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               Securities and Exchange Board of India

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.

9.2The 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.

9.3Recommendations

The following amendments are recommended under the existing SEBI Venture Capital Regulations :

(a)

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.

(b)

The Regulation should make provisions for registration of Foreign Venture Capital Investors (FVCI).

(c)

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.

(d)

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.

Report of K B Chandrasekhar Committee on Venture Capital37

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