Description

SEBI issues settlement order for VCF settlement applications under the Venture Capital Funds Settlement Scheme 2025, addressing non-compliant VCF schemes whose liquidation periods had expired.

Summary

SEBI has issued a Settlement Order under the Venture Capital Funds Settlement Scheme 2025 (reference PSD/SD/SettScheme/1/2025-26), addressing settlement applications filed by Venture Capital Funds (VCFs) registered under the erstwhile VCF Regulations 1996. The order relates to VCF schemes that had expired liquidation periods but continued to hold unliquidated investments, rendering them non-compliant with the VCF Regulations.

Key Points

  • SEBI notified AIF Regulations in May 2012, repealing the VCF Regulations 1996; however, existing VCFs were allowed to continue under the old framework until wind-up
  • VCF schemes with expired liquidation periods holding unliquidated investments were found non-compliant with Regulation 23(1) read with Regulation 17(1) of the erstwhile VCF Regulations
  • The AIF (Third Amendment) Regulations 2024 introduced Chapter III-D, enabling VCFs to migrate to AIF framework and avail additional liquidation periods under Regulation 19AF(4)
  • SEBI’s circular dated August 19, 2024 provided migration modalities with a deadline of July 19, 2025 for VCFs to opt into AIF Regulations
  • VCFs not opting for migration are subject to enhanced regulatory reporting aligned with AIF reporting requirements

Regulatory Changes

  • Introduction of Chapter III-D in AIF Regulations via the Third Amendment Regulations 2024
  • Regulation 19AF(4) permits migrated VCFs to obtain additional liquidation periods for unliquidated assets, subject to SEBI-specified conditions
  • Migration registration and additional liquidation periods granted are without prejudice to SEBI’s authority to issue directions under the Act
  • VCFs with at least one scheme whose liquidation period has expired are subject to enhanced regulatory oversight if they do not migrate

Compliance Requirements

  • VCFs with unliquidated investments post-tenure expiry must either: (a) migrate to AIF Regulations by July 19, 2025, or (b) comply with enhanced regulatory reporting requirements
  • Migrated VCFs must apply for additional liquidation periods in the manner specified by SEBI
  • Non-migrating VCFs with schemes whose liquidation period has not expired must comply with enhanced regulatory reporting as prescribed by SEBI
  • Settlement applicants under the VCF Settlement Scheme 2025 must fulfill conditions set out in the settlement order

Important Dates

  • May 2012: AIF Regulations notified, VCF Regulations 1996 repealed
  • 2024: AIF (Third Amendment) Regulations 2024 introduced migration framework
  • August 19, 2024: SEBI circular on VCF migration modalities issued
  • July 19, 2025: Deadline for VCFs to opt for migration to AIF Regulations
  • 2025-26: Settlement Scheme operative period (PSD/SD/SettScheme/1/2025-26)

Impact Assessment

This settlement order primarily impacts legacy VCF managers and their investors who are holding unliquidated investments beyond the fund tenure. The settlement scheme provides a structured resolution pathway for non-compliant VCFs, avoiding prolonged regulatory action. For the broader market, the impact is limited, as this concerns a specific category of older investment vehicles. VCF managers must evaluate migration versus enhanced reporting obligations and take timely action to regularize compliance status. Investors in affected VCFs should monitor fund manager communications regarding migration decisions and timelines for liquidation of residual assets.

Impact Justification

Relevant to VCF managers and investors in legacy Venture Capital Funds registered under 1996 regulations who have unliquidated investments post-tenure expiry; limited broader market impact.