FVCI The Indian Experience
FVCI The Indian Experience
FVCI The Indian Experience
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Foreign Venture Capital Investment:
The Indian Experience
SWATI DEVA*
Venture capital investment has become one of the most rapidly growing investment modes in
India. The contributing factors to this growth are the recent economic and legal changes. The
Indian government has provided operational and functional autonomy to institutions while at
the same time closely monitoring them. Though there are several rules and regulations that
lay down various procedures for the investment, the law is still investment-friendly and offers
various benefits. Some tax reforms have also been introduced that are both sound and practi
cal for both foreign and domestic investors. This paper introduces the reader to not only the
positive aspect of the system but also to the weaknesses it still has to overcome. This paper also
suggests that a venture capital investment manual for domestic and foreign venture capitalists
may make the investment market grow faster and make the investment decisions easier.
I. Introduction
Venture capital is a term used for capital that is invested by an outsider in a small or
struggling business venture. Usually the venture is a high risk business, but, at the same
time, the expected returns are high as well. In a typical venture capital investment, a
venture capitalist would invest in a business over a period of three to five years and exit
once it has earned its return. But the growth and smooth functioning of the venture
capital market depends on the total growth and smooth functioning of the country's legal
system and economy.1 Therefore, to understand the venture capital market development
in India, or any country for that matter, it is necessary to take a look at the legal system
and the economy first.
This paper is divided in six parts. The first part describes the background of the Indian
legal system and its economy, including the economic reforms introduced since the early
1990s that contributed to a rapid growth. Although many changes have been introduced
to improve the overall economic environment, it is important to highlight the fact that
* Lecturer of Law, School of Accounting & Finance, Hong Kong Polytechnic University, Hong Kong.
Formerly, Assistant Professor National Law Institute University, Bhopal, India; Associate Lawyer, Fox
Mandal & Co., Solicitors & Advocates, Corporate Law Office, New Delhi, India. B.Com. (Delhi Univ.);
LL.B. (Meerut Univ.); M.B.L. (National Law School of India Univ., Bangalore) and LL.M. (London Univ.).
1. See Richard Sylla, Venture Capital in Financial Systems: Historical and Modern Perspectives, in New Ven
ture Investment: Choices and Consequences 153 (Ari Ginsberg & Iftekhar Hasan eds., 2003).
177
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178 THE INTERNATIONAL LAWYER
there are still many areas that demand attention. The second part of the p
the major modes of investment in India, including venture capital. The t
cusses the development of venture capital investment, in particular, and the
tions in which venture capital investment is flourishing in India. The reg
taxation of venture capital is discussed in the fourth and fifth parts, respect
part briefly explains the exit policy of India.
India was a British colony for almost two centuries, and over this period of
British established their own common law system in India.2 Even after obta
pendence in August 1947, India decided to follow the common law system and
British education system.3 India is a socialist democratic republic, with gover
the central and state levels. India is the largest democracy in the world and
successful in providing political, social, economic, and cultural freedom to its ci
is a country where the rule of law prevails and people have the assurance the
ruled by law and not by whims. The legal system has all that is needed for the
to thrive, namely clear and consistent rules, fair and reasonable laws that are ac
most, and an independent judiciary.5 Despite a sound legal system and est
mocracy, the Indian economy has been struggling to grow. As Sen stated, "[
democracy is its own reward, it would be a mistake to treat Indian democracy a
on the simple ground that it has not helped generate a high rate of economic
There have been various contributory factors to the slow growth of the econom
are discussed later. But it would not be an exaggeration to say that the Indian
has been progressing well for the past two decades.
B. Economic Structure
India is the fourth largest and one of the fastest growing economies in the
independence, the socialization of the economy, and banking in particular, r
strength of the stock markets as a source of capital. "[B]y the 1960s, India h
most sophisticated stock markets in any developing country."8 But since
economy has undergone major reforms. These reforms involved certain
changes to the existing set-up, one being the privatization of markets with
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THE INDIAN EXPERIENCE 179
vention.9 The reforms in the 1990s created a strong and competitive market
world. Some of the major reforms included the removal of the erstwhile exis
repression, and the creation of an efficient, productive, and profitable finan
The state also provided operational and functional autonomy to institutio
the external sector in a calibrated manner.
Furthermore, several reforms were made in the banking sector, foreign exchange, and
securities markets. All these reforms had a positive impact on the economy of the country.
For example, this led to the development of a robust commercial banking system in In
dia—a fact which is clear from Table 1 below.11
1 2 3 4 6 9
As can be seen from the table, the number of commercial banks has increased four times
from 1969 to 2005 while the number of bank offices has increased more than eight times
for the same period. Though the number of people to whom the bank offices are now
available has not changed significantly since 1980, the banks' availability has increased
four times since 1969 for the total population. In addition to the banking sector, India has
had a fairly well developed stock market, and with substantial deregulation, India has seen
some large scale improvement in the primary market and investments as well.
But there are certain infrastructure constraints on India that the market managers and
economists find to be a hurdle to economic development.12 One of the fundamental rea
sons for poor infrastructure in India has been the widespread corruption at various levels
of state and central governments. Apart from that, there has been a total lack of vision and
planning by the caretakers of the economy and a shortage of funds. Specialty sectors like
transport, including roads and railways, have been poorly maintained although they are
9. See R.N. Ghosh, The Globalization Process and Economic Liberalization in India: Lessons from Classical Eco
nomics, in Economic Institutions in India: Sustainability under Liberalization and Globaliza
tion 265 (Parthasasathi Banerjee & Frank-Jurgen Richter eds., 2003).
10. Rakesh Mohan, Deputy Governor, Reserve Bank of India, Speech at the Conference on Economic
Policy in Asia at Stanford: Financial Sector Reforms and Monetary Policy: The Indian Experience (June 2, 2006).
11. Id.
12. See T.N. Srintvasan & Suresh Tendulkar, Reintegrating India with the World Economy
(2003).
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180 THE INTERNATIONAL LAWYER
highly used.13 But as highlighted earlier, in the financial sector, India has made
effort and has succeeded.
A. Introduction
Since the opening of the markets, there have been three major modes of
India: (1) direct investment; (2) offshore company (usually in Mauritius
India; or (3) direct investment in venture capital funds. The Foreign Inv
tion Board (FIPB) regulates the Foreign Direct Investments (FDIs) in I
in collaboration with the Reserve Bank of India (RBI),1S monitors foreign
foreign exchange flow. The FIPB and Securities Exchange Board of Indi
investments in foreign venture capital funds. These three modes are de
detail below.
FDI in India is governed by the FDI policy of the Government of India and t
For most of the FDIs, there is an automatic approval route available to investors,
not need any government approval for investments in India (only procedural fili
to be made with the RBI).16 For all other activities where the automatic approval
not available, FIPB gives the approval. There are, however, certain activitie
prohibited from receiving FDIs, such as retail trading, atomic energy, lottery
housing and real estate business, and agriculture and plantations.
Indian companies receiving foreign investment approval through the FIPB
quire any further clearance from RBI to receive inward remittance or to issue sha
foreign investors.1' These companies are required to notify the RBI of a receipt
remittances within thirty days of such receipt and file required documentati
thirty days of issue of shares to foreign investors. FDI is also 100 percent permi
the automatic route for companies setting up special economic zones, industria
export oriented units.
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THE INDIAN EXPERIENCE 181
C. Offshore Companies
An offshore company is one that is incorporated in one jurisdiction but carries out m
of its business in another jurisdiction. In India, establishing an offshore company in M
ritius is particularly beneficial because of the double taxation avoidance agreement in
between the two countries and the ease of establishing a company in Mauritius.
A company incorporated outside Mauritius can register itself in Mauritius and is
treated, for most purposes, as a Mauritius-incorporated company.18 Even an offs
trust can be established in Mauritius, and these trusts are taxed in the same mann
offshore companies. Any amount distributed to non-resident beneficiaries is exempt
income tax. An offshore company/trust is allowed a credit for foreign tax on its for
source income. For these reasons, most of the offshore companies investing in Indi
registered in Mauritius.
the purpose of a trust is lawful unless it is (a) forbidden by law, or (b) is of such a nature th
permitted, it would defeat the provisions of any law, or (c) is fraudulent, or (d) involves or im
injury to the person or property of another, or (e) the Court regards it is as immoral or opp
to public policy.
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182 THE INTERNATIONAL LAWYER
Venture capital activities in India started around the late 1980s. The estab
the Technology Development Fund in 1987 and 1988 laid the foundation of
system of venture capital.25 Later in 1996, the SEBI took an initiative to la
lines for venture capital funds. These regulations were revised in 2000 wh
Foreign Venture Capital Investor Regulations (FVCIR)26 were passed.
Venture capital investment proves a boon for any economy because it suppo
of local industries and creates employment. But there are various factors
before determining whether or not to invest in a particular market.27 For
social, legal, and economic structure of the markets should be consider
flexible and reliable the market, the more lucrative a place for investmen
Additionally, a prospective venture capitalist will consider the nature of r
procedure at the entry and exit stage. Foreign investment would flow only i
there are the least procedural and regulatory networks.
The Indian legal system provides an impetus to enhance business opport
protect the rights of investors. The government has been keen to create
environment by amending relevant laws and introducing simpler regulatio
more and more venture capital. Also, the Indian market for venture capital i
been driven by several other variables. First, there are strong knowledge-bas
that are growing fast, are global in nature, and are hardly affected by do
Second, there are world class engineers and professionals whose success is
abroad, such as in the United States. Third, India has the second largest En
population that has a strong knowledge of mathematics and science. Last,
vanced some of its sectors, such as the information technology and media
last two decades and is on par with global standards.28
But there is still a need for continuous effort and reform. According to G
are some areas which are still of concern for India. First, there is a need for
balance between the market and its regulatory framework. Second, there
tem in place for competent manpower in the regulatory institutions with sa
maintaining their autonomy. Third, there is a need to improve corporate gov
financial discipline. Additionally, more investment is needed in the educat
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THE INDIAN EXPERIENCE 183
The Indian venture capital investment trends of the last decade are shown in
below.30
H USSmil
It is apparent from Figure 1 that there was negligible investment in 1996. But there was
steady growth until 2000 when the level of investment reached its peak. The level de
clined in the following years but has again picked up pace in the past couple of years.
In order to closely analyze the venture capital trend in India, it will also be useful to
look at three specific aspects of the trend: the source of investment, the stages, and the
sectors. The following tables show the list of institutions/sectors that have been the main
contributors of investment and at the different stage of the venture in India.51
Corporations 46 Expansion 49
Banks 23 Start-up 36
Private Individuals 4
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184 THE INTERNATIONAL LAWYER
It is clear from Table 2 that while companies have been the major sour
in India, it is the expansion stage that is the most favored stage for inve
the industries or sectors that can be considered "hot industries"—industries where invest
ments were made—have been the following:32
Industry Apr-Jun 06
Volume Value
% share US$ mil.
IT & ITES 18 950
Manufacturing 22 200
Others 17 170
It has been noted in recent years that the IT sector in India has been outperforming all
other sectors. It is the one industry where most of the venture capitalists are headed in
India. But the IT boom in India has provided opportunities for other industries to grow
as well, which is evident from Table 3. Manufacturing, especially textiles, has attracted a
lot of venture capital from abroad. Banking and healthcare industries are also in the run
ning for such investments.
But there are certain impediments to the development of venture capital markets in
India.33 For example, India's company law does not provide for limited partnerships or
limited liability partnerships. The tax restrictions on corporations require that companies
paying dividends must pay a 10 percent dividend distribution tax on the aggregate divi
dend, and India's currency, the Rupee, is not fully convertible.34
In September 2005, the Planning Commission of the Government of India formed a
committee on Technology Innovation and Venture Capital. The committee's report was
released in July 2 0 06.35 Dr. Dossani, a member of the committee, has indicated other
deficiencies in the venture capital scene. According to Dr. Dossani, the entrepreneurs in
India possess domain and cost-management skills but do not know how to develop early
stage ideas into viable businesses. Their networks consist primarily of limited personal
connections and brokers. Further, the risk capital providers possess portfolio diversifica
tion and risk assessment skills but lack the domain expertise to guide entrepreneurs to
create successful businesses. There is also a shortage of complimentary capital, such as
32. Aran Natarajan, India Roundup Quarterly 4 (Apr.-June 2006), available at http://www.ventureintelli
gence.in/India_Roundup.pdf.
33. See Dossani & Kenney, supra note 8.
34. The rupee is fully convertible on the current account, which covers external trade in goods and services
but only partially convertible on the capital account.
35. The Report, supra note 14.
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THE INDIAN EXPERIENCE 185
debt capital, and the equity markets are underdeveloped for the listing of
which limits the transition into and from early stage investments. Addit
inadequate pipeline of university/state funded seed-stage firms seeking e
and a lack of university-industry collaborations.
But as mentioned earlier, these shortages can be overcome with cons
training. Also, if there are fewer procedures to follow and easy to under
the investment system can work more efficiently. The government cou
tive to prepare a user-friendly manual whereby investors, whether dom
would be able to get some guidance. The manual could be a source wh
may know the structure of the market, the regulations applicable, stati
vestment, etc.
Venture capital investment is governed by various rules and regulations of the legal
system of the country where it exists. There are basically two major statutes that govern
venture capital investment in India, namely the Foreign Exchange Management Act
(FEMA) and the Securities Exchange Board of India Act of 1992 (SEBI). Under these two
Acts, various regulations specifically dealing with venture capital were issued, both for the
overseas and domestic investor. The RBI also issues regulations and guidelines for foreign
investment and administers exchange controls. Additionally, the FIPB reviews investment
proposals, which require government approval. All of these regulatory bodies are gov
erned by the central government.
The Foreign Exchange Regulation Act of 1973 (FERA) was repealed to mak
the new FEMA in 1999. FEMA was enacted "to consolidate and amend the l
to foreign exchange with the objective of facilitating external trade and payme
promoting the orderly development and maintenance of the foreign exchange
India."36 Under FEMA, the RBI made certain regulations to prohibit, restri
late certain transfers or issues of securities by foreigners in India. These regu
known as the Foreign Exchange Management (Transfer or Issue of Security
Resident Outside India) Regulations of 2000.
Most of the definitions provided in these regulations are similar to those
SEBI and place certain restrictions on equity preference/convertible preferenc
convertible debentures issued by an Indian company to a person/corporate b
India. As compared to FERA, FEMA is an investment-friendly legislation. T
automatic approval for most investments available from the RBI but not for c
ties.37 There are also certain investment caps on different industries;38 for ex
36. The Foreign Exchange Management Act, No. 42 of 1999; India Code.
37. E.g., petroleum, investments in infrastructure and services sector like natural gas pipelin
strategic industries, atomic minerals, print media and broadcasting, postal and courier services,
The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
Regulations, 2000, Annexure A.
38. Id. at Annexure B.
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186 THE INTERNATIONAL LAWYER
ing (74 percent), mining (74 percent), trading (51 percent), aviation
telecommunications (49 percent), cable network (49 percent), print media
defense equipment (26 percent), insurance (26 percent), and small-scale
percent).
39. See Securities and Exchange Board of India, About SEBI, http://www.sebi.gov.in/Index.
=AboutSEBI (last visited February 14, 2008).
40. The Securities and Exchange Board of India Act, No. 15 of 1992; India Code.
41. SEBI (Foreign Venture Capital Investors) Regulations, 2000 § 2(g).
42. SEBI (Venture Capital Funds) Regulations, 1996 § 2(m).
43. SEBI (Venture Capital Funds) Regulations, 1996 § 2(n).
44. SEBI (Foreign Venture Capital Investors) (Amendment) Regulations, 2004, Third Sch
45. SEBI (Foreign Venture Capital Investors) Regulations, 2000 § 4.
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THE INDIAN EXPERIENCE 187
board would also consider the following: whether the applicant is an investm
a trust, partnership, pension fund, mutual fund, endowment fund, university
ble institution, or any other entity incorporated outside India; or whether
agement company, investment manager or management company, o
investment vehicle incorporated outside India. The board would also i
whether the applicant has previously been denied a certificate by the board
the applicant is a fit and proper person.46
Further, under Chapter III, the SEBI Regulations of 2000 establish inve
tions and restrictions. The investment criteria for a venture capital investor
shall disclose to the board its investment strategy and can invest its total fun
in one venture capital fund.47 But the investor must invest at least 66.67 pe
investable funds in unlisted equity shares or equity linked instruments o
ver, not more than 33.33 percent of the investable funds may be invested fo
to initial public offers of a venture capital undertaking whose shares are p
listed. And no more than 33.33 percent may be invested in debt or a debt in
venture capital undertaking that the foreign venture capital investor has alr
investment by way of equity. The 33.33 percent investment limit is also
preferential allotment of equity shares of a listed company subject to a lock
one year, the equity shares or equity linked instruments of a financially wea
or a sick industrial company whose shares are listed and/or special purpos
are created for the purpose of facilitating or promoting investment. The ve
investor must also disclose the duration of the life cycle of the fund.
Registration under SEBI seems to be a bit bureaucratic, but it offers cer
For example, income is passed through to investors without tax in f trusts re
the Indian Trusts Act and venture capital companies. FVCIs can freely re
India for investments in Indian VCUs and SEBI registered DVCFs.49 Th
empt from both the entry and exit pricing regulations that otherwise app
investors, such as market-related pricing on divestment. Additionally, the sal
VCFs to company insiders (post listing) are exempt from the SEBI takeov
ther, VCFs automatically obtain Qualified Institutional Buyer (QIB) status, w
for participating in new security placements, and they get exemption from
lock-in for divestment post-initial public offering (IPO) for shares purchase
IPO and are not treated as promoters for purposes of IPO.50
46. See SEBI (Criteria for Fit and Proper Person) Regulations, 2004. ("Fit and Proper person
defined as including financial integrity, competence, good reputation, honesty, etc.)
47. SEBI (Foreign Venture Capital Investors) (Amendment) Regulations, 2004 § 11.
48. "Financially weak company" means a company that has, at the end of the previous financial
mulated losses that resulted in the erosion of more than 50 percent but less than 100 percent of it
as at the beginning of the previous financial year.
49. But, as mentioned earlier, these benefits are subject to certain restrictions, such as which i
invest.
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188 THE INTERNATIONAL LAWYER
The main taxes levied by the central government in India are the income tax, central
excise and sales tax, service tax, and customs duties.S1 The states can levy additional value
added tax, stamp duty, state excise, land revenue, and tax on professions.52 India has not
only seen economic and market reforms in the past two decades but also some tax reforms.
The government has tried to make the system transparent and friendly to honest taxpay
ers.53 The reforms have also been aimed at foreign investors who could either be im
pressed with a sound and friendly tax system or be discouraged by a rigid and unpractical
tax regime.
A. Tax Benefits
The Indian Income Tax Act 1961 (ITA) exempts income, dividend, and ca
earned from venture capital investment in India. Section 10 of the ITA prov
comes that are not included in total income for the year. The venture capital in
benefits are established in clauses 23F, 23FA and 23 FB of Section 10.54 Any
way of dividends55 or long-term capital gains of a venture capital fund or a ven
company from investments made by way of equity shares in a venture capital
is exempt from income tax.
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THE INDIAN EXPERIENCE 189
For purposes of these clauses, "venture capital fund" means a fund oper
trust deed registered under the provisions of the Registration Act of 190
established to raise monies by the trustees for investments, mainly by way
equity shares of a venture capital undertaking in accordance with the pre
lines. "Venture capital company" means a company that has made investm
ing equity shares of venture capital undertakings in accordance with t
guidelines. It is worthwhile to see the provisions, themselves. Section 10 (
And Section 10 (23FB) set forth that " [f] or the purposes of this clause, 'Ven
undertaking' means a venture capital undertaking referred to in the SEBI
1996 and notified as such in the Official Gazette by the Board for the pu
clause."
Basically, Sections 10 (23F), (23FA) and (23FB) provide that for exemption
clauses, the venture capital fund has to be a registered fund, either under th
Act or the SEBI Act and Regulations. The venture capital company mu
investment by acquiring equity shares in the invested enterprise, and the en
dertaking must be carrying on activities specified by the ITA.
For example, to be exempt from paying tax on dividends or capital gains,
ing should either be engaged in power generation or any other infrastructu
business. It may also carry on the business of software or biotechnology, etc.
income to be exempt from income tax, the venture capital company or fund
tered under the SEBI, and the VCU should comply with the definition u
Regulations. The only condition for income tax benefit on income is that it
engaged in an activity prohibited by law.
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190 THE INTERNATIONAL LAWYER
The Central Board for Direct Taxes has prescribed certain guideline
venture capital fund or company for tax exemptions.57 These guidelin
cussed here. Every application for approval shall be accompanied by: a
or certificate of incorporation under the Companies Act; balance sheets
accounts for three years immediately preceding the year in which the a
and a copy of the certificate of registration from SEBI.58 The Direct
(Exemption) will approve the venture capital fund or the venture capital
to certain conditions.
One of these conditions is that the venture capital fund or the venture capital company
must be registered with SEBI. Also, every venture capital fund/company must invest an
amount not less than 80 percent of its total money raised for investment by acquiring
equity shares of the venture capital undertaking, and 20 percent or more of such money
must be invested during or before the end of the year prior to the application by acquiring
equity shares of the venture capital undertaking. Fifty percent or more of such money
must be invested during or before the end of the year prior to that where a 20 percent was
made by acquiring equity shares of the venture capital undertaking. Furthermore, 80 per
cent or more of such money must be invested during or before the end of the year imme
diately succeeding the year in which 50 percent investment referred to above has been
made by acquiring equity shares of the venture capital undertaking.
A venture capital fund or venture capital company shall not invest more than 20 percent
of its total money raised or total paid up capital in one venture undertaking. A venture
capital fund or a venture capital company shall not make an investment of more than 40
percent of the equity capital of one venture capital undertaking. Also, where a taxpayer is
based in a country that has a double taxation avoidance agreement (DTAA) with India, it
may opt to be taxed either under the ITA or its country of residence, whichever is more
beneficial.59
One of the main characteristics of a venture capital investment is that it is usually a fixed
term investment, and the investor would like to exit from the venture within three to five
years. In fact, the exit may come earlier if the venture capitalist finds that the project
would be a total loss. There are various modes of exit available to a venture capitalist,
depending upon the stage at which the investment was made.60 The most common exit
alternatives are: initial public offering (IPO); buy-back by promoters of the company; sale
of the enterprise (to another company or investor); and winding up.
Once a capital venture becomes successful and is capable of raising funds from the pub
lic, it can opt for the IPO. There, the shares of the company are offered to other inves
tors, and the initial venture capital investors may withdraw from the venture. This gives
the company an opportunity to raise funds and to attract new management. But the com
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THE INDIAN EXPERIENCE 191
pany may also decide to buy back its shares from the initial investors if it h
capacity to do so. The successful venture also has the option to be sold to a n
or investor for further expansion. Arikan argues that "the discrete choice b
ing to auction off a company through an IPO or to negotiate its sale as a p
target rests on five factors: bargaining power, resource value, market thickn
pensity and search costs."61
Finally, if the venture has not performed well, it can be liquidated. Accord
lation 23 of the SEBI Regulations of 1996, a scheme of a venture capital fu
trust could be wound up when:62 (1) the period of the scheme, if any, ment
placement memorandum is over; (2) it is the opinion of the trustees or th
pany that the scheme shall be wound up in the interests of investors in the
percent of the investors in the scheme pass a resolution at a meeting of unit
the scheme be wound up; or (4) the board so directs in the interests of inv
venture capital fund is set up as a company, it must be wound up in accordan
provisions of the Companies Act.63 Additionally, a venture capital fund set u
rate body must be wound up in accordance with the provisions of the statut
it was formed.
VIII. Conclusion
Venture capital investment was growing trend in the past few decades. Ind
pace with that growing trend for almost two decades. Since the humble beginn
1980s, India has come a long way in making itself a preferred investment h
system and economy have been conducive to foreign investment along with
gressing industries, like the IT sector. India has a well-established system
follows the English common law system. The strong banking structure an
stock market has provided the basic infrastructure for investments to grow.
61. See Ilgaz Arikan, Exit Decisions of Entrepreneurial Firms: IPOs Versus M&As, in Ginsberg &
note 1.
62. The Indian Trusts Act, No. 2 of 1882; India Code. Section 77 provides that a "trust is extinguished—
(a) when its purpose is completely fulfilled; or (b) when its purpose becomes unlawful; or (c) when the fulfill
ment of its purpose becomes impossible by destruction of the trust-property or otherwise; or (d) when the
trust, being revocable, is expressly revoked."
63. The Companies Act, No. 1 of 1956; India Code (1956), v. 2. Section 484 of this act provides for
circumstances under which voluntary winding up of a company may occur.
64. See Ernst & Young, Exits Set to Increase Worldwide as Venture Capital Industry Continues to Globalize (May
3, 2006), available at http://www.ey.com/global/content.nsf/International/SGM_-_Venture_Capital_Insight_
Report_2006.
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192 THE INTERNATIONAL LAWYER
But there are still a few constraints on the economy that have slowed th
ture capital investment. The railway/road network and the energy sector
provement. The equity market is also not well-developed for early-stage
Though the government has been keen to reduce such constraints, there is
be done, including the reduction of regulation over free-flow of various inve
The main legislation regulating venture capital investment is the SEBI A
Since the reforms in the 1990s and the introduction of specific SEBI legislati
venture capital investment, India has witnessed an increased growth in inv
the recent report by the Technology Innovation and Venture Capital Com
lighted certain areas in which India still needs to work and make better e
needs to provide a market that would encourage early-stage investment and t
ness people to make better investment decisions. There should also be grea
coordinating the education sector and the investment market.
Venture capital investment can only grow in conditions where there is a fl
with opportunities and a structure that is less regulated. Too many rules a
confuse the investors and discourage them at the entry stage, itself. India sh
plate creating a venture capital investment manual for domestic and foreign
talists that investors can refer to whenever they need to make investment d
manual should have all the relevant acts, rules, procedures, forms, etc. Apart
the manual may introduce the investor to the basic socio-legal and economic
the country. It may also include some sound advice on how and where to inv
some statistics for reference. The task of preparing such a manual may see
ing, but the Indian government is well to undertake the task. The availability
ment would make it easier and simpler for investors come to a decision an
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