₹7.87 Lakh Paid to Sebi in AIF Rule Violation Settlement

Alternative Investment Funds (AIFs) are funds that invest in alternative assets such as private equity, venture capital, hedge funds, real estate, infrastructure, etc. AIFs are regulated by the Securities and Exchange Board of India (Sebi) under the Sebi (Alternative Investment Funds) Regulations, 2012. One of the key regulations for AIFs is the concentration limit, which restricts the amount of investable funds that an AIF can invest in a single investee company.

Case Details
In a recent case, five entities settled a case with Sebi pertaining to breach of investment limit by Kotak Optimus Moderate Scheme that led to flouting of AIF rules. The five entities are Kotak Alternate Assets Fund III, Kotak Alternate Asset Managers Ltd, Shobhit Mathur, Parag Sukhija and Gaurav Aggarwal. The case was related to the investment made by Kotak Optimus Moderate Scheme, a scheme of Kotak Alternate Assets Fund III (AIF), in Indian Railway Financial Corporation Ltd (IRFC). According to the settlement order passed by Sebi on January 30, 2024, the AIF was in breach of the concentration limit of 10 per cent of investable funds in IRFC from May 13, 2022 to July 11, 2022. The breach was in non-compliance with the AIF regulations.

Settlement Process
The settlement process is a mechanism that allows entities to settle cases with Sebi without admitting or denying the charges. The entities have to pay a settlement fee and agree to certain undertakings as per the terms and conditions decided by Sebi. The settlement process is beneficial for both Sebi and the entities as it saves time and resources involved in litigation. In this case, the five entities proposed to settle the enforcement proceedings that may have been initiated against them for violation of AIF regulations. They paid Rs 7.87 lakh jointly in November 2023 to settle the matter. Consequently, Sebi ordered that the specified proceedings in respect of which the notice was issued are hereby settled in respect of the applicants.

Conclusion
The case highlights the importance of complying with the AIF regulations, especially the concentration limit, which is aimed at ensuring diversification and risk management for AIFs. The case also shows how the settlement process can be used as an effective tool to resolve disputes between Sebi and the entities involved in capital markets.