Alerts & Updates 24th Mar 2022
SEBI | Separation of the role of Chairperson and MD/CEO of listed company made voluntary | Revised procedure for seeking SEBI approval for change in control of sponsor/manager of AIF involving NCLT | Flexibility to Category III AIFs in calculation of investment concentration norms for
A. Separation of the role of Chairperson and MD/CEO of listed company made voluntary:
The provision mandating separation of the role of Chairperson and MD/CEO of listed companies which was to become applicable for the top 500 companies from April 01, 2022, has been omitted. All listed companies may however choose to have separate roles of Chairperson and MD/CEO on a “voluntary” basis.
B. Change in control of Sponsor and/or Manager of Alternative Investment Fund (AIF):
SEBI has issued a revised process for obtaining prior approval of SEBI for any proposed change in control of the sponsor and/or manager of an AIF involving a scheme of arrangement under Company law.
C. General investment conditions for Category III Alternative Investment Funds (Cat III AIFs):
For investment in a listed equity of an Investee Company, Cat III AIFs and large value funds for accredited investors of Cat III AIFs have now been permitted to calculate the investment limit of 10% and 20%, respectively, of either the investable funds or the net asset value of the scheme (as compared to the earlier requirement of only net asset value).
The changes have been analyzed below
SEBI, in its board meeting held on February 15, 2022 (available here), had inter alia decided that the provision of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) requiring the mandatory separation of the roles of the Chairperson and Managing Director (MD)/ Chief Executive Officer (CEO) of a listed entity, shall be made applicable to listed companies on a “voluntary basis”.
In this regard, SEBI has now notified the following amendments to the LODR Regulations:
The aforementioned amendments have been notified vide the SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2022 dated March 22, 2022 (available here).
Regulation 20(13) of SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations) inter alia requires that in case of change in control of the sponsor and/or manager of an AIF, prior approval from SEBI shall be taken by the AIF. Further, SEBI circular no. CIR/IMD/DF/14/2014 dated June 19, 2014 (available here) (June 19 Circular) read with SEBI circular no. CIR/IMD/DF/16/2014 dated July 18, 2014 (available here) (July 18 Circular), inter alia provide for the process to be followed in case of change in control of Sponsor/Manager of an AIF.
With the objective of streamlining the process of providing an approval to the proposed change in control of the Sponsor and/or Manager of the AIF involving scheme of arrangement – which needs the sanction of NCLT in accordance with the Companies Act, 2013, SEBI has inter alia amended the process as follows:
| Change | Explanation |
| In-principle approval by SEBI |
|
| Final Approval by SEBI |
|
The process as provided under Para 2.b.iv of June 19 Circular read with Para 3 of July 18 Circular will remain unchanged.
The aforementioned process introduced vide the circular dated March 23, 2022 (available here) shall be applicable to all the applications for change in control of Sponsor and/or Manager of the AIF for which the scheme(s) of arrangement is filed with NCLT on or after April 01, 2022.
SEBI recently amended the general investment conditions for Category III Alternative Investment Funds (Cat III AIFs) under the AIF Regulations, to provide for revised calculation norms for investment:
| Topic | Prior to Amendment | Post amendment |
| Investment in securities other than listed equity | Cat III AIFs cannot invest more than 10% of the investable funds in securities other than listed equity of an Investee Company, directly or through investment in units of other AIFs | Cat III AIFs cannot invest more than 10% of the investable funds in an Investee Company, directly or through investment in units of other AIFs |
| Investment in listed equity | Cat III AIFs cannot invest more than 10% of the net asset value in listed equity of an Investee Company, directly or through investment in units of other AIFs | Cat III AIFs may calculate the investment limit of 10% of either the investable funds or the net asset value of the scheme, for investment in listed equity of an Investee Company |
| Investment in securities other than listed equity by large value funds for accredited funds | Large value funds for accredited investors of Cat III AIFs may invest up to 20% of the investable funds in securities other than listed equity of an Investee Company, directly or through investment in units of other AIFs | Large value funds for accredited investors of Cat III AIFs may invest up to 20% of the investable funds in an Investee Company, directly or through investment in units of other AIFs |
| Investment in listed equity by large value funds for accredited funds | Large value funds for accredited investors of Cat III AIFs may invest up to 20% of the net asset value in listed equity of an Investee Company, directly or through investment in units of other AIFs | Large value funds for accredited investors of Cat III AIFs may calculate the investment limit of 20% of either the investable funds or the net asset value of the scheme, for investment in listed equity of an Investee Company |
Aforementioned changes have been introduced vide the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2022 have been introduced vide notification dated March 16, 2022 (available here).
We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:
Manendra Singh, Associate Partner – ManendraSingh@elp-in.com ;
Tanvi Goyal, Principal Associate – TanviGoyal@elp-in.com;
Aditi Ladha, Associate- AditiLadha@elp-in.com
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