India: Advisory Board Or LPAC In The Indian AIF Context (June-July 2019 Edition, Part I)

The Securities and Exchange Board of India ("SEBI") regulates Alternative Investment Funds ("AIFs") in India under the SEBI (Alternative Investment Funds) Regulations, 2012 (the "AIF Regulations"). All categories of AIFs are permitted to raise from investors ("LPs") from around the globe.

The governing documents of such AIFs often include terms which may not be required as a matter of law under the AIF Regulations, but are considered global best practices from a good governance perspective.

In this edition of the digest, we discuss one of such terms, pertaining to the role of an Advisory Board or a Limited Partner Advisory Committee (as globally known, an "LPAC") in the context of AIFs in India. Given that there is no legal framework for a 'limited partnership' in India1, the concept of an LPAC often gets stipulated as 'Advisory Board' or 'Advisory Committee' in the AIF documents.


LPAC is conceptually different from both an investment committee, and any expert body (consisting of third parties) set up as a sounding board by the manager. Members of the investment committee owe fiduciary and other duties to the AIF and its investors, as they make critical investment and divestment decisions with respect to the AIF and retain the power to bind the manager with their decisions. If an expert body has been established with third parties, and such body also has the ability to bind the AIF (whether directly or through the manager) to its decisions, then such body should also be subject to fiduciary and other duties to the AIF and its investors. Due to such duties, the liability of members on such committees / bodies is generally unlimited.

On the other hand, the LPAC is set up on behalf of the AIF by its manager, consisting of natural persons as representatives of certain select eligible LPs in the AIF. The eligibility criteria for such LPs to qualify for representation on the LPAC is established by the AIF manager and is subject to its discretion.

Members of the LPAC (as representatives of investors of the AIF) are increasingly looking to limit their liabilities arising out of their membership on the LPAC. Exposing such members to fiduciary duties should lead to unlimited liability. It is therefore critical to maintain the distinction between the role, scope and powers of the LPAC versus other such bodies as described above.

Legal status / constitution of LPAC

Although the power to establish the LPAC for an AIF rests with the AIF manager in the AIF documents, the LPAC is constituted for the benefit of the AIF and should not be considered as a committee of the manager. In other words, if the AIF manager is a company, the LPAC should not be considered a sub-committee of the board of directors of such company (should not be subject to corresponding provisions under the Indian Companies Act, 2013). Similarly, if the AIF manager is a limited liability partnership ("LLP") under the Indian Limited Liability Partnership Act, 2008, the LPAC should not be considered a part of the management of the LLP and should not be subject to its regulatory purview.

The constitution of the LPAC is solely contractual, arising out of the AIF documents and should not become subject to any legal or statutory governance (other than in contractual capacity).

Membership of LPAC

Typically, it is the AIF manager who retains the power to determine which of the LPs would be eligible to get a seat on the LPAC. For this purpose, the manager may retain complete discretionary power, or could also provide certain objective eligibility criteria in the AIF documents for such determination. For example, it is common for the managers to determine eligibility of investors with reference to a minimum interest percentage in the AIF.

The total number of available LPAC seats are generally fixed (both for a minimum, and maximum number of members). Out of the eligible pool, the manager selects a few LPs to have an LPAC seat, and this is generally captured in their side letters. One perspective is for LPACs to also include representation from a small number of LPs who are not selected by the manager by virtue of the quantum of their interest in the AIF but may add value (including through benefit of experience) to the LPAC out of their business experience or otherwise2, instead of being comprised only of "bite-dogs" i.e. investors with large capital commitments.

Further, in some cases, a distinct class of investors (e.g., all entities within a corporate group, or all Indian financial institutions) may be permitted to collectively appoint a single member on the Advisory Board, with an inter-se arrangement.

Role and FunctIons of an LPAC


The key responsibility of LPACs in a fund, per global industry standards, is resolution of conflicts.

Several actual or potential conflict of interest may arise with respect to operations of an AIF (whether with reference to one or more of the manager, investor(s), portfolio companies or the AIF itself), including without limitation (a) AIF's investment in, divestment from or any other business transactions with the AIF manager, or any fund or other vehicle managed by the AIF manager; and (b) the AIF manager's (including any investment vehicle managed by the AIF manager) investment in, divestment from or any other business transactions with any portfolio company in which the AIF invests.

Interested members / conflicted members of the Advisory Board (with respect to a decision to be taken by the Advisory Board) should disclose their conflicts to other members and excuse themselves if so requested by the other members of the Advisory Board.


The LPAC is also consulted on matters pertaining to valuation methods and outcome.

In most VC/PE funds, valuations play an important role including for critical issues such as equalization premium determination, carried interest determination, distributions in specie, determination of carry clawback and affiliated transactions.3

Accordingly, while the LPAC does not actively engage in determining valuations, or valuation methods, it plays the role of reviewing appropriate application of governing valuation methods to the AIF's assets and seeks access to auditors, if so required.

Deflection from the Investment Strategy

An interpretation of the stated investment strategy by the AIF manager may require consultation with the Advisory Board. For example, if the stated investment strategy requires primary allocation towards infrastructure sector, the scope and meaning of "primary" or "infrastructure sector" may require discussion with the Advisory Board.

Further, any deviation from the stated investment strategy is also generally subject to discussions with the LPAC.

In addition to the above stated roles and functions, it is common to see AIF documents have certain other earmarked items for LPAC approval, which could be contextual / bespoke for such AIFs. Certain LPs may demand certain critical items to be undertaken by LP vote subject to the LPAC approval.

Liability of members of LPAC and investors represented by such members

While the role of members of the LPAC (as being limited to review) are designed to ensure such members, and LPs nominating such members are not subject to fiduciary duties, the members would nonetheless be required to act in good faith. Accordingly, the limitation on their liability is not available in cases of malafide acts such as acting fraudulently, in bad faith, in a grossly negligent manner, willfully defaulting etc.

Some AIF managers also seek insurance to cover the members of LPAC for liabilities arising out of their role on the LPAC with respect to the AIF.

Concluding remarks

As discussed above, LPAC members generally prefer not being subject to any fiduciary or similar duties towards fellow LPs or towards the AIF. LPACs may, for this purpose, also seek advice from an external counsel, if so required.4

Investors are increasingly looking to retain voting rights on matters which generally were subject to LPAC consideration (including matters such as replacement of key persons, extension of the commitment period etc.). Investors are beginning to demand that such matters should be referred to the larger LP base for its approval rather than merely to the LPAC. Such matters include LP voting matters (by value of their investment) which are governed by the AIF Regulations, and should not be diluted by way of shifting the voting rights to the LPAC (with one vote per member).


1  For additional reading on this, please see our April, 2019 monthly digest on 'Trusts as AIFs in India' (available at

2 BVCA's Limited Partner Committee and Investor Relations Advisory Group ""Limited Partner Advisory Committees BVCA Perspectives Series" Summer 2014.

3 Closed-End Private Equity Funds: A Detailed Overview of Fund Business Terms, Part I, authored by: Seth Chertok and Addison D. Braendel; Legal studies research paper, The Pennsylvania State University, The Dickinson School of Law.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions