PE, VC firms must have dispute settlement mechanism, says SEBI

Alternate Investment Funds (AIFs) need to put in place a mechanism for resolution of disputes through arbitration or any other framework mutually agreed between them and investors, Sebi said today.

Besides, the watchdog has a web-based centralised grievance redressal system 'SCORES' where investors can lodge their complaints against AIFs.

"For dispute resolution, the AIF by itself or through the manager or sponsor, is required to lay down procedure for resolution of disputes between the investors, AIF, manager or sponsor through arbitration or any such mechanism as mutually decided between the investors and the AIF," Sebi said.

Releasing a set of frequently asked questions (FAQs), the regulator said the FAQ is prepared with a view to guide market participants on AIF regulations.

AIFs are funds established or incorporated in India for the purpose of pooling in capital from Indian and foreign investors for investing as per a pre-decided policy. Under Sebi guidelines, AIFs can operate broadly in three categories.

Category-I AIFs are those funds that get incentives from the government, Sebi or other regulators and include social venture funds, infrastructure funds, venture capital funds and SME funds.

Category-III AIFs are those trading with a view to making short-term returns and includes hedge funds among others.

Category-II AIFs can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements 

The Securities and Exchange Board of India (Sebi) rules apply to all AIFs, including those operating as private equity funds, real estate funds and hedge funds among others.

Like this report? Sign up for our daily newsletter to get our top reports.

Leave Your Comment(s)