Alternative Investment Funds (AIFs) — Examining the Application of PARI-PASSU and PRO-RATA Concepts

Alternative Investment Funds (AIFs) play a vital role in India’s economy. They provide risk capital in the form of equity/quasi-equity capital for pre-revenue stage companies, early and late-stage ventures, growth companies that wish to scale their operations, and even companies facing distress.

The size of AIFs has grown to a significant amount over the years. There are around 1,100 AIFs registered with SEBI with over 8.44 trillion INR in commitments (as of 30th June, 2023), witnessing an annual growth rate of over 30 per cent.

Considering the need of the economy for such funds, its growth and the huge amount committed, SEBI, aptly supported by its policy advisory committee, is continuously making sincere attempts to ensure transparency and good governance. Recently in May 2023 SEBI, in its consultation paper titled “Consultation paper on proposal with respect to pro-rata and pari-passu rights of investors in Alternative Investment Funds (AIFs)”, has empathetically asserted:

“Considering that fair treatment of investors is a core and inherent principle for a pooled investment vehicle, as also evident from global references given above it is essential to expressly provide that AIFs shall not provide any differential treatment to investors which affects economic rig