Crowdfunding in India and Its Regulation: A Critical Analysis of SEBI’s Consultation Paper on Crowdfunding

Jasmine Khan
The WB National University of Juridical Sciences, Kolkata, India
Ummey Kulsum Khan
Faculty of Law, Jamia Millia Islamia University, New Delhi, India

Volume III, Issue IV, 2020

India has traditionally adopted the practice of raising funds from crowd through donations and other forms for various purposes. Crowdfunding is a similar model but with the use of web based platforms. Crowdfunding has gained popularity all over the world due to its benefits to the growth of small businesses. This paper aims to comprehensively understand what crowdfunding is and how it is regulated in India. The paper focusses on the nature of securities based crowdfunding to answer if it can be regulated within the existing regulatory regime i.e. under Companies law, securities laws and other regulations for angel investors. It also discusses SEBI’s apprehension and doubts regarding allowing securities crowdfunding without proper regulation. The paper further analyses the proposals of SEBI on regulating crowdfunding in India through its consultation paper. It provides a critical review of SEBI’s proposal to regulate crowdfunding and deals with the question of SEBI’s jurisdiction in dealing with crowdfunding regulation. It also analyses cross-border crowdfunding that is absent in the SEBI’s consultation paper on crowdfunding. The author concludes with the remark that SEBI’s proposal on regulation of securities based crowdfunding suffers from major loopholes which shall be addressed for its effective implementation and that crowdfunding should be regulated by a separate legislation which takes into account the very different nature of crowdfunding.

Keywords: Crowdfunding, SEBI, MCA, Crowdfunding Regulation, Securities based crowdfunding, Equity crowdfunding, public offer, private placement, Venture Capital Funds, Alternative Investment Funds, Angel Investors.