Issue of Convertible Notes by an Indian Start-up Company

1. The Reserve Bank of India has passed Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 "Regulations", to regulate investment in India by a Person Resident Outside India. This regulation also provides for issue of Convertible Notes to foreigners by an Indian Start-up as under:
2. A person resident outside India (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered/ incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian startup company for an amount of Rs.25 lakhs (Rs.25,00,000/-) or more in a single tranche.
3. A startup company, engaged in a sector where investment by a person resident outside India requires Government approval, may issue convertible notes to a person resident outside India only with such approval. Further, issue of equity shares against such convertible notes shall be in compliance with the entry route, sectoral caps, pricing guidelines and other attendant conditions for foreign investment.
4. A startup company issuing convertible notes to a person resident outside India shall receive the amount of consideration by inward remittance through banking channels or by debit to the NRE/ FCNR (B)/ Escrow account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. Repayment or sale proceeds may be remitted outside India or credited to NRE/ FCNR (B) account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
5. A NRI or an OCI may acquire convertible notes on non-repatriation basis in accordance with Schedule 4 of these Regulations.
6. A person resident outside India may acquire or transfer by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the entry routes and pricing guidelines as prescribed for capital instruments.

To view the RBI notification and Regulations in full detail, please visit the here.

Third Amendment in IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016

In exercise of the powers conferred by clause (t) of sub-section (1) of section 196 read with section 240 of the Insolvency and Bankruptcy, Code, 2016, the Insolvency and Bankruptcy Board of India "IBBI" has made following amendment on 7^th November 2017 in IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 "Principal Regulations".

1. In regulation 38, after sub-regulation (2), the following sub-regulation shall be inserted, namely: -

"(3) A resolution plan shall contain details of the resolution applicant and other connected persons to enable the committee to assess the credibility of such applicant and other connected persons to take a prudent decision while considering the resolution plan for its approval.

Explanation : For the purposes of this sub-regulation,-

1. 'details' shall include the following in respect of the resolution applicant and other connected person, namely:-
1. identity;
2. conviction for any offence , if any, during the preceding five years;
3. criminal proceedings pending, if any; (d) disqualification, if any, under Companies Act, 2013, to act as a director;
4. identification as a willful defaulter, if any, by any bank or financial institution or consortium thereof in accordance with the guidelines of the Reserve Bank of India;
5. debarment, if any, from accessing to, or trading in, securities markets under any order or directions of the Securities and Exchange Board of India,; and
6. transactions, if any, with the corporate debtor in the preceding two years.";
2. the expression ‘connected persons' means-
1. persons who are promoters or in the management or control of the resolution applicant;
2. persons who will be promoters or in management or control of the business the corporate debtor during the implementation of the resolution plan;
3. (c) holding company, subsidiary company, associate company and related party of the persons referred to in items (a) and (b) ".
2. In the Principal Regulations, in regulation 39, for sub-regulation (2), the following sub regulation shall be substituted, namely:-

"(2) The resolution professional shall submit to the committee all resolution plans which comply with the requirements of the Code and regulations made thereunder along with the details of following transactions, if any, observed, found or determined by him:-

1. preferential transactions under section 43;
2. undervalued transactions under section 45;
3. extortionate credit transactions under section 50; and
4. fraudulent transactions under section 66,

and the orders, if any, of the adjudicating authority in respect of such transactions."

To view the third amendment in Principal Regulations in full detail, please visit the here.