Regulation 20 - General Obligations - Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012

CHAPTER IV GENERAL OBLIGATIONS AND RESPONSIBILITIES AND TRANSPERANCY General Obligations. 5 [ 20 (1) Alternative Investment Fund, key management personnel of the Alternative Investment Fund, trustee, trustee company, directors of the trustee company, designated partners or directors of the Alternative Investment Fund, as the case may be, managers and key management personnel of managers shall abide by the Code of Conduct as specified in the Fourth Schedule. Explanation . For the purpose of this sub-regulation, key management personnel shall have the meaning as specified by the Board from time to time. (2) The Manager and either the trustee or trustee company or the Board of Directors or the designated partners of the Alternative Investment Fund, as the case may be, shall ensure compliance by the Alternative Investment Fund with the Code of Conduct as specified in the Fourth Schedule. (3) All Alternative Investment Funds shall have detailed policies and procedures, as approved jointly by the Manager and the trustee or trustee company or Board of Directors or designated partners of the Alternative Investment Fund, as the case may be, to ensure that all the decisions of the Alternative Investment Fund are in compliance with the provisions of these regulations, terms of the placement memorandum, agreements made with investors, other fund documents and applicable laws. (4) All Alternative Investment Funds shall review the policies and procedures laid down in terms of sub regulation (3) of this regulation, other internal policies, if any, and their implementation, on a regular basis or as a result of business developments, to ensure their continued appropriateness. (5) The Manager shall be responsible for every decision of the Alternative Investment Fund, including ensuring that the decisions are in compliance with the provisions of these regulations, terms of the placement memorandum, agreements made with investors, other fund documents and applicable laws. (6) The Manager shall be responsible for ensuring that every decision of the Alternative Investment Fund is in compliance with the policies and procedures laid down for the Alternative Investment Fund in terms of sub regulation (3) of this regulation and other internal policies of the Alternative Investment Fund, as applicable. (7) The Manager may constitute an Investment Committee (by whatever name called), to approve the decisions of the Alternative Investment Fund and such constitution shall be subject to such conditions as specified by the Board from time to time. (8) The members of the Investment Committee shall be responsible for ensuring that the decisions of the Investment Committee are in compliance with the policies and procedures laid down in terms of sub regulation (3) of this regulation: Provided that sub-regulation (8) of this regulation shall not apply to an Alternative Investment Fund in which each investor other than the Manager, Sponsor, employees or directors of the Alternative Investment Fund or employees or directors of the Manager, has committed to invest not less than seventy crore rupees (or an equivalent amount in currency other than Indian rupees) and has furnished a waiver to the Alternative Investment Fund in respect of compliance with the said sub-regulation, in the manner as may be specified by the Board. (9) The members of the Investment Committee shall abide by the Code of Conduct applicable to them as specified in Fourth Schedule. (10) The external members of the Investment Committee whose names are not disclosed in the placement memorandum or in the agreement made with the investor or any other fund document at the time of on-boarding investors shall be appointed to the Investment Committee only with the consent of at least seventy five percent of the investors by the value of their investment in the Alternative Investment Fund or scheme. 13 [ (11) The Sponsor or Manager of the Alternative Investment Fund shall appoint a Custodian registered with the Board for safekeeping of the securities of the Alternative Investment Fund, in the manner as may be specified by the Board from time to time: Provided that the Custodian appointed by the Sponsor or Manager of a Category III Alternative Investment Fund shall keep the custody of the securities and goods received in delivery against the physical settlement of commodity derivative: Provided further that the Custodian appointed by the Sponsor or Manager of an Alternative Investment Fund shall report or disclose such information regarding investments of the Alternative Investment Fund in such manner as may be specified by the Board from time to time. ] 14 [ (11A) A Custodian which is an associate of the Sponsor or Manager of an Alternative Investment Fund may act as a custodian for that Alternative Investment Fund only when all the following conditions are met: (a) the Sponsor or Manager has a net worth of at least twenty thousand crore rupees at all points of time; (b) fifty per cent or more of the directors of the Custodian do not represent the interest of the Sponsor or Manager or their associates; (c) the Custodian and the Sponsor or Manager of the Alternative Investment Fund are not subsidiaries of each other; (d) the custodian and the Sponsor or Manager of the Alternative Investment Fund do not have common directors; and (e) the Custodian and the Manager of the Alternative Investment Fund sign an undertaking that they shall act independently of each other in their dealings of the schemes of the Alternative Investment Fund. ] (12) All Alternative Investment Funds shall inform the Board in case of 7 [ any ] material change from the information provided by the Alternative Investment Fund at the time of application for registration. (13) In case of 8 [ change of Sponsor or Manager, or ] change in control of the Alternative Investment Fund, Sponsor or Manager, prior approval from the Board shall be taken by the Alternative Investment Fund 9 [ , subject to levy of fees and any other conditions as may be specified by the Board from time to time ] . (14) The books of accounts of the Alternative Investment Fund shall be audited annually by a qualified auditor. ] 6 [ (15) The manager shall not provide advisory services to any investor other than the clients of Co-investment Portfolio Manager as specified in the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020, for investment in securities of investee companies where the Alternative Investment Fund managed by it makes investment. ] 10 [ (16) The Manager and either the trustee or the trustee company or the Board of Directors or designated partners of the Alternative Investment Fund, as the case may be, shall ensure that the assets and liabilities of each scheme of an Alternative Investment Fund are segregated and ring-fenced from other schemes of the Alternative Investment Fund; and bank accounts and securities accounts of each scheme are segregated and ring-fenced. ] 12 [ (17) The Manager shall appoint a Compliance Officer who shall be responsible for monitoring compliance with the provisions of the Act, rules, regulations, notifications, circulars, guidelines, instructions or any other directives issued by the Board. (18) The Compliance Officer shall satisfy the eligibility criteria as may be specified by the Board from time to time. (19) The Compliance Officer shall immediately and independently report to the Board any non-compliance observed by him, as soon as possible but not later than seven working days from the date of observing such non-compliance. ] 15 [ (20) Every Alternative Investment Fund, Manager of the Alternative Investment Fund and Key Management Personnel of the Manager and the Alternative Investment Fund shall exercise specific due diligence, with respect to their investors and investments, to prevent facilitation of circumvention of such laws, as may be specified by the Board from time to time. Explanation: laws shall include Acts, Rules, Regulations, Guidelines or circulars framed thereunder that are administered by a financial sector regulator, including those administered by the Board. ] 16 [ (21) The investors of a scheme of an Alternative Investment Fund shall have rights, pro-rata to their commitment to the scheme, in each investment of the scheme and in the distribution of proceeds of such investment, except as may be specified by the Board from time to time: Provided that the rights of the investors of a schemes of Alternative Investment Fund issued prior to the notification of the Securities and Exchange Board of India (Alternative Investment Funds) (Fifth Amendment) Regulations, 2024, which are not pro-rata to their commitment to the scheme and not exempted by the Board, shall be dealt with in the manner specified by the Board. (22) The rights of investors of a scheme of an Alternative Investment Fund, other than that specified in sub-regulation (21) of this regulation, shall be pari-passu in all aspects: Provided that differential rights may be offered to select investors of a scheme of an Alternative Investment Fund, in the manner as may be specified by the Board, without affecting the interest of other investors of the scheme: Provided further that the requirement under sub-regulation (22) of this regulation shall not apply to Large Value Fund for Accredited Investors: Provided further that any differential right already issued by an Alternative Investment Fund prior to the notification of the Securities and Exchange Board of India (Alternative Investment Funds) (Fifth Amendment) Regulations, 2024, not falling within the first proviso of sub-regulation (22) of this regulation, shall be dealt with in the manner as specified by the Board. ] ************* NOTES:- 1 Inserted vide NOTIFICATION No. SEBI/LAD-NRO/GN/2019/16 dated 10-05-2019 2. Inserted vide Notification No. SEBI/LAD-NRO/GN/2020/37 dated 19-10-2020 3. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/01 dated 08-01-2021 before it was read as . 4. Inserted vide Notification No. SEBI/LAD-NRO/GN/2021/01 dated 08-01-2021 5. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/21 dated 05-05-2021 before it was read as, 20. (1) All Alternative Investment Funds shall review policies and procedures, and their implementation, on a regular basis, or as a result of business developments, to ensure their continued appropriateness. (2) The Sponsor or Manager of Alternative Investment Fund shall appoint a custodian registered with the Board for safekeeping of securities if the corpus of the Alternative Investment Fund is more than five hundred crore rupees: Provided that the Sponsor or Manager of a Category III Alternative Investment Fund shall appoint such custodian irrespective of the size of corpus of the Alternative Investment Fund. 1 [ Provided further that the custodian appointed by Category III Alternative Investment Fund shall keep custody of securities and goods received in delivery against physical settlement of commodity derivatives. ] (3) All Alternative Investment Funds shall inform the Board in case of any change in the Sponsor, Manager or designated partners or any other material change from the information provided by the Alternative Investment Fund at the time of application for registration. (4) In case of change in control of the Alternative Investment Fund, Sponsor or Manager, prior approval from the Board shall be taken by the Alternative Investment Fund. (5) The books of accounts of the Alternative Investment Fund shall be audited annually by a qualified auditor. 2 [ (6) The Manager shall be responsible for investment decisions of the Alternative Investment Fund: Provided that the Manager may constitute an Investment Committee (by whatever name it may be called), to approve investment decisions of the Alternative Investment Fund, subject to the following: (i) The members of Investment Committee shall be equally responsible as the Manager for investment decisions of the Alternative Investment Fund. (ii) The Manager and members of the Investment Committee shall jointly and severally ensure that the investments of the Alternative Investment Fund are in compliance with the provisions of these regulations, the terms of the placement memorandum, agreement made with the investor, any other fund documents and any other applicable law. (iii) External members whose names are not disclosed in the placement memorandum or agreement made with the investor or any other fund documents at the time of onboarding investors, shall be appointed to the Investment Committee only with the consent of at least seventy five percent of the investors by value of their investment in the Alternative Investment Fund or scheme. (iv) Any other conditions as specified by the Board from time to time 3 [ : ]] 4 [ Provided further that clauses (i) and (ii) shall not apply to an Alternative Investment Fund in which each investor other than the Manager, Sponsor, employees or directors of the Alternative Investment Fund or employees or directors of the Manager, has committed to invest not less than seventy crore rupees (or an equivalent amount in currency other than Indian rupee) and has furnished a waiver to the Alternative Investment Fund in respect of compliance with the said clauses, in the manner specified by the Board. ] 6. Inserted vide Notification No. SEBI/LAD-NRO/GN/2021/57 dated 09-11-2021 w.e.f. 09-12-2021 7. Substituted vide Notification No SEBI/LAD-NRO/GN/2022/105 dated 15-11-2022 before it was read as, any change in the Sponsor, Manager or designated partners or any other 8. Inserted vide Notification No SEBI/LAD-NRO/GN/2022/105 dated 15-11-2022 9. Inserted vide Notification No SEBI/LAD-NRO/GN/2022/105 dated 15-11-2022 10. Inserted vide Notification No SEBI/LAD-NRO/GN/2022/105 dated 15-11-2022 11. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/113 dated 09-01-2023 12. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/132 dated 15-06-2023 13. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/163 dated 05-01-2024 before it was read as, (11) The Sponsor or Manager of the Alternative Investment Fund shall appoint a custodian registered with the Board for safekeeping of the securities if the corpus of the Alternative Investment Fund is more than five hundred crore rupees: Provided that the Sponsor or Manager of a Category III Alternative Investment Fund shall appoint such a custodian, irrespective of the size of the corpus of the Alternative Investment Fund: Provided further that the custodian appointed by Category III Alternative Investment Fund shall keep the custody of the securities and goods received in delivery against the physical settlement of commodity derivatives. 11 [ Provided further that the Sponsor or Manager of the Category I and Category II Alternative Investment Fund transacting in credit default swaps shall appoint a custodian registered with the Board and comply with such terms and conditions as may be specified by the Board. ] 14. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/163 dated 05-01-2024 15. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/168 dated 25-04-2024 16. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/209 dated 18-09-2024