On June 12, 2020, the Securities and Exchange Board of India (“SEBI”) issued an informal guidance in the matter of Ankur Fincom Management Private Limited (“AFMPL”) in relation to the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”).
AFMPL is the investment manager to Ankur Capital Fund (“Fund”) that is registered with SEBI as a category I alternative investment fund – venture capital fund – angel fund. The Fund, being an angel fund, has separate schemes for each of its investments and files the separate scheme documents with SEBI prior to each investment. Investors have the option to invest or not invest in each such scheme. In this regard, the Fund has invested in a particular company that is registered outside India (“Company”) and one of the investors in the Fund(“Investor”), did not approve the scheme to invest in the Company (“Scheme”). Therefore, the Investor was not listed as a participant of the Scheme in the scheme document that was filed with SEBI and no income/expense, gain/loss is allocated to the Investor with respect to the Scheme.
In view of the above, AFMPL sought an interpretive letter from SEBI on the following issues:
SEBI referred to regulations 19E(1), 19F(6) and 19G(3) of the AIF Regulations to determine the abovementioned issues and observed as follows:
With respect to the fourth issue, SEBI stated that an angel investor may selectively participate in investment schemes with each investment being a separate scheme and that such investor shall be considered an investor of only those specific schemes for which the investor has granted a specific approval to participate. SEBI further stated that each scheme of an angel fund is an independent scheme with its own set of investors who have approved to be part of such scheme and so, for the purpose of compliance with the AIF Regulations, the investor would be ring fenced from other investment schemes of the angel fund for which he has not given approval. However, SEBI also stated that with regard to other schemes in which an investor is willing to invest, such investor may invest in those schemes after giving approval for investment in such schemes subject to compliance with the provisions of the AIF Regulations and other applicable laws.
Read the informal guidance here.
This update has been contributed by Adity Chaudhury (Partner) and Deeya Ray (Associate).
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