Latest Blogs from SBS and Company LLP

    Foreign Exchange Management Act, 1999 (hereinafter referred to as “FEMA”) which has replaced the erstwhile the Foreign Exchange Regulation Act, 1973 is a big leap in the management of Foreign Exchange Reserves of the Country. The erstwhile regime of approvals has been replaced with automatic approvals and principle of management by exception.

     

    Since the law is of Economic Legislation and any violation/ non-compliance of the law effects the country as a whole, such non-compliances invites hefty penalties and the offender is liable for monetary Penalties. In order to give the opportunity to the offender to rectify the offence, FEMA has provisions to opt for Compounding of Offences.

     

    In this article an attempt is made to dwell upon the concept of Compounding of Offences under FEMA.

     

    Penalties under FEMA

     

    As per Section 13 of FEMA, the following are the penalties for offences under FEMA

     

    1. Where the amount involved in the offence is quantifiable, 3 times of the amount involved

     

    1. Where the amount involved in the offence is not quantifiable, Upto Rs. 2,00,000/-

     

    In case where the offence is continuing one, an additional penalty upto Rs. 5,000/- per day of continuing default/ offence.

     

    In addition to the monetary penalty, the subject property of the offence, can also be confiscated by the Government

     

    What is Compoundable Offence:

     

    A criminal act in which a person agrees not to report the occurrence of a crime or not to prosecute a criminal offender in exchange for money or other consideration.

     

    The purpose of Compounding of offences under FEMA is to minimize the transaction costs, while taking severe view of malafide, wilful and fraudulent transactions.

     

    Compounding of Offences by RBI

     

    As per Section 15 of the FEMA read with Foreign Exchange Management (Compounding Proceedings) Rules, 2000 read with Master Direction No. 4/2015-16, dated January 1, 2016 (updated from time to time), RBI can compound the following nature and types of offences

     

    1. Matters covered under Section 6, 7, 8 & 9 of FEMA

     

    1. Matters covered under FEM (Current Account Transactions) Rules, 2000 except the offences covered under Section 3(a) of FEMA

     

     

    Compounding Authorities of RBI

     

    The following is the authorisation matrix of RBI officers for compounding of Offences

     

    Rank of the Officer

     

    Sum Involved of the Offence (INR)

     

     

    Assistance General Manager

    < 1 Million

     

     

     

    Deputy General Manager

    >=

    1 Million and < 4 Million

     

     

     

    General Manager

    >=

    4 Million and < 10 Million

     

     

    Chief General Manager

    >= 10 Million

     

     

     

     

    Provided that no contravention shall be compounded unless the amount involved in such offence is Quantifiable.

     

    Delegation of powers to Regional Offices of RBI

     

    RBI has delegated the powers of compounding to the officers of Regional Offices, if the nature of offence is covered under the below table:

     

    FEMA Regulation

    Brief Description of Contravention

     

     

    Paragraph 9(1)(A) of Schedule I to FEMA 20/2000-

    Delay in reporting inward remittance received for

    RB dated May 3, 2000

    issue of shares. (ARF)

     

     

    Paragraph 9(1)(B) of Schedule I to FEMA 20/2000-

    Delay in filing form FC-GPR after issue of shares.

    RB dated May 3, 2000

     

    Paragraph 8 of Schedule I to FEMA 20/2000-RB

    Delay  in  issue  of  shares/refund  of  share

    dated May 3, 2000

    application money beyond 180 days, mode of

     

    receipt of funds, etc.

     

     

    Paragraph 5 of Schedule I to FEMA 20/2000-RB

    Violation of pricing guidelines for issue of shares.

    dated May 3, 2000

     

     

     

    Regulation 2(ii) read with Regulation 5(1) of FEMA

    Issue of ineligible instruments such as non-

    20/2000-RB dated May 3, 2000

    convertible debentures, partly paid shares, shares

     

    with optionality clause, etc.

     

     

    Paragraph 2 or 3 of Schedule I to FEMA 20/2000-

    Issue of shares without approval of RBI or FIPB

    RB dated May 3, 2000

    respectively, wherever required.

     

     

    Regulation 10A (b)(i) read with paragraph 10 of

    Delay in submission of form FC-TRS on transfer of

    Schedule I to FEMA 20/2000-RB dated May 3,

    shares from Resident to Non- Resident.

    2000

     

    Regulation 10B (2) read with paragraph 10 of

    Delay in submission of form FC-TRS on transfer of

    Schedule I to FEMA 20/2000-RB dated May 3,

    shares from Non-Resident to Resident.

    2000

     

    Regulation 4 of FEMA 20/2000-RB dated May 3,

    Taking on record transfer of shares by investee

    2000

    company, in the absence of certified from FC-TRS.

     

     

     

     

    The powers to compound the contraventions above have been delegated to all Regional Offices (except Kochi and Panaji) and FED, CO Cell, New Delhi respectively without any limit on the amount of contravention. Kochi and Panaji Regional offices can compound the contraventions for amount of contravention below Rupees Ten Million. The contraventions of Rupees Ten Million or more under the jurisdiction of Panaji and Kochi Regional Offices and all other contraventions of FEMA will continue to be compounded at Cell for Effective Implementation of FEMA (CEFA), Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai, as hitherto.

     

    The compounding proceeding may be initiated in any of the following manner:

     

    1. Based on the Memo issued by the Authorised Dealer (Bank)

     

    1. Based on the Memo issued by the RBI
    2. suo motoby the applicant itself

     

    The application need to be made in prescribed format along with prescribed fee of Rs. 5,000/- to the respective Compounding Authority.

     

    The compounding application need to be disposed off by the Compounding Authority within 180 days of its receipt. If the applicant desires the RBI gives the opportunity of being heard.

     

    No subsequent compounding application can be made for next three years from the date of disposal of previous application, related to same offence.

     

    Authors Comments

     

    The real benefit of compounding is that it gets rid of being chased/adjudicated by the regulatory authorities, gives peace of mind, reduction of monetary penalties etc.Also the offence stands cured from the date of its inception, as if no offence is taken place.

     

    The amount paid under compounding proceedings is treated as Feesand is allowable business expenditure u/s 37 of Income Tax Act, 1961, whereas the amount paid under regular adjudication proceedings is treated as Penalty and is ineligible business expenditure.

    Certain infrastructural construction services provided by any person to Government, local authority and Governmental authorities are being exempted from service tax under entry 12 of Notification 25/2012-ST dated 20.06.2012. The said entry is reproduced as under;

     

    “12. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

     

    • a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

     

    • a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

     

    • a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

     

    • canal, dam or other irrigation works;

     

    • pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or

     

    • a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act”

     

    (Note: With effect from 01.04.2015, the entries (a), (c), (f) are omitted and by entry 12A exemption is restored with respect to these entries but only for contracts entered into prior to 01.04.2015)

     

    The exemption under the above reproduced entry is applicable if the services are provided to Government or Local authority or Governmental authority. The term ‘Governmental authority’ for the purpose of this exemption is given under clause (s) of Part II (Definitions) of the Notification 25/2012-ST dated 20.06.2012. The same is reproduced as under;

     

    “Governmental authority" means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution

     

    In view of the above reproduced definition, the following conditions are required to be cumulatively satisfied in order to consider a particular authority as “governmental authority"—

     

     

     

    6 | P a g e


    SBS Wiki                                                                                                                                               www.sbsandco.com/wiki

     

    ØItshallbe a board, or an authority or any other body established by Government Øwith90% or more participation by way of equity or control by Government and Øsetupby an Act of the Parliament or a State Legislature

    Øtocarryout any function entrusted to a municipality under article 243W of the Constitution.

     

    Thus the above definition of ‘Governmental authority’ has restricted scope and does not include various bodies/authorities like government companies, boards, authorities that are established and owned by Government by means of a gazette notifications and are not separately setup by an Act of Parliament and State Legislature.

     

    In view of this legal anomaly, the definition has been amended by Notification 2/2014-ST dated 30.01.2014 with a view to include within its ambit, the entities which are established by Government but are not necessarily setup by an Act of Parliament or State legislature. The amended definition is reproduced as under;

     

    "governmental authority" means an authority or a board or any other body;

     

    • set up by an Act of Parliament or a State Legislature; or (ii) established by Government,

     

    with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution;

     

    In the recent Finance Budget, 2016, it is proposed vide clause 156 to introduce a new section 101 in Finance Act, 1994 to refund service tax if any paid based on the previous restrictive definition of ‘Governmental authority’ for the canal or irrigation works undertaken prior to 30.01.2014; The TRU Circular F.No.334/8/2016-TRU dated 29/02/2016, which was issued to clarify the proposed budget changes, has made the following observation;

     

    “K. Service Tax exemption to canal, dam or other irrigation works with retrospective effect:

     

    1. Definition of Governmental authority was amended with effect from 30.01.2014 so as to exempt services provided by way of construction, erection, maintenance, or alteration etc. of canal, dam or other irrigation works provided to entities set up by Government but not necessarily by an Act of Parliament or a State Legislature. However, services provided prior to 30.01.2014 to such bodies remained taxable.The benefit of exemption is proposed to be extended to the said services provided during the period from the 1st July, 2012 to 29.01.2014.”

     

    Thus the scope and intent of the above amendment in the definition of ‘Governmental authority’ is with a view to allow exemption benefit to those entities established by Government but not so by way of an Act of Parliament or State legislature.

     

    Recently, the Patna High Court in the case of ShapoorjiPaloonji and Company Limited vs. CCE, 2016-TIOL-556-HC-Patna-ST had the occasion to interpret the scope and ambit of the above amended definition of ‘Governmental authority’.The facts of this case are that the petitioner company was appointed by IIT,

     

     

    7 | P a g e


    Construction services to Governmental Authority

     

    SBS Wiki                                                                                                                                               www.sbsandco.com/wiki

     

    Patna to construct their academic building. It was undisputed that IIT, Patna was setup by an Act of Parliament i.e. Indian Institute of Technologies Act, 1961. The petitioner company had initially collected service tax and paid. However, C&AG after conduct of their audit pointed that the petitioner company need not pay service tax for construction undertaken to the IIT. The petitioner applied for refund and the same was rejected.

     

    The petitioner claimed refund on the interpretation that in order to come within the ambit of ‘Governmental authority’, it is sufficient that the same is set up by an Act of Parliament or State Legislature. The condition as to 90% or more participation by way of equity or control and to carry out any function entrusted to a municipality under 243W of the Constitution are not applicable for those entities that are set up by an Act of Parliament or State Legislature. The said conditions are applicable only for the second clause of the definition i.e. authority or body established by Central Government.

     

    The Patna High Court heard the parties and came to the conclusion that no service tax is required to be paid by the petitioner for the reason that IIT falls within the ambit of ‘Governmental authority’. The relevant para is reproduced as under;

     

    “The Governmental authority as defined in the notification dated 30th January, 2014, means an authority or board or any other body set up by an Act of Parliament or State Legislature. The provisions contained in sub-clause(i) and sub-clause(ii) of clause 2(s) are independent dis-conjunctive provisions and the expression “90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution” is related to sub-clause (ii) of clause 2(s) alone. The clause (i) is followed by “;” and the word “or”. Therefore each of the sub-clauses is independent provision.” (para 11)

     

    In view of the above observation of Patna High Court, Governmental authority would include any authority or body set up by an act of Parliament or State Legislature. It also includes any authority or body established by Government with 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution.

     

    Based on the interpretation of Patna High Court, any authority or body established under an act of Parliament or State legislature would come within the ambit of ‘Governmental authority’. This would be so even if Government is not holding 90% or more equity or controlling interest and such institutions are not entrusted with functions covered under Article 243W.These include institutions like LIC, IRDA, SEBI, ICAI etc. Thus any construction services of the nature specified under entry 12 to these entities would be entitled to exemption;

     

    Before parting, as discussed above, by taking into cognizance the reasons/purpose behind the amendment to the definition of ‘Governmental authority’ coupled with clarification given by TRU on the scope of the amendment, the Revenue is not open to such wide interpretation of the term ‘Governmental authority’ as upheld by Patna High Court. Nevertheless the view of Patna High Court has opened the Pandora’s Box with respect to service tax applicability on the infrastructural construction works undertaken.

    “Only two things are certain in life: Death and taxes- Benjamin Franklin".

     

    We all agree with the above quote. Death will certainly put end to so many issues but not tax issues! In this article, we shall understand the assessment proceedings pertaining to a deceased assessee with the help of judgment of Honourable High Court in the case of CIT vs. M Hemanathan.

     

    The background of the caseis that the Department even though they had notice of death of the assessee, proceeded to initiate revision proceedings against the deceased assessee.

     

    The issue before the Honourable High Court of Madras is whether the proceedings initiated against the deceased assessee are valid when the legal heir has participated in the proceedings?

     

    Facts of the case:

     

    Assessee filed the return of income and the return was processed under Section 143(1) of the Act. Later the assessee case was selected for scrutiny and notice under Section 143(2) issued. A refund order was passed after taking into account the information submitted by the assessee.

     

    After two years of passing assessment order, the CIT issued a notice under Section 263. The show cause notice was addressed to the assessee. Three months before the issue of show cause notice the assessee has passed away.

     

    The show cause notice returned with the endorsement "assessee deceased". This fact was informed by the ITO to the Commissioner. Thereafter department served the same show cause notice to the son of the deceased assessee through messenger. Son participated in the proceedings through authorised representative.

     

    Pursuant to show cause notice the case was remitted back to the assessing officer for passing a fresh order. The assessing officer passed an order raising the demand for payment of tax.

     

    Son (legal heir) preferred an appeal against the order passed under Section 263 to the Tribunal. The appeal is allowed by the Tribunal holding that the order U/S 263 against a deceased person is null. Department has filed an appeal against the order of the Tribunal before Honourable High Court.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    4 | P a g e


     

    SBS Wiki                                                                                                                                               www.sbsandco.com/wiki

     

    Department Contention:

     

    • The Tribunal was wrong in setting aside the order under Section 263 as null as it was passed against a deceased person as the legal heir participated in proceedings;

     

    • Though the notice was issued on the deceased person it was served on the legal heir and legal heir participated in the proceedings. Therefore, the provisions of section 292BB will apply;

     

    • As per the provisions of section 159(2) legal representative will deemed to be an assessee.

     

    High Court Verdict:-

     

    • Any proceedings initiated against the deceased person is a nullity. Law permits the proceedings to continue after the death of the assessee provided they initiated when he was alive and not otherwise.

     

    • The purpose of issue of notice is to make the person aware of the nature of the proceedings. Once the nature of proceedings is made known and understood by the assessee, he should not be allowed to take advantage of certain procedural defects. The provisions of section 292BB cannot be invoked where the very initiation of proceedings is against deceased person.

     

    • Provisions of section 159(1) would apply to a case where a liability has already crystallized. In this case the very initiation of proceedings was done after the death of the assessee. Despite the known fact that the assessee had passed away the department chose to pursue very same notice and hence department can't take the advantage of Section 159(2)(b).

     

    • As the notice issued against deceased person the provisions of section 159(3) are not applicable.

     

    • The very initiation of the proceedings against the deceased person and the continuation of the same despite having noticed the factum of death of the assessee, cannot be approved.

     

    Remarks:

     

    As the notice was issued in the name of the deceased assessee the proceedings are null. There is distinction between a case where proceedings are initiated against person, who is alive, but continued after his death and a case where proceedings are initiated against a deceased person himself. Former case is valid as per the Act while later is null.

    Background:

    With globalization, International Trade is growing at a rapid pace. There are several aspects which the parties to a transaction consider while transacting international trade. One of them being Income tax. Clarity with regard to the Income tax exposure in the Resident Country and the other Country is of paramount importance to the parties to survive and be competitive in today’s world. Countries of the world fully acknowledge the above fact and have therefore devised ways to ensure clarity with regard to taxing rights over a particular transaction. However, in certain circumstances it may be the case that the tax is levied twice on a particular stream of income which gives rise to “Double Taxation”. 

    What is Fund?

     

    A fund is a pooled investments collected from the group of investors which can be incorporated as a business entity by way of Trust, Company, Limited Liability Partnership, Partnership, Body Corporate and the entity is governed by the Manager.

     

    These funds are regulated by SEBI under Securities Exchange Board of India (Alternative Investment Funds) Regulations 2012.

     

    What is Alternate Investment Funds?

     

    As per Section 2(1)(b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012

     

    ?Alternative Investment Funds is defined any fund incorporated in India as LLP, Company, Body Corporate, Partnership, Trust by pooling the investments from India or Foreign and invest the funds as defined in accordance with the Investment policy.

     

    ?ButInvestment made not in accordance with the provisions Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.

     

    Types of Funds

     

    ?OpenEnded – It is a type of fund where investors can redeem their investments at any point of time i.e. before the closing of the fund also.

     

    ?ClosedEnded – It is a type of fund where investors can redeem their investments only at the time of closing of the fund.

     

    Categories of AIF

     

    • Category I: Category I of AIF, shall invest the funds in start-up/ early stage ventures/ SMEs/ Social Ventures/ Infrastructure or other sectors or areas which the government or regulators would consider socially and economically desirable.
    • Category II: Category II of AIF, which does not fall underCategory I and III and which does not undertake leverage or borrowing other than to meet day-today operational requirements and as permitted in these regulations.

     

    • Category III: Category III of AIF, which employs complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.

     

     

    27 | P a g e


     

    SBS Interns' Digest                                                                                                                          www.sbsandco.com/digest

     

    Eligibility Criteria

     

    ?Thereare different types of eligibility criteria for an LLP, Company, Body Corporate & Trust. ?Themanager is required to have interest in the fund of not less than 2.5% of the fund corpus or Rs.5

    Crore whichever is lower for Category I & II.

    ?Foracategory III fund, the manager must have interest of 5% of the fund corpus or Rs.10 Crores whichever is lower.

     

    ?Declarethe tenure of the funds, investor, objective & style of investment strategy in the registration process for proper decision making to the investors.

     

    ?Thefund shall inform to SEBI whether the investors have other funds registered with SEBI.

     

    Registration of AIF:

     

    ?Fromthe commencement of the regulations, no entity or person shall act as an AIF unless he has obtained a certificate of registration from the Board (SEBI).

    ?Thefunds registered as Venture Capital Fund under SEBI (Venture Capital Fund) Regulations, 1996 shall continue to be regulated by the said regulations till the existing fund or scheme managed by the fund is wound up and such funds shall not launch any new scheme after notification of these regulations.

     

    ?Anyentity referred in sub-regulation (1) who fails to make an application for grant of certificate within the period specified therein shall cease to carry on activity as on AIF.

     

    • AIF shall seek registration on one the following category:Category I, Category II, Category III
    • An application for grant of certificate shall be made for any of the categories as specified in sub-regulation (4) in Form A as specified in the First Schedule to these regulations and shall be accompanied by a non-refundable application fee as specified in Part A of the Second Schedule to these regulations to be paid in the manner specified in Part B thereof.

     

    • The Board shall take into account requirements as specified in these regulations for the purpose of considering grant of registration.

     

    • Without prejudice to the powers of the Board to take any action under the Act or regulations made there under, the certificate of registration shall be valid till the AIF is wound up.

     

    • The Board may, in the interest of the investors, issue directions with regard to the transfer of records, documents or securities or disposal of investments relating to its activities as an Alternative Investment Fund.

     

    • The Board may, in order to protect the interests of investors, appoint any person to take charge of records, documents, securities and for this purpose, also determine the terms and conditions of such an appointment.

     

    There are 209 Alternative Investment Funds registered under SEBI as on 31st March, 2016. Some of them are as follows:

     

     

     

     

     

     

     

     

     

     

     

    28 | P a g e


    Alternate Investment Funds (AIF)

     

     

    SBS Interns' Digest

    www.sbsandco.com/digest

     

     

     

     

     

    S.No.

    Name of the Alternative Investment Fund

    Category

     

     

     

     

     

    1

    UtthishtaYekkum Fund

    Category – I (Venture Capital Fund)

     

     

     

     

     

    2

    Indiaquotient Investment Trust

    Category – I (Venture Capital Fund)

     

     

     

     

     

    3

    Sarbe partners Trust

    Category – II

     

     

     

     

     

    4

    Real Estate Opportunities Trust

    Category – II

     

     

     

     

     

    5

    Forefront Alternative Investment Trust

    Category – III

     

     

     

     

     

    6

    DICCI Trust

    Category – I (SME Capital Fund)

     

     

     

     

     

    7

    IIFL Opportunities Fund

    Category – III

     

     

     

     

     

    8

    Incube Connect Fund

    Category – I (Social Venture Fund)

     

     

     

     

     

    9

    L&T Infrastructure Fund

    Category – I (Infrastructure Fund)

     

     

     

     

     

    10

    Ankur Capital Fund

    Category – I (Angel Fund)

     

     

     

     

     

     

    Below is the link for the list of Alternative Investment Funds:

     

    http://www.sebi.gov.in/cms/sebi_data/attachdocs/1461124238814.pdf

     

    Investment Conditions

     

    The following are the investment conditions for all categories of AIF:

     

    • AIF can invest in the securities of the companies incorporated outside India subject to the conditions and guidelines as may be stipulated by RBI from time to time.

     

    • Category I & Category II of AIF shall invest not more than 25% of the corpus in one Investee Company.
    • Category III shall invest not more than 10% of the corpus in one investee company.
    • Co-Investment in an investee company by a manager or sponsor shall not be in terms more favourable as than issued by any other AIF.
    • AIF shall not invest in its associates except with the approval of 75% of the investors by value of their investment in AIF.
    • Un-Invested funds may be invested in mutual funds, bank deposits and other liquid assets of high quality such as Treasury Bills, CBLOs (Collateralized and Lending Obligation), Commercial Papers, Certificate of Deposit, etc. till the deployment of the funds of AIF.
    • AIF may act as a Nominated Investor under clause (b) of sub-regulation (1) of regulation 106N of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
    • Notwithstanding the above conditions the board may specify some additional conditions for specific category of AIF under sub-regulation (1) under this regulation.

     

    29 | P a g e


    Alternate Investment Funds (AIF)

     

     

    SBS Interns' Digest

     

    www.sbsandco.com/digest

     

    Investment Conditions for each Category:

     

     

     

     

     

    Category of Fund

     

    Investment Conditions

     

     

     

     

    Category I

    1.  Shall invest in investee companies/ venture capital/ special purpose

     

     

     

    vehicle/ LLP/ partnerships or in units of other AIF as specified in the

     

     

     

    regulation.

     

     

    2.

    May invest in units of Category I of AIF of sub – category but cannot invest in

     

     

     

    the units of Fund of Funds.

     

     

    3.

    Shall not borrow funds directly or indirectly or engage in any leverage

     

     

     

    except meeting temporary funding requirement by satisfying the following

     

     

     

    all conditions: Not more than 30 days, Not more than 4 occasions in a Year,

     

     

     

    Not more than 10% corpus.

     

     

    4.

    In addition, AIF Regulations may also prescribe a set of investment

     

     

     

    conditions in respect of each sub-category under Category I AIFs.

     

     

     

     

    Category II

    1.  Shall invest primarily in unlisted investee co. or in units of other AIFs as

     

     

     

    specified in the Placement Memorandum.

     

     

    2.

    May invest in the units of Category I & Category II but cannot invest in the

     

     

     

    units of Fund of Funds.

     

     

    3.

    May engage in the hedging subject to the guidelines as prescribed by SEBI.

     

     

    4.

    Shall not borrow funds directly or indirectly or engage in any leverage

     

     

     

    except meeting temporary funding requirement by satisfying the following

     

     

     

    all conditions: Not more than 30 days, Not more than 4 occasions in a Year,

     

     

     

    Not more than 10% corpus

     

     

     

     

    Category III

    1.  May invest in securities of listed or unlisted investee companies or

     

     

     

    derivatives or complex or structured products.

     

     

    2.

    May invest in the units of Category I or II but they should invest solely in such

     

     

     

    units and shall not invest in units of other fund of funds.

     

     

    3.

    May engage in leverage and borrow subject to consent from the investors in

     

     

     

    the fund and subject to a maximum limit, as may be specified by the Board.

     

     

    4.

    shall be regulated through issuance of directions regarding areas such as

     

     

     

    operational standards, conduct of business rules, prudential requirements,

     

     

     

    restrictions on redemption and conflict of interest as may be specified by

     

     

     

    the Board.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    30 | P a g e


    Alternate Investment Funds (AIF)

     

     

    SBS Interns' Digest                                                                                                                          www.sbsandco.com/digest

     

    Investment Conditions for all categories:

     

    1. AIF can invest in the securities of the companies incorporated outside India subject to the conditions and guidelines as may be stipulated by RBI from time to time.
    2. Category I & Category II of AIF shall invest not more than 25% of the corpus in one investee company.

     

    1. Category III shall invest not more than 10% of the corpus in one investee company.
    2. Co-Investment in an investee company by a manager or sponsor shall not be on terms more favorable than those offered to other AIF.

     

    1. AIF shall not invest in its associates except with the approval of 75% of the investors by value of their investment in AIF.

     

    1. Un-Invested funds may be invested in mutual funds, bank deposits and other liquid assets of high quality such as Treasury Bills, CBLOs(Collateralized and Lending Obligation), Commercial Papers, Certificate of Deposit, etc. till the deployment of the funds of AIF.

     

    1. AIF may act as a Nominated Investor under clause (b) of sub-regulation (1) of regulation 106N of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

     

    1. Notwithstanding the above conditions the board may specify some additional conditions for specific category of AIF under sub-regulation (1) under this regulation.

     

    Placement Memorandum

     

    A memorandum containing the details of the private placement which may be necessary for the investor for the informed decision making on whether to invest in AIF with the board and shall be filed with the board within 30 days prior to launch of scheme with the fees as may be prescribed in the second schedule. Payment of fees shall not require for the first launch of scheme.

     

    Below is the link for the SEBI (AIF) Regulations, 2012

     

    http://www.sebi.gov.in/cms/sebi_data/attachdocs/1337601524196.pdf

    Subscribe SBS AND COMPANY LLP updates via Email!