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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
initiatives
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
enterprises
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 Government’s
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
2016:
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Mukesh Butani, New Delhi
+91 11 3066 3010
Rajeev Dimri, New Delhi
+91 124 669 5050 [email protected]
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.
m
1 Foreign Exchange Management Act, 1999 including the regulations made thereunder
Gokul Chaudhri, New Delhi
+91 124 669 5040
Bobby Parikh, Mumbai
+91 22 6135 7010
Amit Jain, Pune +91 20 668 19010
BMR Business Solutions Pvt. Ltd.
36B, Dr. RK ShirodkarMarg, Parel, Mumbai 400012, India
Tel: +91 22 6135 7000 | Fax: +91 22 6135 7070
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