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LIST OF ABBREVIATIONS:
 VCU – VENTURE CAPITAL UNDERTAKINGS
 FVCI - FOREIGN VENTURE CAPITAL INVESTOR
 VCF - VENTURE CAPITAL FUNDS
 RBI - RESERVE BANK OF INDIA
 FEMA - FOREIGN EXCHANGE MANAGEMENT ACT
 IVCU - INDIAN VENTURE CAPITAL UNDERTAKING
 SEBI - SECURITY EXCHANGE BOARD OF INDIA
 DTAA - DOUBLE TAXATION AVOIDANCE AGREEMENT
 IT - INFORMATION TECHNOLOGY
 IPO - INITIAL PUBLIC OFFERING

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TABLE OF CONTENTS:
CHAPTERS- PAGE NO.
Chapter-1 Introduction 2
Chapter-2 Understanding what is Geographical Indication 4
Chapter-3 Registration Process, Exclusion 7
Chapter-4 Effects Of Registration and Infringement 9
Chapter-5 Geographical Indications in Chhattisgarh 10
Chapter-6 Conclusion 12

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CHAPTER-1
Introduction
"There is a tide in the affairs of men, which taken at the flood, leads on to fortune. And we
must take the current when it serves, or lose our ventures." - William Shakespeare
In today’s global scenario of trade and communication, the tide of offshore investments is at a
hike. There is an immense increase in the investments made by different countries to foreign
countries to increase efficient trade and commerce relationship and to enhance the economy
of one’s own country. Looking at the status of investments in India by foreign investors, there
has been quite an increase in the venture capital investments resulting in favorable
amendments in the rules governing these investments to enhance effective trade relationships
between India and foreign countries.

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CHAPTER-2
What is Foreign Venture Capital Investor?
The investments by a foreign investor in Indian Venture Capital Undertakings (VCU) and
Venture Capital Funds (VCF) are governed by Foreign Exchange Management regulations
and Securities Exchange Board of India regulations. The foreign country investing in the
Venture Capital in India is called as the Foreign Venture Capital Investor (FVCI).
The term FVCI has been defined under the SEBI (Foreign Venture Capital Investor)
Regulations 2000 to mean:
“An investor incorporated or established outside India, which proposes to make investments
in venture capital fund(s) or venture capital undertakings in India and is registered under the
FVCI Regulations”
Therefore it is mandatory for a foreign investor that it should have got itself registered with
SEBI before it proceeds to make investment in Venture Capital Company of India. According
to the definition given in Foreign Exchange Management (Transfer or Issue of Security by a
person Resident Outside India) Regulations, 2000, FVCI means an investor incorporated and
established outside India and which proposes to invest money in Venture Capital Funds or
Venture Capital Undertaking in India and is registered with SEBI.
Thus, clearly from the above definitions, there are three requirements to be satisfied by a
foreign investor before it can make investments in venture capital companies in India:
1. It should have been incorporated and established in any country outside India;
2. It should be willing to make investment in VCFs or VCUs in India in accordance with
SEBI regulations; and
3. It should have got itself registered with SEBI as a FVCI.
Such a FVCI can be in form of a company including a body corporate or a trust. Before a
Foreign Investor can obtain certificate of recognition as FVCI from SEBI it has to satisfy
certain eligibility criteria. Some of these criterions which are to be considered by SEBI are
the applicant’s track record, professional competence, fairness and integrity of applicant,
financial soundness of applicant, prior experience, whether applicant is fit and proper person

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in accordance with SEBI (Criteria for Fit and Proper Person) Regulations, 2004, etc. Further
it has to be seen that whether the applicant has got necessary approvals from RBI for making
investments in India or not.
Once the SEBI is assured that applicant satisfies all conditions under Regulation 4 it can
proceed to grant registration to the applicant as FVCI allowing him to make investment in
Indian VCUs and VCFs in accordance with applicable rules and regulations. This depends
upon the discretion of SEBI which can impose suitable terms and conditions upon the
applicant before it is recognized as FVCI.
After an investor has been recognized and registered as FVCI by SEBI it has to seek further
approval of RBI under FEMA Regulations before making investment in India. Such an FVCI
can apply to RBI for general permission through SEBI to invest in IVCU or VCF or in a
scheme floated by such VCF. The definitions of VCFs and VCU are given both in FEM
(Transfer or Issue of Security by a person Resident Outside India) Regulations, 2000 and
SEBI (Foreign Venture Capital Investor) Regulations 2000. The definitions are almost similar
in nature except the fact that SEBI Regulation uses the term VCU whereas FEMA regulations
use the term IVCU. Joint reading of both these regulations explains the terms VCFs and VCU
in following manner:
Indian Venture Capital Undertaking (IVCU): IVCU means a company incorporated in India
whose shares are not listed on a recognized stock exchange in India and which is not engaged
in an activity specified under the negative list specified by the SEBI. IVCU is generally a
new born private company which is yet to establish itself and is in need of funds and
experienced advice and support.
Venture Capital Fund (VCF): It is a fund established in the form of a trust or a company
including a body corporate and registered with SEBI under SEBI (Venture Capital Fund)
Regulations 1996 and which has a dedicated pool of capital raised in manner specified in
regulations and which invests in VCU in accordance with said regulations. A VCF is also
allowed to make investments in VCU subject to provisions in SEBI (Venture Capital Fund)
Regulations.
Therefore a FVCI that has got registered with SEBI as such and has been permitted by RBI to
make investments in India can make investment in either IVCU or VCF or both. FVCI that
has been permitted by RBI to make investment in IVCU or VCF can make investment by

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purchasing equity or equity linked instruments or debt instruments or debentures of an IVCU
or of a VCF. Equity linked instruments means and includes instruments that are later
convertible into equity shares or share warrants, preference shares or debenture convertible
into equity. These investments can be through Initial Public Offer or Private Placement or in
units of schemes/funds set up by VCF. But a FVCI registered with SEBI and permitted by
RBI can make investment only in those IVCU and VCF that are also registered with SEBI
under respective SEBI regulations.

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CHAPTER-3
Investment conditions
A FVCI registered with SEBI is permitted to make investments in following manner:
1. An FVCI can invest all of its funds in a domestic VCF- a registered FVCI is allowed to
invest 100% of its funds in a VCF registered under SEBI(Venture Capital Fund) Regulations.
2. It has to invest at least 66.67% of its investible funds in unlisted equity shares or equity
linked instruments of Venture Capital Undertakings.
3. It can invest only 33.33% of its funds (and not more), by
 Subscribing to initial public offer of adventure capital undertaking whose shares are
proposed to be listed;
 Investing in debt or debt instrument of the VCU provided it has already invested by way
of equity in such a VCU;
 Preferential allotment of equity shares of a listed company subject to lock in period of one
year;
 Investment by subscription or purchase in the equity shares or equity-linked securities of
a financially weak listed company or industrial listed company.
 Investment by way of subscription or purchase in Special Purpose Vehicles created for
the purpose of facilitating or promoting investment in accordance with these regulations.
FVCI have a fixed life cycle. Every FVCI making investments in IVCU or VCF has to
mandatorily disclose life cycle of its fund before making any investments. It has to further
disclose all its investment strategies to the SEBI before it makes any investment in India.

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CHAPTER-4
General obligations and responsibilities
 The following are the general obligations and responsibilities of the Foreign Venture
Capital Investor:
 Every foreign venture capital investor shall maintain for a period of eight years books of
account, records and documents which shall give a true and fair picture of the state of
affairs of the Foreign Venture Capital Investor;
 He shall intimate to the Board, in writing, the place where the books, records and
documents are being maintained;
 The Board may at any time call for any information with respect to any matter relating to
its activity;
 Where any information is called for the same shall be furnished within the time specified
by the Board;
 Foreign Venture Capital Investor or a global custodian acting on behalf of the foreign
venture capital investor shall enter into an agreement with the domestic custodian to act
as a custodian of securities for foreign venture capital investor;
 He shall ensure that domestic custodian takes steps 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.
 He shall appoint a branch of a bank approved by the RBI a designated bank for opening
of foreign currency denominated accounts or specified non-resident rupee account.

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CHAPTER-5
Taxation on FVCI
Under Section 90(2) of the Income-tax Act, a non-resident assesses based in a country with
which India has a Double Taxation Avoidance Agreement (DTAA), may opt to be taxed
either under the IT Act or the DTAA, whichever is more beneficial.
Under Section 10(23FB) of the IT Act, any income of a registered FVCI is exempt from
income tax. The FVCI can carry on business in India through a permanent establishment in
India, and yet its entire income would be tax free. On the other hand, if the FVCI opts to be
taxed under the DTAA and it has a permanent establishment in India, its Indian income will
not be tax free.
The tax exemption under section 10(23FB) has to be read with section 115U of the IT Act,
which confers a pass-through status on SEBI-registered venture funds. Investors in such
funds would be liable to tax in respect of the income received by them from the FVCI in the
same manner as it would have been, had the investors invested directly in the venture capital
undertaking. In other words, income earned by an FVCI by way of dividend, interest or
capital gains, upon distribution, would continue to retain the same character in the hands of
its investors.
This brings us to a question as to what is the nature of the income derived by an FVCI from
its Indian investments. While dividend declared by an Indian company is tax free in the hands
of any recipient, including an FVCI, the gains, an FVCI would make upon exit from an
Indian investment, was so far regarded as capital gains. However, the Authority for Advance
Ruling has held that profits made by a private equity fund or venture capital fund should be
taxed as business profits and not as capital gains.
Are non-resident investors in an FVCI, therefore, liable to pay Indian income tax on what
they receive from the FVCI as business profits, even though the FVCI itself does not have to
pay any tax? Although Section 115 U begins with the words ‘Notwithstanding anything
contained in any other provisions of this Act’, and it would override the normal provisions
relating to taxability of individual items of income, it cannot override Section 90(2) relating
to DTAA provisions. India is a signatory to the Vienna Convention on the Law of Treaties
and, therefore, tax treaties have a special status as compared to domestic tax legislation and

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would prevail unless there is an express specific domestic provision to override the treaty. In
the present case, it does not appear to be the intention of the legislature that Section 115 U
should override Section 90(2).
Accordingly, a non-resident investor in an FVCI, who receives dividend from the FVCI, is
entitled to characterize the same as dividend under the DTAA, by opting to be taxed under
the DTAA and not the IT Act. Due to its very recent enactment, obviously, there is no
precedent or case law and, therefore, it is not improbable that the Indian tax authorities may
contend that the investor is not entitled to the DTAA benefit in view of Section 115 U and is
liable to pay tax on business profits in India. Tax planning structures could be worked out to
protect against such an eventuality, however remote it may be.

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CHAPTER-6
Exit strategy
Exit strategy is the method by which a venture capitalist or business owner intends to get out
of an investment that he or she has made in the past. In other words, the exit strategy is a way
of "cashing out" an investment. Examples include an initial public offering (IPO) or being
bought out by a larger player in the industry. It is also referred to as a "harvest strategy" or
"liquidity event"
A special exemption has been carved out for FVCI’s in as much that an FVCI may acquire or
sell its Indian shares/ convertible debentures/units or any other investment at a price that is
mutually acceptable to both the parties. Thus, there are no entry or exit pricing restrictions
applicable to an FVCI. This could be a very significant benefit for FVCI’s, especially in the
case of a strategic sale or buy-back arrangement with the promoters at the time of exit from
unlisted companies.

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CHAPTER-7
Conclusion
The venture capital fund is a high risk and reward activity. The investments are made by high
net worth individuals and institutions to reap high returns. The investor in venture capital
funds does not involve himself in day-to-day management of the fund and the activities of the
funds are managed by professionals. The investors therefore like to keep their liability limited
to the contribution committed by them to the fund and are not willing to take on any other
liability. The venture capital funds are set up for a limited life and on maturity the returns are
distributed amongst the investors. The structure of venture capital funds should therefore
protect the interest of investors and the liquidation process should be simple. There are some
recommendations, which I strongly feel, are considerable for making the investment
provisions much better to develop this sector of trade-
 Investments by VCFs in VCUs should not be subject to any sectoral restrictions
except those to be specified as a negative list by SEBI in consultation with the
Government which may include areas like real estate, finance companies and
activities prohibited by Law.
 There is no need for any ceiling of investment in equity of a company. It is
understood that the investment ceiling of 40% of paid up capital of VCU under the
Income tax Act has already been removed. As a prudential norm, the investment in
one VCU should not exceed 25% of the corpus of VCF.
 The investment criteria needs to be amended to provide for investment criteria
whereby VCF invest primarily in unlisted equity and partly in listed equity, structured
instruments or debts also.
 The investment in listed equity shall be through IPO or preferential offer and not
through the secondary market route. The VCF shall invest atleast 70% of the
investible funds in unlisted equity of VCU and 30%of investible funds may be used
for investment through IPO, preferential offer, debt, etc. The investible funds would
be net of expenditure incurred for administration and management of the funds.