Securities and Exchange Board of India (Venture Capital Funds) Regulations 1996 lays down the overall regulatory framework for the registration and operations of venture capital funds in India. As per these regulations, the term 'venture capital fund' means "a fund established in the form of a trust or a company including a body corporate and registered under these regulations which:- (i) has a dedicated pool of capital; (ii) raised in a manner specified in the regulations; and (iii) invests in accordance with the regulations".

The main provisions of the SEBI (Venture Capital Funds) Regulations 1996 are:-

• Any company or trust or a body corporate, who is carrying or proposing to carry on any activity as a venture capital fund, shall make an application to the SEBI for grant of a certificate in Form A (as specified in the first schedule of the regulations) along with the prescribed application fees (given under second schedule).
  
  



• 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.
  
  



• For the purpose of the grant of a certificate by the Board, the applicant shall have to fulfil in particular the following eligibility criteria's:-
  
  
  • If the application is made by a company:-
    
    
    • Memorandum of association as has its main objective, the carrying on of the activity of a venture capital fund;
    
    
    
    • It is prohibited by its memorandum and articles of association from making an invitation to the public to subscribe to its securities;
    
    
    
    • 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;
    
    
    
    • Its director, principal officer or employee has not at any time been convicted of any offence involving moral turpitude or any economic offence;
    
    
    
    • The applicant is a fit and proper person.
      
      
  
  
  
  • if the application is made by a trust:-
    
    
    • 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);
    
    
    
    • The main object of the trust is to carry on the activity of a venture capital fund;
    
    
    
    • The directors of its trustee company 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;
    
    
    
    • 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;
    
    
    
    • The applicant is a fit and proper person.
      
      
  
  
  
  • if the application is made by a body corporate:-
    
    
    • It is set up or established under the laws of the Central or State Legislature;
    
    
    
    • The applicant is permitted to carry on the activities of a venture capital fund;
    
    
    
    • The applicant is a fit and proper person;
    
    
    
    • The directors or the trustees, as the case may be, of such body corporate have not been convicted of any offence involving moral turpitude or of any economic offence;
    
    
    
    • The directors or the trustees, as the case may be, of such body corporate are not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant.
      
      



• The provisions of the Securities and Exchange Board of India (Criteria for Fit and Proper Person) Regulations, 2004 shall apply to all applicants or the venture capital funds under these regulations. Also, the Board may require the applicant to furnish such further information as it may consider necessary.
  
  



• An application which is not complete in all respects shall be rejected by the Board. However, 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.
  
  



• If the Board is satisfied that the applicant is eligible for the grant of certificate, it shall send an intimation to the applicant. On receipt of intimation, the applicant shall pay to the Board, the registration fee as specified in Second Schedule of the regulation.Thereafter, SEBI will grant the applicant the certification of registration in Form B.
  
  



• The certificate granted shall be subjected to the following conditions:-
  
  
  • The venture capital fund shall abide by the provisions of the Securities and Exchange Board of India Act, 1992 and these regulations;
  
  
  
  • It shall not carry on any other activity other than that of a venture capital fund;
  
  
  
  • It 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.
    
    



• 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. The decision of the Board in this respect shall be communicated to the applicant within thirty days. On rejection, an applicant shall not carry on any activity as a venture capital fund.
  
  



• A venture capital fund may raise monies from any investor whether Indian, foreign or non-resident Indian by way of issue of units. However, it shall not accept an investment from any investor which is below the certain prescribed amount.
  
  



• All investment made or to be made by a venture capital fund shall be subjected to the following conditions, namely:-
  
  
  • Venture capital fund shall disclose the investment strategy at the time of application for registration;
  
  
  
  • It shall not invest more than 25% corpus of the fund in one venture capital undertaking;
  
  
  
  • It shall not invest in the associated companies;
  
  
  
  • It shall disclose the duration of life cycle of the fund, etc.
    
    



• No venture capital fund shall be entitled to get its units listed on any recognised stock exchange till the expiry of three years from the date of the issuance of units by it. Also, it shall not issue any document or advertisement inviting offers from the public for the subscription or purchase of any of its units.
  
  



• The venture capital fund shall:- (i) issue a placement memorandum which shall contain details of the terms and conditions subject to which monies are proposed to be raised from investors; or (ii) enter into contribution or subscription agreement with the investors which shall specify the terms and conditions subject to which monies are proposed to be raised.
  
  



• Every venture capital fund shall maintain for a period of eight years books of account, records and documents which shall give a true and fair picture of its state of affairs. It shall intimate the Board, in writing, the place where these books, records and documents are being maintained.
  
  



• 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). While, a venture capital fund set up as a body corporate shall be wound up in accordance with the provisions of the statute under which it is constituted.

• A scheme of a venture capital fund set up as a trust shall be wound up:- (i) when the period of the scheme, if any, mentioned in the placement memorandum is over; (ii) if it is in 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; (iii) if seventy-five per cent of the investors in the scheme pass a resolution at a meeting of unit holders that the scheme be wound up; or (iv) if the Board so directs in the interests of investors.
  
  



• The Board, may suo motu or upon receipt of information or complaint, appoint one or more persons as inspecting or investigating officer to undertake inspection or investigation of the books of account, records and documents relating to a venture capital fund for any of the following reasons, namely:-
  
  
  • 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;
  
  
  
  • 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;
  
  
  
  • To ascertain whether the provisions of the Act and these regulations are being complied with by the venture capital fund; and
  
  
  
  • 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.
    
    



• It shall be the duty of every officer of the venture capital fund, in respect of whom an inspection or investigation has been ordered, to produce to the investigating or inspecting officer such books, accounts and other documents in his custody or control and furnish him with such statements and information as the said officer may require for the purposes of the investigation or inspection.
  
  



• The Board may after consideration of the investigation or inspection report and after giving reasonable opportunity of hearing to the venture capital fund or its trustees, issue such direction as it deems fit in the interest of securities market or the investors, including directions in the nature of:-
  
  
  • Requiring a venture capital fund not to launch new schemes or raise money from investors for a particular period;
  
  
  
  • Prohibiting the person concerned from disposing of any of the properties of the fund or scheme acquired in violation of these regulations;
  
  
  
  • Requiring the person connected to dispose of the assets of the fund or scheme in a manner as may be specified in the directions;
  
  
  
  • Requiring the person concerned to refund any money or the assets to the concerned investors along with the requisite interest or otherwise collected under the scheme;
  
  
  
  • Prohibiting the person concerned from operating in the capital market or from accessing the capital market for a specified period.
    
    



• The Board may suspend the certificate granted to a venture capital fund where it:- (i) contravenes any of the provisions of the Securities and Exchange Board of India Act or these regulations; (ii) fails to furnish any information relating to its activity as a venture capital fund as required by the Board; (iii) furnishes to the Board information which is false or misleading in any material particular; (iv) does not submit periodic returns or reports as required by the Board; (v) does not co-operate in any enquiry, inspection or investigation conducted by the Board; and (vi) fails to resolve the complaints of investors or fails to give a satisfactory reply to the Board in this behalf.
  
  

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