SEBI Suggests Uniform Consent Rules, Tighter Conflict Checks For AIFs

The Securities and Exchange Board of India (SEBI) has proposed an overhaul of how alternative investment funds (AIFs) obtain investor consent and handle conflict-of-interest transactions, publishing a consultation paper on Tuesday that seeks to replace a fragmented approval framework with a single standardised threshold.

Every decision requiring investor consent would need approval from 75% of investors by value, replacing the current system where different thresholds of two-thirds and 75% apply to different activities depending on what is being decided. The inconsistency has created operational friction and interpretational uncertainty across the industry.

Three Voting Methods On Offer

Alternative investment funds would be allowed to pick one of three standardised voting approaches, provided the choice is clearly disclosed in the placement memorandum and applied consistently across all investors in a scheme:

• Deemed consent.

• Present and voting.

• Express voting.

Every investor must be given an opportunity to vote on proposals requiring consent. Fund managers would be required to disclose the rationale behind each proposal, the applicable regulatory provisions, the approval threshold being used and how non-responses will be treated under the chosen methodology.

Records of all communications, notices, reminders and voting outcomes must be maintained, and investor queries must be addressed within a reasonable timeframe. Existing schemes will be grandfathered under their current consent methodologies, with the new framework applying only to new schemes going forward.

Widening The Conflict Net

The second major proposal replaces the existing concept of an associate with a broader related party definition drawn from the Companies Act 2013, modified for the Alternative Investment Fund context.

SEBI said the current associate definition is too narrow and allows certain inherently conflicted transactions to slip through without triggering an investor approval requirement. Transactions that could currently escape scrutiny include:

• Investment in a company whose director also sits on the board of the alternative investment fund manager.

• Investment in a company where a controlling stake is held by an immediate relative of the alternative investment fund manager.

• Investment in a company whose major shareholder also holds a majority stake in the alternative investment fund.

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Under the proposed rules, a fund can carry out a transaction with a related party of its manager or sponsor only if 75% of investors approve it. Angel funds and special situation funds, however, would not be allowed to invest in related parties of their managers or sponsors.

SEBI has also proposed stricter disclosure norms. Funds would have to report any fees paid to related parties. Their offer documents would also need to clearly mention investments involving such entities.

Public comments are invited until 21 July 2026.