Context:
The Securities and Exchange Board of India (SEBI) has introduced a settlement scheme, effective July 21, 2025, to address violations by migrated Venture Capital Funds (VCFs) related to delayed or non-compliant winding-up of expired schemes. The scheme will remain open until January 19, 2026.
Key Features of the SEBI Settlement Scheme
Purpose:
- The scheme offers an opportunity for migrated VCFs to settle regulatory proceedings arising from:
- Failure to wind up schemes despite expiry of their liquidation period.
- Continued holding of unliquidated investments.
- Applies specifically to VCFs that have completed migration to the Alternative Investment Fund (AIF) regime but retain legacy compliance issues.
Eligibility:
- Available to venture capital funds that:
- Were registered under the SEBI (Venture Capital Funds) Regulations, 1996, and
- Have since migrated to the SEBI (Alternative Investment Funds) Regulations, 2012.
Regulatory Background:
- SEBI mandates that schemes of VCFs must be wound up within the prescribed tenure and liquidation timelines.
- Non-compliance has led to enforcement actions, as some VCFs continue to retain assets beyond the permissible period without proper closure.
Implications for Fund Managers and Investors
- The scheme provides a regulatory exit route for funds in breach of winding-up norms without undergoing protracted litigation or penalties.
- Encourages transparency and regulatory compliance in the legacy private fund ecosystem.
- Could improve investor confidence in post-migration fund governance and pave the way for better alignment under the AIF framework.
SEBI’s Broader Strategy
- This scheme is part of SEBI’s recent moves to:
- Strengthen closure and liquidation discipline in the alternative investment space.
- Resolve long-pending cases arising from regulatory transitions.
- Promote ease of doing business and clarity in fund administration.
