Posts

SEBI facilitates EODB for HVDLEs

/0 Comments/in , , , , /by

Regulatory threshold enhanced to Rs. 5000 crore, misalignments in CG norms with equity listed cos straightened

– Payal Agarwal, Partner | corplaw@vinodkothari.com 

– Updated on January 23, 2026

Since the introduction of High Value Debt Listed Entities (HVDLEs) as a category of debt-listed entities placed on a similar pedestal to equity-listed entities in terms of corporate governance norms, the regime has undergone several rounds of extensions and regulatory changes. After several extensions towards a mandatory applicability of corporate governance norms, a new Chapter V-A was introduced in LODR, vide amendments notified on 27th March 2025 (see a presentation here), amending, amongst others, the thresholds towards classification of an entity as HVDLE (increased from Rs. 500 crores to Rs. 1000 crores). The new chapter, however, was not updated for the changes brought for equity-listed entities vide the LODR 3rd Amendment Regulations, 2024  and required some refinement, particularly, in respect of provisions pertaining to related party transactions (see an article – Misplaced exemptions in the RPT framework for HVDLEs and the representation made to SEBI). 

In order to address the gaps as well as providing some relaxations to HVDLEs, SEBI released a Consultation Paper  on 27th October, 2025 (CP) primarily proposed an increase in the threshold for identification as HVDLEs and alignment of provisions of Chapter V-A with the corresponding provisions in Chapter IV subsequent to LODR 3rd Amendment Regs, 2024 facilitating ease of doing business, including measures related to RPTs.  The proposals were approved by SEBI in its Board Meeting held on 17th December, 2025. 

SEBI vide Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2026 (‘LODR Amendment 2026’),  has notified the following amendments effective from January 22, 2026.

Threshold for identification of HVDLEs 

  • Increased from extant Rs. 1000 crores to Rs. 5000 crores . Further, the sunset clause of 3 years as per Reg 15 (1AA) & Reg. 62C(2) will not be applicable to entities that cease to be HVDLE due to revised thresholds.
  • Based on the data of pure debt listed entities as on June 30, 2025, revision in threshold will reduce the number of HVDLE entities from 137 to 48 entities (apprx. 64% entities)
  • VKCO Comments: The increase in the threshold was necessitated on account of the huge compliance burden placed on HVDLEs coupled with the fact that such threshold is disproportionately low for NBFCs engaged in substantial fundraising through debt issuances. Further, the proviso to Reg. 15 (1AA) & Reg. 62C (2) expressly clarifies the position for entities ceasing to be an HVDLE as on January 22, 2026 with the revised threshold coming into effect, that it need not continue to comply with the CG requirements for a period of 3 years. Earlier there had been instances of entities that ceased to be HVDLEs due to outstanding value of listed debt securities as on March 31, 2025 receiving notices from SEs for non-compliance with CG norms despite such entities ceasing to meet the revised threshold. 

Alignment of corporate governance norms for HVDLEs with that for equity-listed entities 

Board composition, committees, filing of vacancy of director/ KMPs etc.
  • Insertion of proviso to clarify that prior approval of shareholders is required for directorship as NED beyond the age of 75 years at the time of appointment or re-appointment or any time prior to the NED attaining the age of 75 years to ensure alignment with similar amendment made for equity listed entities [Reg 62D(2)/ Reg 17(1A)]
  • Time taken to receive approval of regulatory, government or statutory authorities, if applicable, to be excluded from the 3 months’ timeline for shareholders’ approval for appointment of a person on the Board [Reg 62D(3)/ Reg 17(1C)]
  • Exemption from obtaining shareholders’ approval for nominee directors of financial sector regulators or those appointed by Court or Tribunal, since such nomination is for the purpose of oversight and upholding public interest, and by SEBI registered Debenture Trustee registered under a subscription agreement for debentures issued by HVDLEs [Reg 62D(3)/ Reg 17(1C)]
  • Any vacancy in the office of a director of an HVDLE resulting in non-compliance with the composition requirement for board committees i.e., AC, NRC, SRC and RMC to be filled within 3 months [Proviso to Reg 62D(5)/ Reg 17(1E)]
  • Any vacancy in the office of a director of an HVDLE on account of completion of tenure resulting in non-compliance with the composition requirement for board committees i.e.. AC, NRC, SRC and RMC to be filled by the date such office is vacated [Second proviso to Reg 62D(5)/ Reg 17(1E)]
  • Additional timeline of 3 months for filling vacancy in the office of KMP in case of entities having resolution plan approved, subject to having at least 1 full-time KMP [Reg 62P (3)/ Reg 26A (3)]
Secretarial Audit
  • Alignment of the provisions of Secretarial Audit and Secretarial Compliance Report with Reg 24A as applicable to equity listed entities,  to strengthen the secretarial audit and to prevent conflict of interests, which mandates the following:  [Reg 62M(1)/ Reg 24A]
    • An individual may be appointed for a term of 5 years and a firm may be appointed for a maximum of 2 terms of 5 years each subject to approval of shareholders in the annual general meeting. Thereafter a cooling-off period of 5 years will be applicable;
    • Requirements relating to eligibility (being a Peer Reviewed Company Secretary)  and disqualifications, removal of secretarial auditors prescribed.
    • The Secretarial Compliance Report also to be submitted by a Peer Reviewed Company Secretary or Secretarial Auditor fulfilling the eligibility requirements indicated in Reg. 24A.

VKCO Comments: Further disqualifications for Secretarial Auditor and list of services that cannot be rendered by the Secretarial Audit was prescribed vide Annexure 2 and Annexure 3 of  SEBI Circular dated December 31, 2024 and  further clarified vide SEBI FAQs on Listing Regulations (FAQ no. 5) and list of services provided by ICSI. 

The amendments made in Reg 24A in December, 2024 were required to be ensured by the equity listed companies with effect from April 1, 2025 for appointment, re-appointment or continuation of the Secretarial Auditor of the listed entity. Therefore, it was amply clear that the applicability is prospective and to be ensured while appointing Secretarial Auditor for FY 2025-26 onwards. Reg. 24A (IC) clarifies that any association of the individual or the firm as the Secretarial Auditor of the listed entity before March 31, 2025 is not required to be considered for the purpose of calculating the tenure.

Pursuant to LODR Amendment 2026, Reg. 62M (1) cross refers to the requirements under Reg 24A which in turn mandates compliance with effect from April 1, 2025. However, it may not be practically feasible for HVDLEs to ensure compliance towards the end of the financial year and a transition time may be required by such HVDLEs. In our view, the requirements should be applicable for Secretarial Auditor appointments with effect from April 1, 2026  which will be required to be done with shareholders’ approval at the AGM 2026 and not impact the existing tenure/ appointments already done by HVDLE. 

Related Party Transactions
  • Alignment of RPT related provisions with Reg 23, instead of reproducing each of the amendments made in Reg 23 effective from December 13, 2024 and November 19, 2025  [Reg 62K (1)]
    • Turnover scale based materiality thresholds for RPTs and other amendments applicable to  equity-listed entities are now applicable to HVDLEs (see an article on the approved amendments here)
  •  NOC of debenture-holders through DT to be obtained in the manner prescribed by SEBI  [Reg 62K (5)] (see our FAQs here)
  • Aligning the exemptions from RPT approval and clarification on ‘listed’ holding company, with amendments made in Reg. 23 (5) [Reg 62K (7)]

VKCO Comments: Pursuant to the above amendments, HVDLEs will be able to avail the benefits of recent amendments made in Reg 23 as detailed below:

  • Remuneration and sitting fees paid by the listed entity or its subsidiary to its director, key managerial personnel or senior management, except who is part of promoter or promoter group, shall not require audit committee approval or disclosure if it is not material.
  • Independent directors of the audit committee, can provide post-facto ratification to RPTs within 3 months from the date of the transaction or in the immediate next meeting of the audit committee, whichever is earlier, subject to certain conditions like transaction value does not exceed rupees one crore, is not material etc. The failure to seek ratification of the audit committee can render the transaction voidable at the option of the audit committee and if the transaction is with a related party to any director, or is authorised by any other director, the director(s) concerned shall indemnify the listed entity against any loss incurred by it. Audit committee can grant omnibus approval for RPTs to be entered by its subsidiary in addition to listed entity subject to the certain conditions.  
  • Exemption for RPTs in the nature of payment of statutory dues, statutory fees or statutory charges entered into between an entity on one hand and the Central Government or any State Government or any combination thereof on the other hand or  transactions entered into between a public sector company on one hand and the Central Government or any State Government or any combination thereof on the other hand.
  • Scale based threshold for determining material RPTs ranging from minimum of 10% of annual consolidated turnover to Rs. 5000 crore based on the consolidated turnover of the HVDLE.
  • Prior approval of the audit committee of the listed entity required for a subsidiary’s RPTs above Rs. 1 crore if it exceeds the lower of 10% of the annual standalone turnover of the subsidiary (or 10% of paid-up share capital and securities premium, if no audited financials of at least one year) or the listed entity’s material RPT threshold under Regulation 23(1) of LODR.
  • Omnibus shareholder approvals for RPTs granted at an AGM shall be valid up to the next AGM held within the timelines prescribed under Section 96 of the Companies Act, 2013 (currently maximum 15 months), while such approvals obtained in general meetings (other than AGMs) shall be valid for a maximum of one year

The most critical point that remains pending to be addressed is the nature of disclosures to be made before the audit committee and shareholders while approving RPTs – as to whether the existing disclosure requirements as per Chapter VIII of SEBI Master Circular dated July 11, 2025 will apply or the threshold based disclosure requirement as applicable to equity listed companies i.e. disclosure as per Annexure 13A of SEBI Circular dated October 13, 2025 for RPTs not exceeding 1% of annual  consolidated  turnover  of  the  listed  entity  as  per  the  last  audited financial  statements  of  the  listed  entity  or  ₹10 Crore,  whichever  is lower, and disclosure as per ISN on Minimum information to be provided to the Audit Committee and Shareholders for approval of Related Party Transactions for RPTs exceeding the aforesaid limit. Considering that HVDLEs will be proceeding with obtaining  omnibus approval for RPTs proposed to be undertaken during FY 2025-26, in the absence of any clarification or amendment in the Master Circular, the HVDLEs will continue to follow the existing disclosure requirements.

Other amendments
  • Recommendations of board to be included along with the rationale in the explanatory statement to shareholders’ notice [Reg 62D(17)/ Reg 17(11)]
  • Exemption from shareholders’ approval requirements for sale, disposal or lease of assets between two WoS of the HVDLE [Reg 62L (6)/ Reg 24(6)]
  • Minor terminology changes from year to financial year, income to turnover etc. 
  • Disclosure requirement of material RPTs in quarterly corporate governance report omitted. Format and timeline of period CG compliance report to be prescribed by SEBI [Reg 62Q(2)/ Reg 27(2)]

VKCO Comments: For equity-listed entities, reporting on compliance with corporate governance norms are a part of Integrated Filing – Governance, required to be filed within 30 days from end of each quarter. The move to provide flexibility to SEBI in prescribing timelines for corporate governance filings may be in order to extend the applicability of Integrated Filing requirements to HVDLEs as well. 

Conclusion

While the  present amendment strictens the compliance requirement for the HVDLEs with outstanding listed debt securities of Rs. 5000 crore or more, it also provides the ease of compliance as provided for certain matters to  equity listed companies. The actionable for HVDLEs will be mainly amending the RPT policy to align with the amended requirements, evaluate the eligibility of the existing secretarial auditor in the light of amended requirements. The entities that cease to be HVDLEs can evaluate the need to retain the committees and policies, in the light of applicable laws.

Our other resources:

  1. Misplaced exemptions in the RPT framework for HVDLEs
  2. SEBI strictens RPT approval regime, ease certain CG norms for HVDLEs
  3. Presentation on CG Norms for HVDLEs

Defining Duty: Extent of Liability of a Compliance Officer under Insider Trading Regulations

/0 Comments/in , , , /by

– Darshan Rao, Executive | corplaw@vinodkothari.com

1. Introduction

The position of a compliance officer is a reflection of challenges. As much as the individual holding this position enjoys reputation and superintendence, there is a constant expectation from regulatory authorities of ensuring compliance and active enforcement of the law. In the context of PIT regulations, SEBI does not expressly specify the extent of a Compliance Officer’s role(hereinafter referred to as CO) in supervising a particular compliance; however, various adjudication orders throw light on the expectations from CO. In recent cases, the regulatory watchdog has held the CO, amongst others, liable for lapses in complying with the PIT regulations, whereas in some cases, it has exonerated the CO from any liability imposed by default, owing to its superlative position in the company. The article delves into the nuances of the role of a CO, aiming to propose a clear, definitive line of duty to be observed and appreciated by the SEBI during instances of violation of this law.

2. Identifying a CO- SEBI (PIT) Regulations 2015

Reg 2(1)(c) of the SEBI (PIT) Regulations defines a Compliance Officer as:
1. Any senior officer, designated so and reporting to the board of directors
2. A financially literate person capable of deciding compliance needs.
3. A person responsible for compliance with policies, procedures, maintenance of records, and monitoring adherence to the rules for the preservation of:

  • Unpublished price-sensitive information (hereinafter referred to as UPSI)
  • Monitoring of trades, and
  • The implementation of the codes specified in these regulations is under the supervision of the board of directors of the listed company.

It is to be noted that the definition gives way for any senior officer to be a compliance officer to perform obligations[1] stated in the following segment. The SEBI had also noted in a matter that the interim company secretary of a company who has not been appointed as the compliance officer under PIT during the UPSI period cannot be forthwith held liable.[2] The above duties (monitoring, implementation, maintenance, etc) are, though explanatory of the role of a compliance officer, not definitive or fenced in form and substance. The SAT held in a case that a CO cannot be blamed for disclosures under the above regulation, of board-approved misstatements.[3] Relevant extracts are given below:

“The Compliance Officer works under the direction of the Board of Directors of the Company. It was not open to the Compliance Officer to comply with Clause 36 of the Listing Agreement. At the end of the day, the Compliance Officer is only an employee of the Company and works on the dictates and directions of the management of the Company. Thus, when the entire management is being penalised, it was not open to the AO to also book the Compliance Officer for the said fault.”

Now this brings us to the question as to the actual duties and obligations of a CO, and its viable extent to avoid stretched expectations. There cannot be a straight-jacket formula, as this depends on the nature of the violation of a particular category of regulations under SEBI PIT.

3. Responsibilities of a CO – SEBI (PIT) Regulations 2015

Before proceeding to the liabilities of a CO, it is important to delineate the main obligations of a CO as per SEBI (PIT) Regulations. These are given below:

  1. Every listed company, intermediary and other persons formulating a code of conduct shall identify and designate a compliance officer to administer the code of conduct and other requirements under these regulations [Reg 9(3)].
  2. The CO must review the trading plans submitted by designated persons. For doing so, he can ask them to declare that he does not have UPSI or that he must ensure that the UPSI in his possession becomes generally available before he commences his trades [Reg 9(3)].
    The CO shall report to the board and shall provide reports to the Chairman of the Audit Committee, or to the Chairman of the board at such frequency stipulated by the board, being not less than once a year [Reg 9(3)].
  3. All information shall be managed within the organisation on a need-to-know basis, and no UPSI shall be conveyed to any person except in furtherance of legal duties, subject to the Chinese wall procedures [Reg 9(3)].
  4. When the trading window is open, trading by designated persons shall be subject to pre-clearance by the compliance officer if the value of the proposed trades is above such thresholds [Reg 9(3)].
  5. The timing for re-opening of the trading window shall be determined by the CO, upon considering several factors, including the UPSI becoming generally available and being capable of assimilation by the market, which shall not be earlier than forty-eight hours after it becomes generally available [Reg 9(3)].
  6. Before approving any trades, the compliance officer shall seek declarations to the effect that the applicant for pre-clearance is not in possession of any UPSI. He shall also have regard to whether such a declaration is capable of being inaccurate. The compliance officer shall confidentially keep a list of certain securities as a “restricted list”, which shall be the basis for reviewing applications for pre-clearance of trades [Reg 9(3)].

These are some of the duties specified in the Regulations. However, the extent of liability of the CO arising from the aforesaid duties requires determination. 

4. Potential liabilities of CO:

To determine the extent of obligations of a CO with respect to disclosures, records, or any compliance, there is a need to segregate the duties of a CO into specific categories crafted according to the several aspects to be considered while ensuring adherence to the PIT regulations. In this direction, an effort has been made below:

  1. Closure of Trading window:

A CO cannot be held responsible for not closing the window for certain traders, if the UPSI was not disclosed by the designated person or if the person executed a trade much before the UPSI becomes generally available, in contravention of the trading plans approved or if the disclosure was concealed inadvertently by the board[4].

A CO can also not be held liable if an insider trades in the securities of the company with UPSI, without obtaining pre-clearance from him, even after asking the person to disclose UPSI. He cannot claim that he did not close the trading window on the grounds of lack of awareness of a demand notice received from an operational creditor, which was the start date of UPSI, upon being disclosed to the stock exchange.[5]

So, it is important to understand that a Compliance Officer is not expected to possess perfect foresight, but to exercise prudent diligence. When the trading window is closed in good faith, established procedures are adhered to, and no proof of negligence or systemic failure exists, regulatory liability cannot be imposed on a CO merely on the basis of retrospective evaluation of his inherent duty[6]. He must tend to certain nuances (such as whether the issue of ESOPs is permissible during the window closure)[7], and employ the best professional judgment to red-circle information as UPSI to ensure effective closure of the trading window without breaches.[8]

  1. Maintenance of structured digital database (SDD):

A CO can be held liable for not maintaining SDD as per Annexure 9 of the guidance note on insider trading. However, the SDD must be “real-time and tamper-proof”. The CO would not be held liable if no particular system/controls existed, such as an audit trail mechanism to secure the SDD and prevent leaks. However, citing delay in procurement of software, accidental omissions[9] or the lack of manpower to scrutinise bulky entries of transactions[10] cannot be regarded as valid arguments by a CO.

It is also pertinent that the CO of a listed company adheres to the standard operating procedure for filing the SDD certificate with the stock exchange within a particular deadline. Failure to do so shall attract the following actions by the exchange within 30 days from the due date of filing the SDD certificate:
a. Display the name of the company as “non-compliant with SDD” and the name of the compliance officer on the SE website;
b. No new listing approvals will be granted (except for bonus issue and stock split); among other actions.[11]

  1. Verifying documents given by the Board:

The SAT has held in the appellate order of V Shanker vs SEBI, taking reference from the case of Prakash Kanungo, that compliance officers are not responsible for re-auditing board-approved documents related to any information on securities, transactions, etc, to test their financial literacy[12]. As seen in the definition, a CO shall work under the supervision of the board and cannot question the decisions of the board. Ergo, he cannot be held liable for making invalid, board-approved disclosures per Reg 7 of the regulations.

  1. Trading by designated persons: Granting of Pre-Clearance and Contra trade restrictions

Pre-clearance becomes a mandatory action in cases where a trading plan has not been submitted/approved by him. The CO must ensure that no designated person executes a trade after expiry of 7 days from the date of granting pre-clearance [13] and must consider the possibility that the declaration given by the person may turn inaccurate.

Prima facie, it is important that the CO can effectively assess and discern a piece of information as UPSI, and the possibility of traders possessing UPSI, before giving a nod. The SEBI has held that a CO is expected to comprehend that the materiality of an event lies not only in its price tag but in its ability to shape market perception. He can be held liable if he limits his view to on-record numerical data, and not the quantum of the event.[14] For instance, the knowledge related to setting up a branch in a higher strategic area amounts to UPSI, and if clearance was granted to those in possession thereof, the CO will be penalised for lack of diligence.[15] Furthermore, his inaction is tagged as dereliction of duty when he couldn’t foresee a contra trade by a person who was granted pre-clearance for “dealing in the shares of the company”, on grounds of being “occupied with work”.[16]

However, a CO cannot be held liable for a bona fide lack of knowledge of the exposure of a Designated person to UPSI on the very date of granting pre-clearance to that person. In such a case, the CO cannot be held responsible for any trade executed by such a person while in possession of UPSI [17], but compelling evidence must be furnished by the CO to back his claim of genuine unawareness.

Finally, it is the core duty of the CO to promptly inform the same to the stock exchange(s) where the concerned securities are traded, in case any violation of Regulations is observed[18]. The CO can take assistance from the chief investor relations officer (CIRO) if it is the company’s discretion to designate two separate persons as CIRO and CO, respectively, for meeting specified responsibilities as to the dissemination of information or disclosure of UPSI[19].

5. Conclusion

A compliance officer is designated as a key managerial person. His role is not one of flawless foresight but of demonstrable diligence. As underscored in Rajendra Kumar Dabriwala v. SEBI[20], the responsibility for compliance must not be burdened on a single individual—it must be embedded within the organisational fabric in the backdrop of PIT regulations.  To that end, building a resilient compliance ecosystem can enable a CO to define its limitations effectively while ensuring that inherent obligations are fulfilled with efficiency. This requires adopting formalised Standard Operating Procedures (SOPs), automated monitoring tools, structured checklists[21] for promoters, directors, and intermediaries to map recurring corporate events, and AI-assisted detection of UPSI, among other measures.

[1]https://www.sebi.gov.in/enforcement/informal-guidance/oct-2015/informal-guidance-in-the-matter-of-mindtree-ltd-regarding-sebi-prohibition-of-insider-trading-regulations-2015_31580.html

[2]https://www.casemine.com/judgement/in/60226eb4342cca1da5046e4e

[3]https://taxguru.in/wp-content/uploads/2019/09/New-Delhi-Television-Limited-Vs-SEBI-SAT-Mumbai.pdf?utm

[4]https://www.sebi.gov.in/enforcement/orders/mar-2024/adjudication-order-in-the-matter-of-radico-khaitan-limited_82427.htmlappellate ?utm_

[5]https://www.sebi.gov.in/enforcement/orders/jul-2023/adjudication-order-in-the-matter-of-insider-trading-activities-in-the-scrip-of-shilpi-cable-technologies-ltd-_73848.htmisl

[6]https://www.sebi.gov.in/enforcement/orders/jun-2019/adjudicathe ,tion-order-in-respect-of-kemrock-industries-and-exports-limited-kalpesh-mahedrabhai-patel-navin-r-patel-mahendra-r-patel-and-n-k-jain-in-the-matter-of-kemrock-industries-and-exports-limited-_43396.html

[7] Yes it is permissible. Refer Guidance from SEBI (29th April, 2021)

https://www.icsi.edu/media/webmodules/GN7_Guidance_Note_on_Prevention_of_Insider_Trading.pdf

[8]https://www.livelaw.in/law-firms/law-firm-articles-/insider-trading-sebi-compliance-corporate-governance-upsi-market-integrity-securities-law-pit-regulations-compliance-abilitypre-clearanceofficer-key-managerial-personnel-sebi-corporate-professionals-advisers-advocates-lodr-293914

[9] Refer https://www.moneycontrol.com/news/business/markets/radico-khaitans-former-legal-head-and-compliance-officer-fined-rs-5-lakh-for-violating-insider-trading-norms-12497061.html

[10]https://www.taxmann.com/research/company-and-sebi/top-story/105010000000024040/the-compliance-officers-role-upholding-the-code-of-conduct%C2%A0under%C2%A0insider-trading-norms-experts-opinion

[11] https://vinodkothari.com/wp-content/uploads/2024/10/Snippet-_-SOP-on-SDD-compliance.pptx.pdf

[12] https://sngpartners.in/sng-newsletter/2025/may/16/Annexure-2.pdf

[13] SEBI (PIT) regulations, Sch B; Point 9

[14]https://www.sebi.gov.in/enforcement/orders/jul-2020/adjudication-order-in-respect-of-b-renganathan-in-the-matter-of-edelweiss-financial-services-ltd-_47075.html

[15]https://www.taxmann.com/research/company-and-sebi/top-story/105010000000024040/the-compliance-officers-role-upholding-the-code-of-conduct%C2%A0under%C2%A0insider-trading-norms-experts-opinion

[16]https://www.taxmann.com/research/company-and-sebi/top-story/105010000000024040/the-compliance-officers-role-upholding-the-code-of-conduct%C2%A0under%C2%A0insider-trading-norms-experts-opinion

[17]https://www.taxmann.com/research/company-and-sebi/top-story/105010000000024040/the-compliance-officers-role-upholding-the-code-of-conduct%C2%A0under%C2%A0insider-trading-norms-experts-opinion

[18] Refer Guidance note on insider trading  https://www.icsi.edu/media/webmodules/GN7_Guidance_Note_on_Prevention_of_Insider_Trading.pdf

[19] SEBI guidance (24 Aug 2015) Refer https://www.icsi.edu/media/webmodules/GN7_Guidance_Note_on_Prevention_of_Insider_Trading.pdf

[20] Refer https://www.sebi.gov.in/enforcement/orders/jul-2019/adjudication-order-against-mr-rajendra-kumar-dabriwala-in-the-matter-of-international-conveyers-ltd-_43765.html

[21] Refer chapter 13 https://www.icsi.edu/media/webmodules/GN7_Guidance_Note_on_Prevention_of_Insider_Trading.pdf

Read more:

Prohibition of Insider Trading – Resource Centre

Insider Trading Safeguards: Sensitising Fiduciaries

AIF Regulatory framework evolves from light-touch to right-hold

/0 Comments/in , , , /by

Simrat Singh | Finserv@vinodkothari.com

When AIF Regulations were formally introduced in 2012, the regulatory approach was deliberately light. The framework targeted sophisticated investors, allowing flexibility with limited oversight. Over the years, however, AIFs have become significant participants in capital markets. Market practices over the decade exposed regulatory loopholes and arbitrages. For example, some investors who did not individually qualify as QIBs accessed preferential benefits indirectly through AIF structures and investors who were restricted to invest in certain companies started investing through AIF making AIF an investment facade. There were concerns regarding circumvention of FEMA norms as well1. In the credit space, regulated entities such as banks and NBFCs started channeling funds through AIFs to refinance their stressed borrowers, raising concerns around loan evergreening2. These developments prompted regulatory response. RBI first issued two circulars, one in 2023 and the other in 2024. Finally, in 2025 formal directions governing investments by regulated entities in AIFs were also issued3. These Directions introduced exposure caps and provisioning requirements.4 

While the RBI addressed prudential risks arising from regulated entities’ participation in AIFs, SEBI focused on investor protection, governance within the AIF ecosystem and curbing the regulatory arbitrages. First it mandated on-going due diligence by AIF Managers5. It then mandated specific due diligence6 of investors and investments of AIF to prevent indirect access to regulatory benefits. Fiduciary duties of sponsors and investment managers and reporting obligations were progressively codified through circulars. Managers were expected to maintain transparency vis-a-vis their investment decisions, maintain written policies including ones to deal with conflict of interest with unitholders and submit accurate information to the Trustee. What were once broad, principle-based expectations have evolved into detailed, enforceable rules. Regulatory tightening has been matched by a more assertive enforcement approach. SEBI’s recent settlement order7 against an AIF underscores its increasing scrutiny of governance lapses, mismanagement of conflicts and inaccurate reporting. This clearly signals that any compliance gaps will no longer be overlooked and are likely to attract regulatory action. In a separate adjudication order, SEBI imposed penalties on both the Trustee and the Manager for the delayed winding-up of the scheme, underscoring that accountability within an AIF structure extends to all key parties and is not limited to the Manager alone.  

However, SEBI’s approach has not been solely restrictive. Alongside regulatory tightening, it has also sought to preserve commercial flexibility and respond to market needs. Examples include the introduction of the co-investment framework8 for AIFs, framework for offering differential rights to select investors and a revamp for angel funds9.

Together, these measures are reshaping the regulatory landscape for AIFs and their managers. Investors can no longer rely on AIF structures to indirectly obtain regulatory advantages otherwise unavailable to them. As AIFs have grown in scale and importance, what is emerging is a more transparent, prudentially sound and closely supervised regulatory regime designed to align investor protection and commercial flexibility.

  1. See SEBI’s Consultation paper on proposal to enhance trust in the AIF ecosystem ↩︎
  2. See our write-up on AIFs being used for regulatory arbitrages here. ↩︎
  3.  RBI (Investment In AIF) Directions, 2025 ↩︎
  4. See our detailed analysis of the Directions here. ↩︎
  5. See our write-up on ongoing due diligence for AIFs here ↩︎
  6. See our FAQs on specific due diligence of investors and investments of AIFs here. ↩︎
  7. See the complete order here ↩︎
  8. See our write-up on co-investments here. ↩︎
  9. See our write-up on changes w.r.t Angel Funds here ↩︎

Demystifying Structured Debt Securities: Beyond Plain Vanilla Bonds

/0 Comments/in , , , , /by

Palak Jaiswani, Manager | corplaw@vinodkothari.com

Debentures, one of the most common means for raising debt funding, where investors lend money to the issuer in return for periodic interest and repayment of principal at maturity. While the basic feature of any debenture is a fixed coupon rate and a defined tenure (commonly referred to as plain vanilla instruments), sometimes these instruments may be topped up with enhanced features such as additional credit support, market-linked returns, convertibility option, etc., thus referred to as structured debt securities.

Structured debt securities: motivation for issuers

Apart from the economic favouring such structural modifications, a primary motivation for the issuer in issuing such structured instruments might be the regulatory advantages that these securities offer. For instance,

  • Chapter VIII of SEBI NCS Master Circular provides an extra limit of 5 ISINs for structured debt securities & market-linked securities, thus more room for the issuers to issue debt securities, compared to the restriction of a maximum of 9 ISINs for plain vanilla debt.
  • In addition, as per NSE Guidelines on Electronic Book Provider (EBP) mechanism, market-linked debentures are not required to be routed through EBP, allowing issuers to place such instruments almost like an over-the-counter trade. This allows issuers to structure the debt securities on a tailored basis and offer them directly to specific investors.
Read more →

Insider Trading Safeguards: Sensitising Fiduciaries

/0 Comments/in , , , /by

– Team Corplaw | Corplaw@vinodkothari.com

Loader Loading…
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

CIV-ilizing Co-investments: SEBI’s new framework for Co-investments under AIF Regulations

/0 Comments/in , , , /by

Payal Agarwal, Partner and Simrat Singh, Senior Executive | Finserv@vinodkothari.com

Background

Within an AIF structure, funds are committed by the investors and the AIF in turn, through its Investment Manager, makes investments in investee entities in line with the fund’s strategy. Situations may arise where an investee company of the AIF may require additional capital, that the Investment Manager may not be willing to provide out of the fund’s corpus possibly due to multiple reasons such as over-exposure, non-alignment with funding strategy, capital constraints etc. 

In such cases, the Manager may encourage investors to commit further funds directly into the investee. This gives rise to what is known as ‘co-investment’ – an investment by limited partners (LPs or investors) in a specific investee alongside, but distinct from, the flagship fund. Globally, these are also called ‘Sidecar’ funds or ‘parallel’ funds.1

Benefits of co-investments 

Investors benefit from co-investments primarily in terms of cost efficiency, in the following ways: 

  • No or lower management fees and a reduced rate of carried interest.2
  • Reducing/ removing operational and administrative expenses such as in due diligence process & deal sourcing
  • Where management and incentive fees are directly charged on co-investments, they are usually capped and lower than when investing directly into the PE Fund.3
  • Not only are headline rates4 typically lower, but management fees are often charged on invested rather than committed capital, reducing fee drag and mitigating the J-Curve.5 

For Managers co-investment offers the following advantages:

  • Provide access to expanded capital; 
  • Enables it to pursue larger transactions without over extending the main fund

A Preqin study6 found that 80% of LPs reported better performance from equity co-investments than traditional fund structures.

Fig 2: Investor’s perceived benefits of co-investment

Source:A&0 Shearman

Fig 2: Manager’s perceived benefits of offering co-investments. 

Source: A&0 Shearman

Regulating Co-investments by AIFs in India

Co-investments by AIF investors in the investees of AIF were primarily offered in accordance with the SEBI (Portfolio Managers) Regulations, 2020 (“PM Regulations”). In 2021, PM Regulations were amended to regulate AIF Managers offering co-investments by acting as a portfolio manager of the investors (see need for regulating the co-investment structure below). The AIF Regulations, in turn, required the investment manager to be registered under PM Regulations, for providing co-investment related services. 

Keeping in view the rising demand for co-investments, SEBI, based on  a recent Consultation Paper issued on 9th May 2025, has amended the AIF Regulations, vide notification dated 9th September, 2025 and issued a circular in September 2025 introducing a dedicated framework for co-investments within the AIF regime itself. Note that the recently introduced framework is in addition to and does not completely replace the co-investment framework through PM as provided in the PM Regulations. 

The newly introduced framework refers to co-investments as an affiliate scheme within the main scheme of the fund, in the form of a Co-investment Vehicle Scheme (CIV) and does not require a separate registration by the Investment Manager in the form of Portfolio Manager under PM Regulations. 

Interestingly, in May 2025, IFSCA also issued a Circular specifying operational aspects for co-investments by venture capital funds and restricted schemes operating in the IFSC. In this article, we discuss the new framework vis-a-vis the existing PMS route.

Need for regulating co-investments

  • Conflicts of interest
    • Especially around the timing of exit. Main fund vs. co-investors may have different preferences.
  • Voting rights alignment
    • Misalignment can fragment decision-making.
  • Risk concentration for investors
    • Exposure to a single company rather than a diversified portfolio.
  • Disclosure and transparency obligations for managers
    • Other fund investors need clarity on why the deal was structured as a co-investment.
    • Questions may arise on whether the main fund had sufficient capacity to invest.
    • Risk of concerns about preferential treatment of select investors.
  • Operational issues:
    • Warehousing: main fund may initially acquire the investment until co-investment vehicle is ready; requires proper compensation to the fund for interim costs.
    • Expense allocation: management costs must be fairly shared between the fund and the co-investment vehicle.

Co-investment through PMS Route – the existing framework 

Under the PMS Route, the AIF Manager intending to offer co-investment opportunities to its investors shall first register itself as a ‘Co-investment Portfolio Manager’ (see reg. 2(1)(fa) of PM Regulations) post which it can invest the funds of investors subject to the following conditions:

  1. 100% of AUM shall be invested in unlisted securities [see reg. 24(4B)];
  2. Only a manager of a Cat I & II AIF is allowed to offer co-investment;
  3. The terms of co-investment in an investee company by a co-investor, shall not be more favourable than the terms of investment of the AIF [see proviso to reg. 22(2)]:
  4. Terms relating to exit of co-investors shall be identical to that of exit of AIF [see proviso to reg. 22(2)];
  5. Early termination/withdrawal of funds by co-investor shall not be allowed. [see reg. 24(2)(a)]

The AIF Manager, registered as a Co-investment Portfolio Manager, is subject to all the compliances as required under the PM Regulations, read with the circulars issued thereunder, except the following: 

  1. The minimum investment limit of Rs. 50 Lac per investor in case of PMS will not apply [see reg. 23(2)];
  2. Min. net worth criteria of Rs. 5 Crore shall not apply to such a PM [see reg. 11(e)];
  3. Appointment of a custodian is not required. (see reg. 26)
  4. Roles and responsibilities of the compliance officer can be discharged by the principal officer of the Manager. [see reg. 34(1)]
ParticularsDiscretionaryNon-discretionaryCo-investment
No. of clients1,92,5486,733609
AUM (Rs. Crores)33,05,9583,18,6854,674

Table 1: No. of co-investment clients and their total AUM as on 31.07.2025.

As per Table 1, it is evident that co-investment under the PMS Regulations has not taken off yet. One of the major reasons is the additional registration & compliance burden associated with this route.

Co-investment through CIV : the recently approved framework

A formal regulatory framework for co-investment has been introduced in the AIF Regulations vide SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2025. The Amendment Regulations define “co-investment” as: 

“Co-investment” means investment made by a Manager or Sponsor or investor of a Category I or II Alternative Investment Fund in unlisted securities of investee companies where such a Category I or Category II Alternative Investment Fund makes investment;”

The framework is restricted to “unlisted securities” only, for the following reasons: 

  1. There is a greater information symmetry in case of unlisted securities;
  2. In case of investment in listed securities, it is difficult to establish whether an investor’s decision to invest is driven by the fund manager’s  advice or based on the investor’s own independent assessment;
  3. Co-investments are typically undertaken in unlisted entities.

Reg 2(1)(fa) defines co-investment scheme as: 

“Co-investment scheme” means a scheme of a Category I or Category II Alternative Investment Fund, which facilitates co-investment to investors of a particular scheme of an Alternative Investment Fund, in unlisted securities of an investee company where the scheme of the Alternative Investment Fund is making investment or has invested;”

The conditions for co-investment through the AIF route is prescribed through the newly inserted Reg 17A to the AIF Regulations read with the Circular dated September 09, 2025. Additionally, the Circular also refers to the implementation standards, if any, formulated by SFA with regard to offering of the co-investment schemes by the AIFs. Since the CIV operates as an affiliate AIF, in order  to make it operationally feasible, a CIV has been granted the following exemptions under the AIF Regulations [See reg. 17A(10) of AIF Regulations]:

  • No minimum corpus of ₹20 Cr.
  • No continuing sponsor/manager interest (2.5%/₹5 Cr).
  • Exempt from Placement Memorandum contents, filing modalities, tenure requirement.
  • Exempt from 25% single-investee company concentration limit

Investment via PMS vs Investment via CIV of an AIF

Post the AIF Amendment, investors have a choice for investing either through the PMS Route or through the CIV route under AIF Regulations. A comparison between the 2 routes is listed below:

AspectsInvesting through CIVInvesting through PMS
Regulatory frameworkSEBI (Alternative Investment Funds) Regulations, 2012SEBI (Portfolio Managers) Regulations, 2020
Limit on investment by each investorUpto 3 times of investment made by such investor in the investee company through AIF. No limit
Registration requirement for ManagerNo separate registration required Co-investment Portfolio Manager license mandatory. 
Kind of securities only in unlisted securitiesonly in unlisted securities
Mode of investmentThrough and in the name of the CIV schemeDirectly in the securities of the investee company.
Co-terminus exitTiming of exit of CIV = Timing of exit of AIF Scheme from such investee company.Co-terminus exit
Eligibility of investorOnly Accredited InvestorsAny investor
No regulatory bypassCIV cannot:
– Give indirect exposure to such investees where direct exposure is not permitted to the investors;
– Create situations needing additional disclosures;
– Channel funds where investors are otherwise restricted.		Considered as direct investment by the investor.
Ineligibility of investors Defaulting, excused, or excluded investors of AIF cannot participate in CIV.No such exclusion. This seems like a regulatory loophole.
Operational burdenCIV aggregates co-investors’ exposure; hence, only the Scheme appears on the capital table;
Unified voting and simplification of compliance requirements for investees as well		Multiple co-investors appear directly on the investee company’s cap table.
Closing times may be different, and operationally difficult for investors and investees to exercise voting rights and ensure compliances at each investor’s level. 
Scope for co-investmentManagers can extend co-investment services to investors of any AIF managed by them (Sponsor may be same or different)A Co-investment Portfolio Manager can serve only his own AIF’s investors, and others only if managed by him with the same sponsor
Ring-fencing of funds and investmentsSeparate bank & demat accounts for each CIVBank & demat account of investor
Leverage restrictionsCIV cannot undertake any leverage.The PM cannot undertake leverage and invest.
TaxationTax pass through granted to Cat I & II AIFs make the investors directly liable to tax except on business income of the AIFCapital gain and DDT payable by investor directly
Filing a shelf PMManagers are required to file a separate Shelf PM for each CIV Scheme.No such requirement

Conclusion

Much of the future trajectory of co-investments in India will depend on how both investors and managers weigh the relative merits of the PMS and CIV routes. While the PMS framework comes with higher compliance costs and additional registration requirements, the absence of a maximum cap on investments by the co-investors may still serve as a motivational factor for continued usage of the same. By contrast, the CIV framework seeks to simplify execution and preserve alignment with the parent AIF, although the 3 times’ cap on the co-investor’s share may be a hindrance for investors, thus making the CIV structure less attractive. Recently RBI had also issued Directions for regulated entities investing in AIFs with a view to curb evergreening and excessing investing in AIF structures (see our article on the same). The AIF Manager shall be cognizant of these restrictions in order to ensure there is no bypass through CIV. 

Large institutional investors, sovereign funds and pension funds are likely to be the early adopters of CIV structures, given their scale, accredited investor status, and preference for alignment with fund managers. High-net-worth individuals (HNIs) and family offices, on the other hand, may still prefer the PMS route owing to its flexibility and direct exposure. Over time, the regulatory tweaking of these frameworks, if any and the appetite of investors for concentrated exposure will determine how the Indian co-investment landscape unfolds.

  1. Financing Business Innovation: World Bank ↩︎
  2. Goldman Sachs: The Case for Co-investments, Strategic Investment Funds: World Bank ↩︎
  3. Structuring Co-investments in Private Equity: American Bar Association ↩︎
  4. In private equity, the headline rate (e.g., 2% management fee, 20% carry) is what’s stated in the PPM, but the effective rate investors actually pay is usually lower. This depends on factors like fees on committed vs. invested capital, negotiated discounts or preferential terms, and lifecycle adjustments such as fee step-downs post-investment period. ↩︎
  5. The J Curve represents the tendency of private equity funds to post negative returns in the initial years and then post increasing returns in later years when the investments mature. The negative returns at the onset of investments may result from investment costs, management fees, an investment portfolio that is yet to mature, and underperforming portfolios that are written off in their early days: Corporate Finance Institute ↩︎
  6. Private Equity Co-Investment Outlook: Preqin ↩︎

See our other resources on AIFs:

SEBI says SWAGAT to investors

/0 Comments/in , , , , /by

– Team Corplaw | corplaw@vinodkothari.com

– Approves major proposals easing institutional investments in IPOs, minimum offer size for larger entities, AIF entry, increased threshold for related party transaction approvals etc.

Relaxed norms for Related Party Transactions 

  • Introduction of scale-based threshold for materiality of RPTs for shareholders’ approvals based on annual consolidated turnover of the listed entity
Annual Consolidated Turnover of listed entity (in Crores)Approved threshold (as a % of consolidated turnover)
< Rs.20,00010%
20,001 – 40,0002,000 Crs + 5% above Rs. 20,000 Crs
> 40,0003,000 Crs + 2.5% above Rs. 40,000 Crs
  • Revised thresholds for significant RPTs of subsidiaries
    • 10% of standalone t/o or material RPT limit, whichever is lower.
  • Simpler disclosure to be prescribed by SEBI for RPTs that does not exceed 1% of annual consolidated turnover of the listed entity or Rs. 10 Crore, whichever is lower. ISN disclosures will not apply.
  • ‘Retail purchases’ exclusions extended to relatives of directors and KMPs, subject to existing conditions 
  •  Inclusion of validity of shareholders’ approval as prescribed in SEBI circular dated 30th March 2022 and 8th April, 2022 
  • Rationale (See Consultation Paper)

Relaxation in thresholds for Minimum Public Offer (MPO) and timelines for compliance Minimum Public Shareholding (MPS) for large issuers (issue size of 50,000 Cr and above)

  • Reduction in MPO requirements for companies with higher market capitalisation 
  • Relaxed timelines for complying with MPS
  • Post listing, the stock exchanges shall continue to monitor these issuers through their surveillance mechanism and related measures to ensure orderly functioning of trading in shares 
  • Applicable to both entities proposed to be listed and existing listed entities that are yet to comply with MPS requirements 
  • Following changes recommended in Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957: 
Post-issue market capitalisation (MCap) MPO requirements Timeline to meet MPS requirements (25%)
Existing provisions Post amendmentsExisting provisions Post amendments
≤ 1,600 Cr25%NA
1,600 Cr < MCap ≤ 4,000 Cr400 Crs  Within 3 years from listing
4,000 Cr < MCap ≤ 50,000 Cr10%Within 3 years from listing
50,000 Cr < MCap ≤ 1,00,000 Cr10%1,000 Cr and at least 8% of post issue  capitalWithin 3 years from listingWithin 5 years from listing
1,00,000 Cr < MCap ≤ 5,00,000 Cr5000 Cr and  atleast 5% of post issue  capital 6, 250 Cr and 2.75% of post issue  capital10% – within 2 years 25% – within 5 yearsIf MPS on the date of listing <15%, then15% – within 5 yrs25% – within 10 yrs
If MPS >15% on the date of listing, 25% within 5 yrs
MCap > 5,00,000 Cr15,000 Cr and 1%of post issue  capital, subject to minimum dilution of 2.5%If MPS on the date of listing <15%, then15% – within 5 yrs25% – within 10 yrs
If MPS on the date of listing  >15%, 25% within 5 yrs
  • Rationale (see Consultation Paper):
    • Mandatory equity dilution for meeting MPS requirement may lead to an oversupply of shares in case of large issues; 
    • Dilution may impact the share prices despite strong company fundamentals. 

Broaden participation of institutional investors in IPO through rejig in the anchor investors allocation

  • Following changes recommended in Schedule XIII of ICDR Regulations.
    • Merge Cat I and II of Anchor Investor Allocation to a single category of upto 250 crores. Minimum 5 and maximum 15 investors subject to a minimum allotment of ₹5 crore per investor.
    • Increasing   the   number   of   permissible  Anchor Investor allottees for allocation above 250 crore in the discretionary allotment –  for every additional ₹250 crore or part thereof, an additional 15 investors (instead of 10 as per erstwhile norms) may be permitted, subject to a minimum allotment of ₹5 crore per investor. 
    • Life insurance companies and pension funds included in the reserved category along with domestic MF; proportion increased from 1/3rd (33.33%) to 40%
      • 33% for domestic MFs
      • 7% for life insurance companies and pension funds
        • In case of undersubscription, the unsubscribed part will be available for allocation to domestic MF.
  • Rationale (See Consultation Paper)
    • Increase in permitted investors:
      • To ease participation  for  large  FPIs  operating  multiple  funds with  distinct  PANs,  which  currently  face  allocation  limits  due  to  line  caps
      • Given the recent deal size, most  issuances  fall  within  the  threshold  of Cat II  or  higher, limiting the relevance of Cat 1, therefore merge Cat 1 and Cat II
    • Including life insurance companies and pension funds:
      • Growing interest in IPOs, the amendment will ensure participation and diversify long term investor base.

Clarifications in relation to manner of sending annual reports for entities having listed non-convertible securities [Reg 58 of LODR]

  • For NCS holders whose email IDs are not registered
    • A letter containing a web link and optionally a static QR code to access the annual report to be sent
      • Instead of sending hard copy of salient features of the documents as per sec 136 of the Act 
      • Aligned with Reg 36(1) (b) of LODR as applicable to equity listed cos
      • Currently, temporary relaxation was given by SEBI from sending of hard copy of documents, provided a web-link  to  the  statement  containing  the  salient  features  of  all  the documents is advertised by the NCS listed entity 
  • Timeline for sending the annual report to NCS holders, stock exchange and debenture trustee
    • To be specified based on the law under which such NCS-listed entity is constituted 
    • For e.g. – Section 136 of the Companies Act specifies a time period of at least 21 days before the AGM.

Light touch regulations for AIFs that are exclusively for Accredited Investors and Large Value Funds

  • Introduction of new category of AIFs having only Accredited Investors 
  • Reduction of minimum investment requirements for Large Value Funds (LVFs) from Rs. 70 crores to Rs. 25 crores per investor 
  • Lighter regulatory framework for AIs – only/ LVFs 
  • Existing eligible AIFs may also opt for AI only/ LVF classification with associated benefits
  • Rationale: see Consultation Paper 

Read detailed article: Proposed Exclusivity Club: Light-touch regulations for AIFs with accredited investors

Facilitating investments in REITs and InVITs

  • Enhanced participation of Mutual Funds through re-classification of investment in REITs as ‘equity’ investments, InVITs to continue ‘hybrid’ classification
    • Results in REITs becoming eligible for limits relating to equity and equity indices 
    • Entire limits earlier available to REITs and InVITs taken together now becomes available to InVITs only
  • Rationale (see Consultation Paper)
    • In view of the characteristics of REIT & InVITts and to align with global practice
  • Expanding the scope of ‘Strategic Investor” & aligning with QIBs under ICDR
    • Extant Regulations cover: NBFC-IFCs, SCB, a multilateral and bilateral development financial institution, NBFC-ML & UL, FPIs, Insurance Cos. and MFs.
    • Scope amended to include: QIBs, Provident & Pension funds (Min Corpus > 25Cr), AIFs, State Industrial Development Corporation, family trust (NW > 500 Cr) and intermediaries registered with SEBI (NW > 500 Cr) and NBFCs – ML, UL & TL
    • Relevance of Strategic Investors: 
      • Invests a min 5% of the issue size of REITs or INVITs subject to a maximum of 25%. Investments are locked in for a period of 180 days from listing
      • Such subscription is documented before the issue and disclosed in offer documents
    • Rationale: see Consultation Paper
      • to attract capital from more investors under the Strategic Investor category
      • to instil confidence in the public issue

SWAGAT-FI for FPIs: relaxing eligibility norms, registration and compliance requirements

  • Registration of retail schemes in IFSCs as FPIs alongside AIFs in IFSC
    • Both for retail schemes and AIFs, the sponsor / manager should be resident Indian
  • Alignment of contribution limit by resident indian non-individual sponsors with IFSCA Regs
    • Sponsor contributions shall now be subject to a maximum of 10% of corpus of the Fund (or AUM, in case of retail schemes)
  • Overseas MFs registering as FPIs may include Indian MFs as constituents
    • SEBI circular Nov 4, 2024 permitted Indian MFs to invest in overseas MFs/UTs that have exposure to Indian securities, subject to specified conditions
  • SWAGAT for objectively identified and verifiably low-risk FIs and FVCIs
    • Introduction of SWAGAT-FI status for eligible foreign investors
      • Easier investment assess
      • Unified registration process across multiple investment routes
      • Minimize repeated compliance requirements and documentation
    • Eligible entities (applicable to both initial registration and existing FPIs):
      • Govt and Govt related investors: central banks, SWFs, international / multilateral organizations / agencies and entities controlled or 75% owned (directly or indirectly) thereby
      • Public Retail Funds (PRFs) regulated in home jurisdiction with diversified investors and investments, managed independently: MFs and UTs (open to retail investors, operating as blind pools with diversified investments), insurance companies (investing proprietary funds without segregated portfolios), PFs
    • Relaxation for SWAGAT-FIs
    • Option to use a single demat account for holding all securities acquired as FPI, FVCI, or foreign investor units, with systems in place to ensure proper tagging and identification across channels

India Market Access – dedicated platform for current and prospective FPIs

To tackle the problem of global investors in accessing Indian laws and regulatory procedures across various platforms, citing the absence of a centralized and comprehensive legal repository.

Read More:

Relaxed Party Time?: RPT regime gets lot softer

LODR Resource Centre

Relaxed Party Time?: RPT regime gets lot softer

/0 Comments/in , , /by

Team corplaw | corplaw@vinodkothari.com

SEBI board decision for doubling the materiality threshold and make it scalar; lesser RPTs to need ISN details, plus other relaxations 

Highlights:

Following  a 32-pager consultation paper proposing significant amendments to RPT provisions, towards ease of doing business, rolled out by SEBI on August 4, 2025, several amendments have been approved by SEBI in its Board Meeting on 12th September, 2025 and the same will become effective in due course upon notification of the amendment regulations. We briefly discuss the approved changes with our analysis of the same. 

Some of our comments on the proposals, as recommended to SEBI, have also been accepted in the approved decisions. Our comments on the Consultation Paper may be read here. 

1. Materiality Thresholds: From One-Size-Fits-All to several sizes for the short-and-tall

A scale-based threshold mechanism has been approved, such that the RPT materiality threshold increases with the increase in the turnover of the company, though at a reduced rate, thus leading to an appropriate number of RPTs being categorized as material, thereby reducing the compliance burden of listed entities. The maximum upper ceiling of materiality has been kept at Rs. 5,000 crores, as against the existing absolute threshold of Rs. 1000 crores. 

Materiality thresholds as approved in SEBI BM: 

Annual Consolidated Turnover of listed entity (in Crores)Approved threshold (as a % of consolidated turnover)Maximum upper ceiling (in Crores)
< Rs.20,00010%2,000 
20,001 – 40,0002,000 Crs + 5% above Rs. 20,000 Crs3,000
> 40,0003,000 Crs + 2.5% above Rs. 40,000 Crs5,000  (deemed material) 

Back-testing the proposal scale on RPTs undertaken by top 100 NSE companies show a 60% reduction in material RPT approvals for FY 2023-24 and 2024-25 with total no. of such resolutions reducing from 235 and 293, to around 95 to 119. The 60% reduction may itself be seen as a bold admission that the existing regulatory framework was causing too many proposals to go for shareholder approval.

Our Analysis and Comments 

With the amendments becoming effective, RPT regime is all set to be a lot relaxed, with the absolute threshold for taking shareholders’ approval to be doubled to Rs. 2000 crores. In addition, for larger companies, there will be a scalar increase in the threshold, rising to Rs. 5000 crores. A lot lesser number of RPTs will now have to go before shareholders for approval in general meetings.

In times to come, a multi-metric approach, depending on the nature of the transaction, may be adopted, drawing on a consonance-based criteria as seen in Regulation 30 of the LODR Regulations, thus offering a more balanced and effective approach. See detailed discussion in the article here.

2. Significant RPTs of Subsidiaries: Plugging Gaps with Dual Thresholds

Extant provisions vis-a-vis SEBI approved changes

Pursuant to the amendments in 2021, RPTs exceeding a threshold of 10% of the standalone turnover of the subsidiary are considered as Significant RPTs, thus, requiring approval of the Audit Committee of the listed entity. The following modifications have been approved with respect to the thresholds of Significant RPTs of Subsidiaries: 

  • ‘Material’ is always ‘Significant’: There may be instances where a transaction by a subsidiary may trigger the materiality threshold for shareholder approval, based on the consolidated turnover of the listed entity, but still fall below the 10% threshold of the subsidiary’s own standalone turnover. As a result, such a transaction would escape the scrutiny of the listed entity’s audit committee. This inconsistency highlights a regulatory gap and reinforces the need to revisit and revise the threshold criteria to ensure comprehensive oversight in a way that aligns with evolving group structures and scale of operations. RPTs of subsidiary would require listed holding company’s audit committee approval if they breach the lower of following limits:
    • 10% of the standalone turnover of the subsidiary or 
    • Material RPT thresholds as applicable to listed holding company 
  • Alternative for newly incorporated subsidiaries without a track record: For newly incorporated subsidiaries which are <1 year old, consequently not having audited financial statements for a period of at least one year, the threshold for Significant RPTs to be based on lower of:
    • 10% of aggregate of paid-up capital and securities premium of the subsidiary, or
    • Material RPT thresholds as applicable to listed holding company 

Our Analysis and Comments

For newly incorporated subsidiaries, the Consultation Paper proposed linking the thresholds with net worth, and requiring a practising CA to certify such networth, thus leading to an additional compliance burden in the form of certification requirements.  The SEBI BM refers to a threshold based on paid-up share capital and securities premium, and hence, certification requirements may not arise.  

Further, the Consultation Paper proposed a de minimis exemption of Rs. 1 crore for significant RPTs of subsidiaries, thus, not requiring approval of the AC at the listed holding company’s level. However, the SEBI BM does not specifically refer to whether or not the proposal has been accepted, and hence, more clarity on the same may be gained upon notification of the amendment regulations.

Having said that, there is a need to revise and revisit the list of RPs of subsidiaries that gets extended to the listed holding company, thus attracting approval requirements for transactions with various such persons and entities, where there is absolutely no scope for conflict of interest. A Consultation Paper issued some time back on 7th February 2025 proposed extending the definition of related party under SEBI LODR to the subsidiaries of the listed entity as well. See an article on the same here. However, in the absence of any specific approval of SEBI on the same till date, such proposal seems to have been withdrawn by SEBI.

3. Tiered Disclosures: Balancing Transparency and Burden

Existing provisions vis-a-vis SEBI approved changes 

The Industry Standards Note on RPTs, effective from 1st September, 2025 provides an exemption from disclosures as per ISN for RPTs aggregating to Rs. 1 crore in a FY. The amendments seek to provide further relief from the ISN, by introducing a new slab for small-value RPTs aggregating to lower of: 

  • 1% of annual consolidated turnover of the listed entity as per the last audited financial statements, or 
  • Rs. 10 crore

In such cases, the disclosures will be required as per the Circular to be specified by SEBI. The draft Circular, as provided in the Consultation Paper, specifies disclosures in line with the minimum information as was  required to be placed by the listed entity before its Audit Committee in terms of SEBI Circular dated 22nd November, 2021 ( subsumed in LODR Master Circular dated November 11, 2024), prior to the effective date of ISN. Upon the same becoming effective, disclosures would be required in the following manner as per LODR: 

Value of transactionDisclosure RequirementsApplicability of ISN
< Rs. 1 croreReg 23(3) of SEBI LODR and RPT Policy of the listed entity (refer FAQs on ISN on RPTs)NA – exempt as per ISN 
> Rs 1 crore, but less than 1% of consolidated turnover of listed entity or Rs. 10 crores, whichever is lower (‘Moderate Value RPTs’)Annexure-2 of CP (Paragraph  4  under  Part  A  of  Section  III-B of SEBI Master Circular dated November 11, 2024)Exempt from ISN, upon notification of amendments 
Other than Moderate Value RPTs but less than Material RPTs (specified transactions)Part A and B of ISN Yes
Material RPTs (specified transactions are material)Part A, B and C of ISN Yes
Other than Moderate Value RPTs but less than Material RPTs (other than specified transactions)Part A of ISN Yes

Our Analysis and Comments 

The approved changes provide further relief from the task of collating a cartload of information as required under the ISN, subject to the thresholds as provided. While the introduction of differentiated disclosure thresholds aims to rationalise compliance, care must be taken to ensure that the disclosure framework does not become overly template-driven. RPTs, by nature, require contextual judgment, and a uniform disclosure format may not always capture the nuances of each case. It is therefore important that the regulatory design continues to place trust in the informed discretion of the Audit Committee, allowing it the flexibility to seek additional information where necessary, beyond the prescribed formats.

ISN: Standardising the way information is presented to audit committees
The whole thrust of the ISN is to harmonise and streamline the manner of presenting information to AC/shareholders while seeking approval.
It is good as a guidance or goal post, but does it have to become a regulatory mandate?
Where the manner of servicing food on the table becomes a mandate, the quality and taste will give precedence to form and mannerism.

4. Clarification w.r.t. validity of shareholders’ Omnibus Approval 

Existing provisions vis-a-vis SEBI approvals 

The existing provisions [Para (C)11 of Section III-B of LODR Master Circular] permit the validity of the omnibus approval by shareholders for material RPTs as: 

  • From AGM to AGM – in case approval is obtained in an AGM 
  • One year – in case approval is obtained in any other general meeting/ postal ballot 

A clarification is proposed to be incorporated that the AGM to AGM approval will be valid for a period of not more than 15 months, in alignment with the maximum timeline for calling AGM as per section 96 of the Companies Act. 

Further, the provisions, currently a part of the LODR Master Circular, have been approved to be embedded as a part of Reg 23(4) of LODR. 

5. Exemptions & Definitions: Pruning Redundancies

Problem Statement

Proviso (e) to Regulation 2(1)(zc) of the SEBI LODR Regulations exempts transactions involving retail purchases by employees from being classified as Related Party Transactions (RPTs), even though employees are not technically classified as related parties. Conversely, it includes transactions involving the relatives of directors and Key Managerial Personnel (KMPs) within its ambit. Additionally, Regulation 23(5)(b) provides an exemption from audit committee and shareholder approvals for transactions between a holding company and its wholly owned subsidiary. However, the term “holding company” used in this context has remained undefined, leaving ambiguity as to whether it refers only to a listed holding company or includes unlisted ones as well.

Proposal in CP

The Consultation Paper proposed two key clarifications:

  1. The exemption related to retail transactions should be expressly limited to related parties (i.e., directors, KMPs, or their relatives) to grant the appropriate exemption.
  2. The exemption for transactions with wholly owned subsidiaries should apply only where the holding company is also a listed entity, thereby excluding unlisted holding structures from this relaxation

Our Analysis and Comments

Under the existing framework, retail purchases made on the same terms as applicable to all employees are exempt when undertaken by employees, but not when made by relatives of directors or KMPs. This has led to an inconsistent treatment, where similarly situated individuals receive different regulatory treatment solely on the basis of their relationship with the company. The proposed language attempts to streamline this by including such relatives within the exemption, but it introduces its own drafting concern.

  • The phrasing – “retail purchases from any listed entity or its subsidiary by its directors or its employees key managerial personnel(s) or their relatives, without establishing a business relationship and at the terms which are uniformly applicable/offered to all employees and directors and key managerial personnel(s)” – would have created a potential loophole. As worded, the exemption could be interpreted to cover purchases made on favourable terms offered to directors or KMPs themselves, rather than being benchmarked against terms applicable to employees at large. The intended spirit of the provision seems to be to exempt only those transactions where the terms are genuinely uniform and non-preferential. A more appropriate construction would make it clear that the exemption is intended to apply only where such transactions mirror employee-level retail transactions, not privileged arrangements for senior management.

VKCO Recommendations: We had provided our comments to SEBI on the following lines: 

A minor drafting error has crept in the proposed language: retail purchases from any listed entity or its subsidiary by its directors or its key managerial personnel(s) or their relatives, without establishing a business relationship and at the terms which are uniformly applicable/offered to all directors and key managerial personnel(s). While the first part should refer to directors/ KMPs and their relatives, the second part should continue to refer to ’employees’, to ensure that the terms remain non-preferential, instead of introducing preferential treatment for senior management. 

Approved amendment: The approved amendment, as mentioned in the SEBI BM press release, refers to “terms which are uniformly applicable/offered to all employees” in line with our recommendation above. 

  • Regarding the exemption under Regulation 23(5)(b) for transactions between a holding company and its wholly owned subsidiary, a clarification has been inserted to provide the interpretational guidance that the term ‘holding company’ refers to the listed entity. 

The relevance of the aforesaid clarification would primarily be in cases where the unlisted subsidiary of the listed entity enters into a significant RPT with its wholly owned subsidiary (step-down subsidiary of the listed entity). Pursuant to the aforesaid proposal, as approved, no exemption will be available in such a case. 

Conclusion

SEBI’s August 2025 proposals, largely aimed at relaxation, have been approved in the September BM. Though in some cases, the ability to think beyond the existing track of the law seems missing, the amendments seem more or less welcoming, relaxing the RPT regime for listed entities. With the new leadership at SEBI meant to rationalise regulations, it was quite an appropriate occasion to do so. However, at many places, the August 2025 proposals are simply making tinkering changes in 2021 amendments and fine-tuning the June 2025 ISN. In sum, SEBI’s iterative approach to RPT governance demonstrates commendable responsiveness but calls for a holistic RPT policy road-map, harmonizing LODR regulations, circulars, and guidelines. Only a forward-looking, principles-based framework, will deliver the twin objectives of ease of doing business and investor protection in the long run.

Our resources on the topic:

LODR Resource Centre


Demystifying Promoter & Promoter Group: A Compilation of FAQs

/0 Comments/in , , /by

Pammy Jaiswal, Partner and Ankit Singh Mehar, Assistant Manager | Corplaw@vinodkothari.com

Loader Loading…
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Download as PDF [901.91 KB]

Access our resource centre on:

Exclusivity Club: Light-touch regulations for AIFs with accredited investors

/0 Comments/in , , , /by

– SEBI notifies light-touch regulations for AIFs in which only Accredited Investors are investors and flexibilities for Large Value Funds (LVFs)

– Payal Agarwal, Partner | corplaw@vinodkothari.com

This version: 20th November, 2025

Since its introduction in 2021, the concept of Accredited Investors (AIs) has been through some changes. A Consultation Paper was published on 17th June, 2025 to provide for certain flexibilities in the accreditation framework. Another Consultation Paper dated 8th August 2025 (‘AI CP’) proposed to bring light-touch regulations for AIF schemes seeking investments from only AIs, including extension of various exemptions to such schemes, that are currently available to Large Value Funds (LVFs).

Further, vide another Consultation Paper (‘LVF CP’), some relaxations were also proposed to be extended to Large Value Funds (LVFs) for AIs. Note that the LVFs are available only for AIs, and hence, the Amendment Regulations define the AIs-only schemes to include LVF.

The SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2025 has been notified on 18th November, 2025, thus introducing the concept of AI-only schemes in the regulatory framework. Note that, vide the 2nd Amendment Regulations, the angel funds have also been exclusively restricted to Accredited Investors only. See an article on the Angel Funds 2.0: Navigating the New Regulatory Landscape.

Accredited Investors – who are they?

An AI is considered as an investor having professional expertise and experience of making riskier investments. Reg 2(1)(ab) of AIF Regulations defines an accredited investor as any person who is granted a certificate of accreditation by an accreditation agency, and specifies eligibility criteria. The eligibility criteria is as follows:

Further, certain categories of investors are deemed to be AIs, that is, certificate of accreditation is not required, such as, Central and State Governments, developmental agencies set up under the aegis of the Central Government or the State Governments, sovereign wealth funds and multilateral agencies, funds set up by the Government, Category I foreign portfolio investors, qualified institutional buyers, etc.

‘Accreditation’ as a measure of risk sophistication

AIFs are investment vehicles pooling funds of sophisticated investors, and not for soliciting money from retail investors. The measure of sophistication, as specified in the AIF Regulations currently, is in the form of the ‘minimum commitment threshold’. Reg 10(c) of the Regulations require a minimum investment of Rs. 1 crore, except in case of investors who are employees or directors of the AIF or of the Manager.

There are certain shortcomings of considering the minimum commitment threshold as the metric of risk sophistication of an investor, such as:

  • May not necessarily lead to an actual draw-down, thus exposing to the risk of onboarding investors with inflated commitments. As per the data available on SEBI’s website, out of the total commitment of Rs. 13 lac crores for the quarter ended 31st March 2024, only about Rs. 5 lac crores worth of funds were actually drawn down. Similarly, for the quarter ended 31st March 2025, the value of commitment vis-a-vis funds raised
  • Does not consider the investor’s financial health (income, net worth etc), hence, a potential risk of the investor putting majority of its wealth in AIFs, a riskier investment class.

The concept of AIs, as proposed in February 2021, was to introduce a  class  of investors  who have  an understanding of various  financial products and the risks and returns associated with them and therefore, are able to take informed  decisions  regarding their investments. Accreditation of investors is a way of ensuring that investors are capable of assessing risk responsibly.

The June 2025 CP indicated that it is being examined to move AIFs gradually in an exclusively for AIs approach, starting with investments in angel funds and in framework for co-investing in unlisted securities of investee companies of AIFs. Accordingly, the present CP has proposed a gradual and consultative transition from ‘minimum commitment threshold’ to ‘accreditation status’ as a metric of risk sophistication of an investor.

Flexibility for AIs-only schemes vis-a-vis other AIFs

The accreditation status is to  be ensured at the time of onboarding of investors only. Therefore, if an investor subsequently loses the status of AI in interim, the same shall still be considered as an AI for the AI only scheme, once on-boarded. The following relaxations have been extended to AIs-only schemes, in order to provide for a light-touch regulatory framework, from investor protection viewpoint, considering that the AIs have the necessary knowledge and means to understand the features including risks involved in such investment products:

TopicRegulatory requirement  for other AIFsOur Comments
Differential rights of investors [reg 20(22)]Shall be pari-passu, differential rights may be offered to select investors, without affecting the interest of other investors of the scheme in compliance with SEBI Circular dated 13th Dec, 2024 r/w Implementation StandardsThis facilitates differential rights to different classes of investors within a scheme.
Extension of tenure of close-ended funds [reg 13(5)]up to two years subject to approval of two-thirds of the unit holders by value of their investment in AIFThis facilitates a longer tenure extension to an existing close-ended scheme, if suited to investors.

However, it is further clarified that the maximum extension permissible to such AI only schemes, inclusive of any tenure extension prior to such conversion, shall be 5 years. 
Certification criteria for key investment team of Manager [reg 4(g)(i)]Atleast one key personnel with relevant NISM certificationThe investors, being accredited, the reliance on key investment team of the Manager is comparatively low.

Further, in case of AIs-only Funds, the responsibilities of Trustee as specified in Reg 20 r/w the Fourth Schedule shall be fulfilled by the Manager itself. This is based on the premise that, the investors, being accredited, the reliance on Trustee for investor protection is comparatively low.

Large Value Funds: a sub-category of AIs only scheme

The concept of LVF was also introduced in 2021, along with the concept of AIs. An LVF, in fact, is an AIs only fund, with a minimum investment threshold. Reg 2(1)(pa) of the AIF Regulations defines LVF as:

“large value fund for accredited investors” means an Alternative Investment Fund or scheme of an Alternative Investment Fund in which each investor (other than the Manager, Sponsor, employees or directors of the Alternative Investment Fund or employees or directors of the Manager) is an accredited investor and invests not less than seventy crore rupees.

Since an LVF is included within the meaning of an AIs-only scheme, all exemptions as available to an AIs only scheme, are naturally available with an LVF, although the converse is not true.

Additional Exemptions available to LVFs (other than as available to AIs only scheme)

In addition to the relaxations extended to an AIs only scheme, there are additional exemptions available to an LVF. These are:

Regulatory referenceTopicExemption for LVF
Reg 12(2)Filing of placement memorandum through merchant bankerNot applicable
Reg 12(3)Comments of SEBI on PPM through merchant bankerNot applicable, only filing with SEBI required
Reg 15(1)(c)Investment concentration for Cat I and Cat II AIFs – cannot invest more than 25% of investable funds in an investee company, directly or through units of other AIFsMay invest upto 50% of investable funds in an investee company, directly or through units of other AIFs
Reg 15(1)(d)Investment concentration for Cat III AIFs – cannot invest more than 10% of investable funds in an investee company, directly or through units of other AIFsMay invest upto 25% of investable funds in an investee company, directly or through units of other AIFs

Reduction in minimum investment size for LVFs

The minimum investment threshold for investors in LVF has been reduced from Rs. 70 crores to Rs. 25 crores, based on the recommendations of SEBI’s Alternative Investment Policy Advisory Committee (AIPAC). The rationale is to lower entry barriers to facilitate improved fund raising, without compromising on the level of investor sophistication. The reduction of investment thresholds would also facilitate investments by regulated entities having a strict exposure limit, such as insurance companies.

Exemptions from requiring specific waivers for certain provisions 

The extant regulations permitted that the responsibilities of the Investment Committee may be waived by the investors (other than the Manager, Sponsor, and employees/ directors of Manager and AIF), if they have a commitment of at least Rs. 70 crores (USD 10 billion or other equivalent currency), by providing an undertaking to such effect, in the format as provided under Annexure 11 of the AIF Master Circular, including a confirmation that they have the independent ability and mechanism to carry out due diligence of the investments.

The requirement of specific waiver has been omitted for LVFs considering that AIs are already required to provide an undertaking for the purpose of availing benefits of ‘accreditation’. The undertaking, as per the format given in Annexure 8 of the AIF Master Circular states the following:

(i) The prospective investor ‘consents’ to avail benefits under the AI framework.

(ii) The prospective investor has the necessary knowledge and means to understand the features of the investment Product/service eligible for AIs, including the risks associated with the investment.

(iii) The prospective investor is aware that investments by AIs may not be subject to the same regulatory oversight as applicable to investment by other investors.

(iv) The prospective investor has the ability to bear the financial risks associated with the investment.

Similarly, LVFs have been exempt from following the standard PPM template without the requirement of obtaining specific waiver from investors.

Migration of existing eligible AIFs

One of the proposals of the LVF CP is to permit eligible AIFs, not formed as an LVF, to convert themselves into an LVF and avail the benefits available to LVF schemes. The conversion shall be subject to obtaining positive consent from all the investors. Following the same, the modalities for such migration has been specified by SEBI vide circular dated 8th December, 2025. 

Pursuant to such migration, the AIF manager shall ensure that:

  • Name of the converted scheme contains ‘AI only fund’ or ‘LVF’ as the case may be
  • Such conversion and change in name to be reported to SEBI within 15 days through dedicated email ID
  • Such change in name to be reported to depositories within 15 days of conversion

Limit on maximum number of investors

Reg 10(f) puts a cap on the maximum number of investors in a scheme. Pursuant to the Amendment Regulations, the cap of 1000 investors shall not include the AIs.

In practice, the number of investors in an AIF is much lower than 1000, and hence, the amendment may not have much of a practical relevance. 

Conclusion

The amendments are a step towards providing a lighter regulatory regime for AIFs, meant for sophisticated investors, capable of making well-informed decisions. The move is expected to witness more schemes focussed on AIs only, and thus, bring an AIs only regime for AIFs. In order to differentiate an AIs only scheme or an LVF from other AIF schemes, it is mandatory for the newly launched schemes henceforth to have the words ‘AI only fund’ or ‘LVF’ as the case maybe.

Our resources on the topic-

  1. Understanding the Governance & Compliance Framework for AIFs
  2. Round-Tripping Reined: RBI Rolls Out Relaxed Rules for Investments in AIF
  3. Regulatory landscape for AIFs: what’s new?
  4. FAQs on Specific Due Diligence of investors & investments of AIFs
  5. Angel Funds 2.0: Navigating the New Regulatory Landscape.