Start up India series Action Plan

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  • Vol. 12 Issue 1.4 February 3, 2016

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    Start up India series Action Plan

    Reserve Bank of India announces regulatory relaxations for Startup


    In line with the recently announced Startup India Action Plan

    (the Action Plan), the Reserve Bank of India (RBI) in its Sixth Bi-monthly

    Monetary Policy Statement, 2015-16 (the Policy), has indicated that steps

    would be taken for ensuring ease of doing business and create an

    ecosystem that is conducive for the growth of Startup enterprises.

    The regulatory relaxations announced by the RBI are summarised below:

    A. Changes proposed to be made in consultation with the Government of

    India (GOI)

    a. Enabling Startup enterprises to receive foreign venture capital

    investment, regardless of the sector in which they operate

    b. Explicitly enabling transfer of shares from foreign venture capital

    investors to other residents / non-residents

    c. With regard to the transfer of ownership of Startup enterprises

    Permitting receipt of consideration on a deferred basis

    currently, such a deferral is not permitted

    Enabling escrow arrangement or indemnity arrangement facility

    for Startup enterprises up to a period of 18 months as against

    the 6 months period permitted currently

    d. Enabling online submission of Form A2 for outward remittances,

    with minimal documentation



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  • e. Introducing simplified process for delay in reporting of foreign direct

    investment (FDI) and related transactions, by building a penalty

    structure in the Regulations1. Currently, no specific penalty is

    provided in the Regulations

    B. Proposals under consideration, in consultation with the GOI

    a. Permitting Startup enterprises to avail rupee loans under the

    External Commercial Borrowings regulations, including relaxations

    with regard to eligible lenders, etc

    b. Permitting issuance of innovative FDI instruments (example

    convertible notes, etc) by Startup enterprises

    c. Streamlining of overseas investment operations for Startup


    C. Clarifications with regard to certain issues currently permissible

    a. Issue of shares through sweat equity or against any legitimate dues

    of the Startup enterprise; provided such remittance does not

    require approval under FEMA

    b. Collection of payments by Startup enterprises on behalf of their

    overseas subsidiaries

    BMR Comments

    The regulatory announcements are a reflection of the Governments

    commitment to stimulate Startup enterprises and achieve implementation of the

    Action Plan with utmost efficiency.

    The proposals seek to address some of the core action points outlined in the

    Action Plan viz simplification and handholding, by enabling online submission

    of Form A2 and introducing simplified process for delayed reporting of FDI

    transactions; further, funding support by relaxing the requirements / conditions

    for foreign investments in Startup enterprises, permitting receipt of consideration

    on deferred basis, extending the period for escrow arrangements.

    One will need to watch out whether the RBI comes up with a separate definition

    of Startup enterprise or adopts the definition of Startups as provided under the


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    Anurag Jain

    Rajeshree Sabnavis Shabala Shinde

    Disha Jain

  • Action Plan; the tightly worded definition in the Action Plan is likely to end up

    restricting these regulatory benefits only to a class of Startup enterprises, which

    work towards innovation, development, deployment or commercialization of

    technology / intellectual property driven products, processes or services.

    While these regulatory announcements are a welcome move, one will have to

    look at the fineprints in the notifications / circulare which would have to be

    issued in this regard.

    Nevertheless, since RBI has been swift in responding to the Action Plan, all

    eyes are now set on the other regulators and the Finance Minister who should

    hopefully echo the tax proposals to kick start the implementation of the Start up

    India Action Plan.


    1 Foreign Exchange Management Act, 1999 including the regulations made thereunder

    Gokul Chaudhri, New Delhi

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    Amit Jain, Pune +91 20 668 19010

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    36B, Dr. RK ShirodkarMarg, Parel, Mumbai 400012, India

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