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SEBI has taken steps to make the process for approval with respect to the change in control of the sponsor and/or manager of an Alternative Investment Fund (AIF) simpler and more efficient by way of Circular No. SEBI/HO/IMD-1/DF9/CIR/2022/032, dated 23rd March 2022. Under Section 11(1) of the Securities Exchange Board of India Act of 1992, SEBI has the power to issue circulars to protect the interests of investors and promote development,and regulate the securities market. The circular provides clarity that the application seeking approval for the proposed change in control of the sponsor and/or manager of the AIF is to be filed with SEBI before filing the application with the National Company Law Tribunal (NCLT). Before getting on to discuss the process of approval prescribed in the circular, let’s understand what “change in control” means.
As per the SEBI (Change in Control in Intermediaries) (Amendment) Regulations, 2023, “change in control” means the following:
Regulation 20 (13) of the Securities Exchange Board of India (Alternate Investment Funds) Regulations, 2012 (SEBI (AIF) Regulations, 2012) provides that the change in control of the sponsor and/or manager of an Alternate Investment Fund (AIF) shall be done only with the prior approval of SEBI.
Process followed by AIF in case of Change in Control of sponsor and/or manager involving the scheme of arrangement.
The SEBI vide Circular No. CIR/IMD/DF/14/2014, dated 19th June 2014, read with Circular No. CIR/IMD/DF/16/2014, dated 18th July 2014, provides for the process to be followed in case of a change in control of the sponsor and/or manager, which significantly affects the investor’s decision to continue to invest in AIF.
The AIFs should inform all the unit holders, including those who have provided a commitment to the AIF, about any change in the placement memorandum. The intimation about the change should be made within 7 (seven) days of making such a change. These changes are to be intimated to SEBI also. The changes shall include modifications in the terms or documents of the fund/scheme& the same may be intimated to investors and SEBI every 6 (six) months on a consolidated basis and changes in the fundamental attributes of the fund/scheme. An exception to the process for exit is available when the AIF has the approval of at least 75% of the unit holders based on the value of their investment in the AIF. The process to be followed by the AIF is as follows:
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SEBI vide its circular No. SEBI/HO/IMD-1/DF9/CIR/2022/032 dated 23rd March 2022 has streamlined the process of providing approval to the change in control of the Sponsor &/or Manager of the AIF involving scheme of arrangement requiring sanction from NCLT as per the provisions of the Companies Act, 2013. The circular shall apply to any application for change in control of the sponsor and/or manager of the AIF made to the NCLT on or after 1st April 2022. In the circular, the following has been decided:
The aforementioned documents have to be submitted before the SEBI within 15 (fifteen) days from the date of order of NCLT.
In summation, it can be said that the SEBI circular has streamlined the approval process for Sponsors and Managers. The circular has mandated approval from NCLT after seeking approval from SEBI. The in-principle approval will be granted by SEBI after it is satisfied with the compliance with the applicable regulatory requirements. Within 3 months from the date of issuance of in-principle approval, relevant applications should be made to the NCLT. Thereafter, within 15 (fifteen) days from the date of the NCLT order, the AIF should submit the required documents to the SEBI for final approval. This circular shall apply to all applications on and after 1st April 2022.
Ankita is an Advocate and has joined Enterslice as a Legal Researcher. Her work focuses on General Civil and Commercial laws, Corporate Taxation Laws, Labour and Employment Laws and Dispute Resolution. She is a law graduate from School of Law, University of Petroleum and Energy Studies. Prior to joining Enterslice, Ankita has the experience of practicing law in Delhi and Odisha.
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