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JC - Legal Updates - SEBI proposes to withdraw QIB status of AIFs, VCFs and FVCIs

Legal Updates

30 May 2023

SEBI proposes to withdraw QIB status of AIFs, VCFs and FVCIs

The Securities Exchange Board of India (“SEBI”) has published a Consultation Paper to seek public views on the interpretation of Qualified Institutional Buyer (“QIB”) status of the Alternative Investment Funds (“AIFs”), Venture Capital Funds (“VCFs”) and Foreign Venture Capital Investors (“FVCIs”).
1)   From having higher investment allocations to not being counted in the numerical restrictions of private placement, QIBs possess a lot of benefits while making investments in the capital markets in India over the retail investors.
2)   The SEBI has observed that some AIFs have been structured in a manner that entities belonging to the same investor group or single investor with more than 50% investment have formed an AIF to avail the benefits available to QIBs.
Technical Details:
To avoid such practices, SEBI vide its consultation paper dated 19th May 2023 has proposed the following to be considered as QIBs with regard to AIFs, VCFs, and FVCI:
1)   AIFs and VCFs, other than those having 50% or more contribution from a single investor or investors belonging to the same group.
For this purpose, the “same group” shall include relatives and related parties as defined in the Companies Act, 2013.
2)   FVCIs other than those FVCIs who are corporate bodies and family offices.
JC Key Takeaways:
The above proposal may impact the structuring of setting up of an AIF which is primarily set up for availing the benefits available to QIBs while investing in capital markets.

For any queries/clarifications, please feel free to ping us and we will be happy to chat:

●   Ms. Apurva Kanvinde (apurva.kanvinde@jclex.com)
●   Mr. Smit Parekh (smit.parekh@jclex.com)
●   Mr. Mannan Gala (mannan.gala@jclex.com