SEBI has released a draft circular proposing operational clarifications for implementing the pro-rata rights framework under Regulation 20(21) of the SEBI (AIF) Regulations, 2012 (as amended on November 18, 2024), further detailed in the circular dated December 13, 2024. The draft addresses industry feedback on how pro-rata rights should apply to capital drawdowns and distributions. 𝐊𝐞𝐲 𝐂𝐥𝐚𝐫𝐢𝐟𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬 𝐏𝐫𝐨𝐩𝐨𝐬𝐞𝐝:
1. 𝐃𝐫𝐚𝐰𝐝𝐨𝐰𝐧 𝐁𝐚𝐬𝐢𝐬: Pro-rata capital calls may be made based on total commitment or undrawn commitment (net of drawn amounts). The chosen basis must be disclosed upfront in the PPM and cannot be changed once the scheme is launched.
2. 𝐔𝐧𝐮𝐭𝐢𝐥𝐢𝐬𝐞𝐝 𝐂𝐨𝐦𝐦𝐢𝐭𝐦𝐞𝐧𝐭 𝐢𝐧 𝐄𝐱𝐜𝐮𝐬𝐞/𝐄𝐱𝐜𝐥𝐮𝐬𝐢𝐨𝐧 𝐂𝐚𝐬𝐞𝐬: If drawdowns are based on total commitment and an investor is excused from an investment, the unutilised portion cannot be used for later drawdowns. This must be disclosed to investors.
3. 𝐓𝐫𝐞𝐚𝐭𝐦𝐞𝐧𝐭 𝐨𝐟 𝐄𝐱𝐢𝐬𝐭𝐢𝐧𝐠 𝐒𝐜𝐡𝐞𝐦𝐞𝐬: Schemes already using one of the permitted drawdown methods may continue. Schemes using any other method must align prospectively. Such alignment will not be treated as a material change and investors may choose whether to continue contributing.
4. 𝐎𝐩𝐞𝐧-𝐄𝐧𝐝𝐞𝐝 𝐂𝐚𝐭𝐞𝐠𝐨𝐫𝐲 𝐈𝐈𝐈 𝐀𝐈𝐅𝐬: Units will continue to be issued and redeemed at NAV and distributions made pro-rata to units held. However, if the scheme primarily invests in unlisted securities, the pro-rata drawdown framework also applies.
5. 𝐄𝐱𝐢𝐬𝐭𝐢𝐧𝐠 𝐏𝐫𝐢𝐨𝐫𝐢𝐭𝐲 𝐃𝐢𝐬𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐒𝐭𝐫𝐮𝐜𝐭𝐮𝐫𝐞𝐬: For investments made on or before December 13, 2024, distribution may continue as per the waterfall disclosed in the PPM and other fund documents.
6. 𝐂𝐚𝐫𝐫𝐢𝐞𝐝 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭: Sharing of returns or additional profit (carried interest) with the manager or sponsor is excluded from the pro-rata requirement to that extent, based on the contribution agreement.
7. 𝐂𝐨𝐦𝐦𝐢𝐭𝐦𝐞𝐧𝐭 𝐭𝐨 𝐛𝐞 𝐑𝐞𝐜𝐨𝐫𝐝𝐞𝐝 𝐢𝐧 𝐈𝐍𝐑: Investor commitments must be recorded in INR for determining corpus and calculating pro-rata rights.
This draft moves the framework from principle to practical application, affecting fund drawdown models, investor communication and distribution mechanics. It enhances clarity for both managers and investors on how rights align with committed capital. Public comments are open until November 28, 2025.
A copy of the Consultation Paper is attached.
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