Securities and Exchange Board of India
1995 giving SEBI the mandate to frame regulations for venture capital funds. After the notification of SEBI regulations, separate GOI Guidelines for venture investments should have been repealed. Further, once a VCF including the fund having contribution from off shore investors, is registered with SEBI, the inflows and outflows of funds should be under transparent automatic route and there should be no need for separate FIPB / RBI approvals in the matters of investments, entry / exit pricing. Likewise, VCF once registered with SEBI should be entitled for automatic tax exemptions as in the case of mutual funds. Such single regulatory requirement would provide much needed investment and operational flexibility, make the perception of foreign investors positive and create the required environment for increased flow of funds and growth of the venture capital industry in India.
4.7SEBI regulations provides flexibility in selection of investment to the VCF, however, in the event of subscription to the fund by an overseas investor or the fund choosing to seek income tax exemptions, the investment flexibility is curtailed to a great extent. It is worth mentioning that one of the condition for grant of approval under the Income Tax Rules for seeking exemption under the Income Tax Act is that the fund should be registered with SEBI which make it obligatory on the venture capital fund not only to follow Income Tax Rules but also the SEBI Regulations. Further, a VCF has to seek separate registration under the SEBI Act and approval under the Rules of Income Tax apart from seeking approval from FIPB / RBI in the event of subscription to the fund by an overseas investor.
In the above background, following recommendations are proposed:
Since SEBI is responsible for registration and regulation of venture capital funds, the need is to harmonise and consolidate multiple regulatory requirements within the framework of SEBI regulations to provide for uniform, hassle free, single window clearance with SEBI as a nodal regulator.
In view of the (a) above, Government of India may consider repealing the Government of India – MoF(DEA) Guidelines for Overseas Venture Capital Investment in India dated September 20, 1995
The Foreign Venture Capital Investor (FVCI) should registered under the SEBI Regulations under the pattern of FIIs.
For SEBI registered VCF, requirement of separate rules under the Income Tax Act should be dispensed with on the pattern of mutual funds.
Report of K B Chandrasekhar Committee on Venture Capital20