The Securities and Exchange Board of India (“SEBI”) in its board meeting held on December 28, 2021, under the Chairmanship of Shri Ajay Tyagi, approved the amendments to the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) to introduce Special Situation Funds as a sub-category of category I AIFs. Special Situation Funds shall invest only in ‘stressed assets’ such as:

1. Stressed loans available for acquisition in terms of Reserve Bank of India (“RBI’) (Transfer of Loan Exposures) Directions, 2021 or as part of a resolution plan approved under Insolvency and Bankruptcy Code, 2016;
2. Security receipts issued by asset reconstruction companies;
3. Securities of companies in distress; and
4. Any other asset/security as may be prescribed by SEBI from time to time.

Other important features of the regulatory framework for Special Situation Funds include:

1. Exemption from investment concentration norms in a single investee company;
2. No restriction on investing investible funds in unlisted or listed securities;
3. Minimum investment by an investor to be Rs. 10 crore and Rs. 5 crore in case of an accredited investor;
4. Minimum corpus of Rs. 100 crore; and
5. Initial and continuous due diligence requirements mandated by RBI for asset reconstruction companies investors shall also be applicable to Special Situation Funds while acquiring stressed loans in terms of RBI (Transfer of Loan Exposures) Directions, 2021.

Please find a copy of the press release on the meeting of SEBI’s Board of Directors, here. 

This update has been contributed by Aishwarya Manjooran (Associate).

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