SEBI IMPOSED FINE FOR NON-COMPLIANCES BY SREI ALTERNATIVE INVESTMENT FUND UNDER SEBI AIF REGULATIONS.

SEBI IMPOSED FINE FOR NON-COMPLIANCES BY SREI ALTERNATIVE INVESTMENT FUND UNDER SEBI AIF REGULATIONS.

In the case of

SREI Multiple Asset Investment Trust

SREI Alternative Investment Managers Limited

SEBI examined various compliance requirements including the Know Your Client (KYC), due diligence norms etc. followed by the SREI Multiple Asset Investment Trust- an Alternative Investment Fund.

It found the following violations by SREI AIF.

SEBI AIF Regulation 2 (1) (b)	―Alternative  Investment  Fund‖  means  any  fund  established  or  incorporated  in India  in  the  form  of  a  trust  or  a  company  or  a  limited  liability  partnership  or  a body corporate
SEBI AIF Regulation 7 (1) (a)	the Alternative Investment Fund shall abide by the provisions of the Act and these regulations
SEBI AIF Regulation 7 (1) (b)	the  Alternative  Investment  Fund  shall  not  carry  on  any  other  activity  other  than  permitted activities
SEBI AIF Regulation 10 (d)	The  Manager  or  Sponsor  shall  have  a  continuing  interest  in  the  Alternative  Investment Fund of not less than two and half percent of the corpus or five crore rupees, whichever is lower, in the form of investment in the Alternative  Investment Fund and such interest shall not be through the waiver of management fees: Provided  that for Category III Alternative Investment Fund, the continuing interest shall be not less than five percent of the corpus or ten crore rupees, whichever is lower.
SEBI AIF Regulation 15 (1) (c)	Category  I  and  II  Alternative  Investment  Funds  shall  invest  not  more  than  twenty five percent of the [investable funds] in one Investee Company;

Allegation against SREI AIF

It was alleged that the Noticees had used the amount contributed by the investors for the purpose of giving loans to the various companies instead of investing the same as per definition of ‘Alternative investment Fund” prescribed under regulation 2(1) (b) of AIF Regulations and therefore allegedly violated regulation 2 (1) (b) which is produced as under;

2 (1) (b) “Alternative Investment Fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which,-

(i)                is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors;

Allegation of Non-Compliance of Investment Conditions

That an amount to the extent of ` 1,352 crores (Capital + profit) was received by IGOF on June 29, 2015 on account of repayment of loans from the borrowers; and out of the same, capital to the extent of ` 470 crores and profit of ` 35 crores was distributed to the investors and the balance amount was used to acquire loan assets from SREI Infrastructure Finance Ltd.

Allegation of regulation 15 (1) (c) of AIF Regulations

It was alleged that that the Noticees at two occasions had invested in Investee Company of more than 25% of the total investible funds collected from the investors in violation of regulation 15 (1) (c) of AIF Regulations.

Allegation of Non - Compliance of Investment Committee’s Decision and Failure in following Investment Strategy specified in Private Placement Memorandum.

Allegation of Failure in Keeping Continuing Interest by Sponsor / Manager

ISSUE

1)      Whether the Noticees had used the amount contributed by the investors for the purpose of giving loans to the various companies instead of investing the same as per definition of ‘Alternative investment Fund” prescribed under regulation 2(1) (b) of AIF Regulations?

2)      Whether the Noticees had invested in Investee Company more than 25% of the total investible funds collected from the investors in violation of regulation 15 (1) (c) of AIF Regulations?

3)      Whether the Noticees had not acted in accordance with the decisions of the IC and also not followed the investment strategy as specified in the PPM in respect of amount of portfolio investment? If yes, then whether the same is in violation of SEBI Circular No. CIR/IMD/DF/7/2/015 dated October 01, 2015?

4)      Whether the Noticee(s) / Sponsor or Manager had failed to maintain specified continuing interest as per regulation 10(d) of AIF Regulations?

5)      Whether the aforesaid violations/failure, if any, on the part of the Noticees, would attract monetary penalty under section 15 HB of the SEBI Act? AND If yes, then, what would be the monetary penalty that can be imposed upon the Noticees taking into consideration the factors stipulated in section 15J of the SEBI Act read with rule 5 (2) of the Adjudication Rules?

FINAL ORDER OF THE SEBI WITH PENALTY

Name of the Noticee	Amount of Penalty	Penalty Provisions and Violations
SREI Multiple Asset Investment Trust (Noticee No.1)	Rs 10,00,000/- (Rupees Ten Lakh only) The Noticees shall be liable to pay the penalty jointly and severally.	Under section 15 HB of the SEBI Act for violation of regulation 15 (1) (c) of AIF Regulations.
SREI Alternative Investment Managers Limited (Noticee No. 2)	Rs 10,00,000/- (Rupees Ten Lakh only) The Noticees shall be liable to pay the penalty jointly and severally.	Under section 15 HB of the SEBI Act for violation of regulation 10(d) of AIF Regulations.
	Rs 10,00,000/- (Rupees Ten Lakh only) The Noticees shall be liable to pay the penalty jointly and severally.	Under section 15 HB of the SEBI Act for violation of SEBI Circular No. CIR/IMD/DF/7/2/015 dated October 01, 2015.