The Securities and Exchange Board of India (SEBI) has issued amendments to the Foreign Venture Capital Investors (FVCI) Regulations, effective January 1, 2025. These regulations aim to streamline the registration process for foreign venture capital investors, outlining the roles of designated depository participants in granting certificates of registration. Amendments include the introduction of terms like “Bilateral Memorandum of Understanding” and “control,” expanding the definition of a foreign venture capital investor to include entities incorporated in International Financial Services Centres (IFSC). Eligibility criteria have been clarified, requiring applicants to meet certain regulatory standards, and barring those from jurisdictions with insufficient anti-money laundering measures. The regulations also specify that FVCI certificates are permanent unless suspended, canceled, or surrendered, and renewal fees must be paid every five years. Provisions for compliance, personal representation, and criteria for certificate rejection are also laid out, with a focus on transparency and procedural integrity.
SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 4th September 2024
SECURITIES AND EXCHANGE BOARD OF INDIA (FOREIGN VENTURE CAPITAL INVESTORS) (AMENDMENT) REGULATIONS, 2024
No. SEBI/LAD-NRO/GN/2024/203.- In exercise of the powers conferred by sub-section (1) of 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, to further amend the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000, namely, –
1. These regulations may be called the Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2024.
2. They shall come into force with effect from January 1, 2025.
3. In the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000, –
I. In regulation 2, –
i. in sub-regulation (1),
a. after clause (a) and before clause (b), the following clauses shall be inserted, namely, – “(aa) “Bilateral Memorandum of Understanding wi h the Board” means a bilateral Memorandum of Understanding between the Board and any authority outside India that provides for information sharing arrangement as specified under clause (ib) of sub-section (2) of section 11 of the Act;
(ab) “Board” means he Securites and Exchange Board of India established under section 3 of the Act;”
b. clause (b) shall be substituted with the following clause, namely,-
“(b) “certificate” means a certificate of registration granted to a foreign venture capital investor by the designated depository participant on behalf of the Board under these regulations;”
c. after clause (b) and before clause (c), the following clause shall be inserted, namely,- “(ba) “control” includethe right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner;”
d. clause (c) shall be substituted with the following clause, namely,-
“(c)”designated bank” means a scheduled bank in India, which has been authorised by the Reserve Bank of India to act as a banker to the foreign venture capital investor;”
e. after clause (c) and before clause (d), the following clause shall be inserted, namely,- “(ca) “designated depository participant” means a person who has been approved by the Board under Chapter III of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019;”
f. in clause (d), the words “of securities” shall be omitted
g. Clause (g) shall be substituted with the following clause, namely,-
“(g) “foreign venture capital investor” means an investor incorporated or established outside India registered under these regulations, proposes to make investment in accordance with these regulations and shall be deemed to be an intermediary in terms of the provisions of the Act;”
h. clause (h) shall be substituted with the following clause, namely,-
“(h) “form” means an application form for obtaining registration as foreign venture capital investor as notified by the Government of India or as specified by the Board;
i. after clause (h) and before clause (i), the following clause shall be inserted, namely,- “(ha) “International Financial Services Centre” or “IFSC” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (Act No. 28 of 2005);”
ii. sub-regulation (2) shall be substituted with the following, namely,-
“(2) Words and expressions used and not defined in these regulations, but defined in the Act or the Foreign Exchange Management Act, 1999 (42 of 1999), the Companies Act, 2013 (18 of 2013), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Depositories Act, 1996 (22 of 1996), or the rules and regulations made thereunder shall have the same meaning as are respectively assigned to them in those Acts or rules or regulations or any statutory modification or re-enactment thereto.”
II. Regulation 3 shall be substituted with the following, namely,-
“Application for grant of certificate as a foreign venture capital investor
3.(1) No person shall buy, sell or otherwise deal in securities as a foreign venture capital investor unless it has obtained a certificate granted by a designated depository participant on behalf of the Board.
(2) An application for the grant of certificate as a foreign venture capital investor shall be made to a designated depository participant in the Form and in the manner specified by the Government or the Board from time to time:
Provided that the foreign venture capital investors who have been granted a certificate of registration before the notification of the Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2024 shall engage a designated depository participant in the manner and subject to such conditions as may be specified by the Board.
(3) The application shall be supported by the fee specified in the Second Schedule and by any documents in the manner specified by the Board from time to time.”
III. Regulation 4 shall be substituted with the following, namely,-
“Eligibility Criteria.
4. A designated depository participant shall consider an application for grant of certificate of registration as a foreign venture capital investor if the applicant satisfies all of the following conditions, namely: –
(a) the applicant is an entity incorporated or established outside India or in International Financial Services Centre;
(b) The applicant is a resident of the country whose securities market regulator is a signatory to the International Organization of Securities Commi sion s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to a bilateral Memorandum of Understanding with the Board:
Provided that an applicant being Government or Government related investor shall be considered as eligible for registration, if such applicant is a resident in the country as may be approved by the Government of India;
(c) The applicant being a bank is a resident of a country whose central bank is a member of Bank for International Settlements:
Provided that a central bank applicant need not be a member of Bank for International Settlements:
Provided further that the condition specified under clause (c) of Regulation 4 shall not apply in case the applicant is regulated by the banking sector regulator in its home jurisdiction even if the central bank of that country is not a member of Bank for International Settlements;
(d) The applicant or its beneficial owners identified in accordance with Rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, shall not be the person(s) mentioned in the Sanctions List notified from time to time by the United Nations Security Council and is not a resident in the country identified in the public statement of Financial Action Task Force as–
(i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
(ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies;
(e) the applicant is a fit and proper person based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008; and
(f) any other criteria specified by the Board from time to time.”
IV. regulation 4A shall be omitted.
V. regulation 5 shall be substituted with the following, namely,-
“Furnishing of information and personal representation.
5.(1) The Board or the designated depository participant may require the applicant to furnish such further information or clarification as may be considered necessary for the grant of the certificate of registration as a foreign venture capital investor.
(2) The applicant or its authorized representative shall, if so required by the Board or the designated depository participant, appear before them for personal representation in connection with the grant of a certificate.”
VI. regulation 6 shall be substituted with the following, namely,-
“Application to conform to the requirements.
6.(1) An application for grant of certificate of registration to act as a foreign venture capital investor, which is not complete in all respects or is false or misleading in any material particular or does not satisfy the requirements specified in these regulations shall be deemed to be deficient and liable to be rejected by the designated depository participant:
Provided that before rejecting any such application, the applicant shall be given a reasonable opportunity of being heard and to remove the deficiency, within the time as specified by the designated depository participant.
(2) The decision to reject the application shall be communicated by the designated depository participant to the applicant in writing indicating the grounds for rejection of the application.
(3) The applicant, who is aggrieved by the decision of the designated depository participant under sub-regulation (1) may, within a period of thirty days from the date of receipt of communication under sub-regulation (2), apply to the Board for reconsideration of the decision of the designated depository participant:
Provided that such application for reconsideration shall not be considered by the Board where the rejection was on account of technical reasons such as non-submission of complete information, documents, including non-payment of specified fee.
(4) The Board shall, after considering the submissions made in the application seeking reconsideration made under sub-regulation (3) and after giving a reasonable opportunity of being heard, communicate its decision in writing to the applicant.”
VII. regulation 7 shall be substituted with the following, namely,-
“Certificate of registration.
7.(1) If the designated depository participant is satisfied that an applicant is eligible and fulfils the requirements as specified in these regulations, the designated depository participant shall, on behalf of the Board, grant the certificate of registration to an applicant, bearing registration number generated by the Board, specified in Part B of the First Schedule.
(2) The designated depository participant shall endeavour to dispose of the application for grant of certificate of registration as soon as possible but not later than thirty days after receipt of application by the designated depository participant, or after the information called for under regulation 5 has been furnished; whichever is later.
(3) Upon grant of certificate of registration to the applicant, the designated depository participant shall remit the fee, as specified in the Second Schedule, received from the applicant to the Board.
(4) If an applicant seeking registration as a foreign venture capital investor has any grievance with respect to its application or if the designated depository participant has any question in respect of interpretation of any provision of these regulations, it may approach the Board for appropriate instructions.”
VIII. regulation 8 shall be substituted with the following, namely,-
“Conditions of certificate.
8.(1) The certificate granted to the foreign venture capital investor under regulation 7 shall be subject to the following conditions, namely:-
(a) it shall abide by the provisions of the Act, and these regulations;
(b) it shall appoint a domestic custodian for purpose of custody of securities;
(c) it shall enter into arrangement with a designated bank for the purpose of operating a special
non-resident rupee or foreign currency account;
(2) The foreign venture capital investor shall provide necessary information sought by the designated depository participant to review the eligibility of the entity to hold the certificate of registration as a foreign venture capital investor.
(3) If the foreign venture capital investor no longer satisfies the eligibility criteria under Regulation 4, the foreign venture capital investor shall inform the Board and designated depository participant in writing as soon as possible but not later than seven working days.
(4) The designated depository participant shall ascertain whether the foreign venture capital investor satisfies the eligibility criteria in terms of provisions under Regulation 4, subject to conditions and in the manner specified by the Board from time to time.
(5) The foreign venture capital investor which does not satisfy the criteria under Regulation 4, shall be dealt with in the manner specified by the Board from time to time ”
IX. regulation 9 shall be substituted with the following, namely,-
“Renewal of registration and surrender of certificate.
9.(1) Subject to the compliance with the provisions of the Act, these regulations and the circulars issued thereunder, the registration granted by the designated depository participant on behalf of the Board under these regulations shall be permanent unless suspended or cancelled by the Board or surrendered by the foreign venture capital investor.
(2) To keep the registration in force, the foreign venture capital investor shall pay renewal fee as specified in the Second Schedule for every block of five years from the beginning of the sixth year from the date of grant of certificate of registration and the fee shall be paid before expiry of the block for which fee has been paid, in the manner specified by the Board from time to time.
(3) If the foreign venture capital investor fails to pay the renewal fee along with the late fee as specified in the Second Schedule to keep the registration in force within the specified due date and does not have any investment in India, such foreign venture capital investor shall be deemed to have applied for surrender of its registration and the designated depository participant of such foreign venture capital investor shall process the surrender after obtaining the approval from the Board. (4) If the foreign venture capital investor fails to pay the renewal fee for continuance of registration within the specified due date and has investment in India, such foreign venture capital investor shall pay the renewal fee as specified in Second Schedule, along with a late fee as specified Second Schedule for each day of delay in payment of renewal fee, subject to maximum of one and half times of the renewal fee:
Provided that until the renewal fee is paid, the foreign venture capital investor shall not make any new investment or sell its existing investments:
Provided further that until the renewal fee is paid, the foreign venture capital investors who have been granted a certificate of registration before the notification of the Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2024 shall not make any new investment:
Provided further that if the renewal fee, along with late fee, is not paid within thirty days from the date of expiry of the block for which fee has been paid, the certificate of registration of the foreign venture capital investor shall be liable to be suspended or cancelled.
(5) The suspension and cancellation of certificate of registration of a foreign venture capital investor, shall be dealt with in the manner as provided in Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
(6) Any foreign venture capital investor desirous of surrendering the certificate of registration may request for such surrender to the designated depository participant who shall accept the surrender of the certificate of registration after obtaining approval from the Board.
(7) While accepting the surrender of registration, the designated depository participant shall impose such conditions as may be specified by the Board.”
X. regulation 10 shall be omitted.
XI. regulation 14 shall be substituted with the following, namely,-
“Appointment of custodian.
14. (1) A foreign venture capital investor or a global custodian acting on behalf of the foreign venture capital investor shall enter into an agreement with a designated depository participant and a custodian, before making any investment under these regulations.
(2) In addition to the obligation of a custodian under any other regulations, the custodian shall be responsible for –
(a) monitoring of investment of foreign venture capital investors in India;
(b) furnishing of periodic reports to the Board;
(c) furnishing such information as may be called for by the Board;
(d) ensuring that a foreign venture capital investor does not make any new investment or sell its existing investment until renewal fee is paid in terms of sub-regulation (4) of Regulation 9; (e) any other condition as may be specified by the Board from time to time ”
XII. after regulation 15 and before regulation 16, the following regulations shall be inserted, namely,-
“Obligations and responsibilities of foreign venture capital investor.
15A. The foreign venture capital investor shall –
(a) comply with the provisions of these regulations, as far as they may apply, circulars issued thereunder and any other terms and conditions specified by the Board from time to time;
(b) in relation to its activities as foreign venture capital investor, at all times, subject itself to the extant Indian laws, rules, regulations, guidelines and circulars issued from time to time;
(c) inform the Board and designated depository participant in writing, if any information or particulars previously submitted to the Board or designated depository participant are found to be false or misleading in any material respect or if there is any change in the information or particulars already submitted, in the manner and within the timelines as may be specified by the Board from time to time.
(d) inform the Board and designated depository participant in writing, if there is any material change in the information including any direct or indirect change in its structure or ownership or control previously furnished by him to the Board or designated depository participant, in the manner and within the timelines as may be specified by the Board from time to time;
(e) as soon as possible but not later than seven working days, inform the Board and the designated depository participant, in case of any penalty, pending litigation or proceedings, findings of inspections or investigations for which action may have been taken or is in the process of being taken by an overseas regulator against it, in the manner and within the timelines as may be specified by the Board from time to time;
(f) as and when required by the Board or any other Government agency in India, submit any information, record or documents in relation to its activities as a foreign venture capital investor;
(g) obtain a Permanent Account Number from the Income Tax Department;
(h) be a fit and proper person based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;
(i) undertake necessary KYC on its shareholders/investors in accordance with the rules applicable to it in the jurisdiction where it is organised; and
(j) provide any additional information or documents including beneficiary ownership details of their clients as may be required by the designated depository participant or the Board or any other enforcement agency to ensure compliance with the Prevention of Money Laundering Act, 2002 (Act No. 15 of 2003) and the rules and regulations specified thereunder, the Financial Action Task Force standards and circulars issued from time to time by the Board.
Obligations and responsibilities of designated depository participants.
1 5B.(1) In addition to the obligation of designated depository participants under any other regulations, the designated depository participant engaged by an applicant seeking registration as foreign venture capital investor shall:
(a) open a dematerialised account for the applicant only after ensuring compliance with all the requirements under Prevention of Money Laundering Act, 2002 (Act No. 15 of 2003) and rules and regulations specified thereunder, Financial Action Task Force standards and circulars issued by the Board in this regard, from time to time and shall also ensure that foreign venture capital investors comply with all these requirements on an ongoing basis;
(b) carry out necessary due diligence to ensure that no other depository account per depository is held by any of the concerned applicant as a foreign venture capital investor;
(c) collect and remit fees to the Board, in the manner as specified in the Second Schedule;
(d) in case of change in structure or constitution or direct or indirect change in common ownership or control reported by the foreign venture capital investor, re-assess the eligibility of such foreign venture capital investor.
(2) The designated depository participant shall ensure that only registered foreign venture capital investors are allowed to invest in securities market.
(3) The designated depository participant shall maintain segregation of activities such that there is no conflict of interest between the activity of grant of registration to a foreign venture capital investor in the capacity of a designated depository participant and its other activities.
(4) The designated depository participant shall maintain the relevant true and fair records, books of accounts, and documents including the physical or electronic records relating to registration of foreign venture capital investors.
(5) The designated depository participant shall intimate to the Board in writing the location where such books, records and documents shall be maintained.
(6) Subject to the provisions of any other law for the time being in force, every designated depository participant shall preserve the books of accounts, physical or electronic records and documents specified in this regulation at all times.”
XIII. The First Schedule and the Second Schedule shall be substituted with the following, namely,-
BABITHA RAYUDU, Executive Director
[ADVT.-III/4/Exty./463/2024-25]
Footnote:
(1) Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000, the Principal Regulations, were published in the Gazette of India on September 15, 2000 vide S.O. No.832 (E).
(2) The Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000 were subsequently amended: –
(a) on June 7, 2001 by the Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2001 vide S.O. No. 501(E);
(b) on September 27, 2002 by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 vide S.O. No. 1045 (E);
(c) on March 10, 2004 by the Securities and Exchange Board of India (Criteria for Fit and Proper Person) Regulations, 2004 vide S.O. No. 398(E);
(d) on April 5, 2004 by the Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2004 vide S.O. No. 469(E);
(e) on September 4, 2006 by the Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2006 vide S.O. 1443 (E);
(f) on May 26, 2008 by the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 vide No LAD-NRO/GN/2008/11/126538;
(g) on June 29, 2009 by the Securities and Exchange Board of India (Payment of Fees) (Amendment) Regulations, 2009, vide No. LAD-NRO/GN/2009-1 0/11/167759;
(h) on December 21, 2010 by the Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2010, vide No.LAD-NRO/GN/ 2010-11/22/30364;
(i) on May 21, 2012 by the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, vide No. LAD-NRO/GN/2012-13/04/11262;
(j) on December 30. 2014 by the Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2014, vide No. LAD-NRO/GN/2014-1 5/20/1972;
(k) on March 6, 2017 by the Securities and Exchange Board of India (Payment of Fees and Mode of Payment) (Amendment) Regulations, 2017, vide No. SEBI/LAD/NRO/GN/2016-17/037;
(l) on April 17, 2020 by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/10;
(m) on August 3, 2021 by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/30;
(n) on November 9, 2022 by the Securities and Exchange Board of India (Payment of Fees) (Amendment) Regulations, 2022, vide No. SEBI/LAD-NRO/GN/2022/99; and
(o) on February 7, 2023 by the Securities and Exchange Board of India (Payment of Fees and Mode of Payment) (Amendment) Regulations, 2023, vide No. SEBI/LAD-NRO/GN/2023/121.
