RBI/2016-17/89
A.P. (DIR Series) Circular No. 7
October 20, 2016
To
All Category - I Authorised Dealer Banks
Madam/Sir,
Investment by a Foreign Venture Capital Investor
(FVCI) registered under SEBI (FVCI) Regulations, 2000
Attention of Authorised Dealers Category – I (AD Category -
I) banks is invited to the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2000, notified vide
Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to
time (Principal Regulations).
2. Investment in India by Foreign Venture Capital Investors
(FVCI), registered with SEBI, is governed by the provisions of Schedule 6 of the
Principal Regulations. In order to further liberalise and rationalise the
investment regime for FVCIs and to give a fillip to foreign investment in the
startups, the extant regulatory provisions have been reviewed, in consultation
with the Government of India and accordingly amendments have been carried out in
Schedule 6 of Foreign Exchange Management (Transfer or Issue of security by a
person resident outside India) Regulations, 2000, through Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident outside India)
(Third Amendment) Regulations, 2016.
3. As per the Amendment Notification referred to above, any
FVCI which has obtained registration under the Securities and Exchange Board of
India (FVCI) Regulations, 2000, will not require any approval from Reserve Bank
of India and can invest in:
a) Equity or equity linked instrument or debt instrument
issued by an Indian company whose shares are not listed on a recognised stock
exchange at the time of issue of the said securities/instruments and engaged in
any of the following sectors:
-
Biotechnology
-
IT related to hardware and software development
-
Nanotechnology
-
Seed research and development
-
Research and development of new chemical entities in pharmaceutical
sector
-
Dairy industry
-
Poultry industry
-
Production of bio-fuels
-
Hotel-cum-convention centres with seating capacity of more than three
thousand
-
Infrastructure sector (This will include activities included within the
scope of the definition of infrastructure under the External Commercial
Borrowing guidelines / policies notified under the extant FEMA Regulations
as amended from time to time).
b) Equity or equity linked instrument or debt instrument issued by an Indian
‘startup’ irrespective of the sector in which the startup is engaged. A startup
will mean an entity (private limited company or a registered partnership firm or
a limited liability partnership) incorporated or registered in India not prior
to five years, with an annual turnover not exceeding INR 25 Crores in any
preceding financial year, working towards innovation, development, deployment or
commercialization of new products, processes or services driven by technology or
intellectual property and satisfying certain conditions given in the
Regulations.
c) Units of a Venture Capital Fund (VCF) or of a Category I Alternative
Investment Fund (Cat-I AIF) (registered under the SEBI (AIF) Regulations, 2012)
or units of a Scheme or of a fund set up by a VCF or by a Cat-I AIF.
4. It is clarified that downstream investments by a Venture Capital Fund
(VCF) or a Cat-I AIF, which has received investment from FVCI, shall have to
comply with the provisions for downstream investment as laid down in Schedule 11
of the Principal Regulations.
5. Other salient features of the revised regulatory framework are as under:
a) FVCI may open a foreign currency account and/or a rupee account with a
designated branch of an Authorised Dealer for the purpose of making transactions
only and exclusively under this Schedule.
b) The consideration for all investment by an FVCI shall be
paid out of inward remittance from abroad through normal banking channels or out
of sale / maturity proceeds of or income generated from investment already made
as per paragraph 3 above.
c) There will be no restriction on transfer of any
security/instrument held by the FVCI to any person resident in or outside India.
6. An entity receiving investment directly from a registered
Foreign Venture Capital Investor (FVCI) will be required to report the
investment, mutatis mutandis, in form FCGPR. The necessary changes in the E-biz
portal is being made and separate instructions will be issued in due course.
Till such time, reporting requirements, as hitherto, shall continue.
7. AD Category – I banks may bring the contents of this
circular to the notice of their constituents and customers concerned.
8. Reserve Bank has since amended the Principal Regulations
accordingly through the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) (Third Amendment) Regulations, 2016
which have been notified vide
Notification No. FEMA 363/2016-RB dated April 28, 2016, vide G.S.R.
No.465(E) dated April 28, 2016.
9. The directions contained in this circular have been issued
under section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42
of 1999) and are without prejudice to permissions / approvals, if any, required
under any other law.
Yours faithfully,
(Shekhar Bhatnagar)
Chief General Manager-in-Charge
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