21. (1) The Board may at any time call for any information from a venture capital fund with respect to any matter relating to its activity as a venture capital fund. (2) Where any information is called for under sub-regulation (1) it shall be furnished to the Board within fifteen days. Submissions of reports to the Board 22. The Board may at any time call upon the venture capital fund to file such reports as the Board may desire with regard to the activities carried on by the venture capital fund. Winding up 23. (1) A scheme of a venture capital fund set up as a trust shall be wound up, (a) when the period of the scheme, if any, mentioned in the placement memorandum is over; (b) if it is the opinion of the trustees or the trustee company, as the case may be, that the scheme shall be wound up in the interests of investors in the units; (c) if seventy five percent of the investors in the scheme pass a resolution at a meeting of unit holders that the scheme be wound up; or (d) if the Board so directs in the interests of investors. (2) A venture capital fund set up as a company shall be wound up in accordance with the provisions of the Companies Act, 1956 (1 of 1956). (3) The trustees or trustee company of the venture capital fund set up as a trust shall intimate the Board and investors of the circumstances leading to the winding up of the scheme under sub-regulation (1). Effect of winding up 24.(1) On and from the date of intimation under sub-regulation (3) of regulation 23, no further investments shall be made on behalf of the scheme so wound up. (2) Within three months from the date of intimation under sub-regulation (3) of regulation 23, the assets of the scheme shall be liquidated, and the proceeds accruing to investors in the scheme distributed to them after satisfying all liabilities. |
|
| CHAPTER V
INSPECTION AND INVESTIGATION Board's right to inspect or investigate 25.(1) The Board may appoint one or more persons as inspecting or investigating officer to undertake inspection or investigation of the books of accounts, records and documents relating to a venture capital fund for any of the following reasons, namely:- (a) to ensure that the books of account, records and documents are being maintained by the venture capital fund in the manner specified in these regulations; (b) to inspect or investigate into complaints received from investors, clients or any other person, on any matter having a bearing on the activities of the venture capital fund; (c) to ascertain whether the provisions of the Act and these regulations are being complied with by the venture capital fund; and (d) to inspect or investigate suo motu into the affairs of a venture capital fund, in the interest of the securities market or in the interest of investors. Notice before inspection or investigation 26.(1) Before ordering an inspection or investigation under regulation 25, the Board shall give not less than ten days notice to the venture capital fund. (2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors no such notice should be given, it may by an order in writing direct that the inspection or investigation of the affairs of the venture capital fund be taken up without such notice. (3) During the course of an inspection or investigation, the venture capital fund against whom the inspection or investigation is being carried out shall be bound to discharge its obligations as provided in regulation 27. Obligations of venture capital fund on inspection or investigation by the Board 27. (1) It shall be the duty of the venture capital fund whose affairs are being inspected or investigated, and of every director, officer and employee thereof, of its asset management company, if any, and of its trustees or directors or the directors of the trustee company, if any, to produce before the inspecting or investigating officer such books, securities, accounts, records and other documents in its custody or control and furnish him with such statements and information relating to the venture capital fund, as the inspecting or investigating officer may require, within such reasonable period as the inspecting officer may specify. (2) The venture capital fund shall allow the inspecting or investigating officer to have reasonable access to the premises occupied by such venture capital fund or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the venture capital fund or such other person and also provide copies of documents or other materials which, in the opinion of the inspecting or investigating officer are relevant for the purposes of the inspection or investigation, as the case may be. (3) The inspecting or investigating officer, in the course of inspection or investigation shall be entitled to examine or to record the statements of any director, officer or employee of the venture capital fund. (4) It shall be the duty of every director, officer or employee, trustee or director of the trustee company of the venture capital fund to give to the inspecting or investigating officer all assistance in connection with the inspection or investigation, which the inspecting or investigating officer may reasonably require. Submission of Report to the Board 28. The inspecting or investigating officer shall, as soon as possible, on completion of the inspection or investigation submit an inspection or investigation report to the Board: Provided that if directed to do so by the Board, he may submit an interim report. Communication of findings etc. to the venture capital fund 29. (1) The Board shall, after consideration of the inspection or investigation report or the interim report referred to in regulation 28, communicate the findings of the inspection officer to the venture capital fund and give him an opportunity of being heard. (2) On receipt of the reply if any, from the venture capital fund, the Board may call upon the venture capital fund to take such measures as the Board may deem fit in the interest of the securities market and for due compliance with the provisions of the Act and these regulations. |
|
|
CHAPTER VI 30. The Board may suspend the certificate granted to a venture capital
fund where the venture capital fund: |