SEBI Launches Settlement Scheme for Expired VCFs

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.

TET