SEBI Consultation Paper on changes in the regulatory framework for Special Situation Funds, a sub-category of Category I Alternative Investment Funds, necessary to facilitate Special Situation Funds to acquire stressed loans in terms of Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021

SEBI has issued a Consultation Paper on changes in the regulatory framework for Special Situation Funds, a sub-category of Category I Alternative Investment Funds, necessary to facilitate Special Situation Funds to acquire stressed loans in terms of Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 to amend SEBI (Alternative Investment Funds) Regulations, 2012(‘AIF Regulations’), to make changes in the regulatory framework for Special Situation Funds (‘SSFs’)necessary to facilitate SSFs to acquire stressed loans in terms of Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (‘RBI Master Directions’).

Proposals

1. AIF Regulations may be suitably amended to specify that ‘special situation asset’, inter alia, includes securities of investee companies, whose stressed loans are acquired in terms of Clause 58 of RBI Master Directions. SSFs having prior investment in securities of stressed companies shall not be disqualified/ barred from acquiring stressed loans of the said companies.
2. AIF Regulations may be suitably amended to specify that SSFs shall not invest in or acquire a special situation asset if any of its investors is disqualified in terms of Section 29A of IBC in relation to such special situation asset.
3. Regulation 19M(1) of AIF Regulations may be suitably amended to specifythatspecial situation funds shall not invest in its ‘related parties’, wherein related party shall have same meaning as given in Companies Act, 2013.
4. AIF Regulations may be suitably amended to specifythat SSFs shall transfer / sell stressed loans, acquired in terms of Clause 58 of RBI Master Directions, only to the entities enlisted in the Annex of RBI Master Directions.
5. AIF Regulations may be suitably amended to specifythat SSFswho have acquired stressed loans in terms of Clause 58 of RBI Master Directionsshall be subject to a dedicated supervisory framework as may be specified by SEBI, in consultation with RBI, from time to time.

Comments may be sent to the following, latest by December 27, 2023, in any of the following manner:

1. Preferably by email to afdconsultation@sebi.gov.in, with a copy to Shri Sachin Kisan Jadhav, Manager (sachinj@sebi.gov.in)
2. By post to: Shri Sanjay Singh Bhati, Deputy General Manager,Alternative Investment Fund and Foreign Portfolio Investors Department, Securities and Exchange Board of India, SEBI Bhavan, C4-A, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai -400051