Twenty-nine venture capital funds (VCFs) have settled potential enforcement proceedings with market regulator Securities and Exchange Board of India (SEBI) by availing the regulator’s venture capital fund (VCF) settlement scheme, 2025, introduced to address regulatory non-compliance related to the liquidation of fund schemes.
SEBI had introduced the SEBI Alternative Investment Funds Regulations, 2012 in May 2012. With the implementation of these regulations, the earlier SEBI Venture Capital Funds Regulations, 1996 were repealed. However, venture capital funds that had already been registered under the previous framework were permitted to continue operating under the VCF Regulations until their existing funds or schemes were fully wound up.
Over time, SEBI observed that several VCF schemes had crossed their prescribed tenure but continued to hold unliquidated investments. As a result, such schemes were found to be non-compliant with provisions of the erstwhile VCF Regulations that required funds to liquidate their investments within a specified timeframe.
To address these issues, SEBI amended the AIF Regulations through the SEBI Alternative Investment Funds (Third Amendment) Regulations, 2024. The amendment introduced flexibility for existing VCFs to migrate to the AIF regulatory framework and provided mechanisms to deal with unliquidated investments even after the expiry of a scheme’s tenure.
The amendment also inserted Chapter III-D in the AIF Regulations. Under these provisions, VCF schemes that continued to hold assets after the expiry of their tenure could be granted an additional liquidation period if the fund migrated and obtained registration as a 'migrated venture capital fund' under the AIF framework. SEBI clarified that such migration and extension would be without prejudice to any enforcement actions that the regulator may initiate.
Subsequently, SEBI issued a circular on 19 August 2024 outlining the modalities for the migration of VCFs registered under the VCF Regulations to the AIF framework. The circular allowed VCFs to opt for migration by 19 July 2025. It also specified that schemes whose liquidation period had not expired would be subject to enhanced regulatory reporting requirements similar to those applicable to AIFs. Meanwhile, VCFs with schemes that had already crossed their liquidation period could face regulatory action for continuing operations beyond the permitted timeline.
Separately, SEBI introduced the VCF Settlement Scheme, 2025 under the SEBI Settlement Proceedings Regulations, 2018, offering an opportunity for migrating VCFs to settle enforcement proceedings arising from such non-compliance. Under the scheme, eligible VCFs could submit the required details and pay the prescribed settlement amount and application fee through SEBI’s online platform.
A public notice issued on 15 July 2025 informed VCFs about the scheme and invited them to avail of the settlement opportunity.
According to SEBI, 29 venture capital funds opted for the scheme and paid the specified settlement amounts. Consequently, the regulator has settled the proceedings that could have been initiated against these applicants for the prima facie violations related to the continuation of schemes beyond their prescribed liquidation period.
However, SEBI clarified that the settlement under the scheme does not prevent it from initiating appropriate action in the future if it finds that any representation made during the settlement process was untrue or if the applicant VCFs breach any undertakings or conditions submitted as part of the settlement proceedings.
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