Key Takeaways
- • SEBI settled enforcement proceedings with 29 venture capital funds on March 9, 2026, under the newly introduced Venture Capital Fund Settlement Scheme, 2025, resolving violations related to delayed investment liquidation beyond prescribed fund tenure periods.
- • The 29 funds collectively paid approximately ₹2 crore (₹20 million) in settlement charges, with individual payments ranging from ₹2 lakh to ₹9 lakh based on violation severity, providing a cost-efficient exit from enforcement action.
- • Major fund sponsors including Gaja Capital, SBI Macquarie, ASK Real Estate, SIDBI SME Venture Capital, Kotak India Venture, and LIC Housing Finance Limited were among those that opted for settlement rather than continued litigation.
- • Non-compliance stemmed from legacy venture capital funds operating under the Venture Capital Funds Regulations, 1996 that continued holding investments beyond their permitted liquidation windows, with many issues surfacing after SEBI's 2012 regulatory transition to Alternative Investment Funds (AIF) Regulations, 2012.
- • The settlement scheme provides a structured resolution mechanism for historically troubled venture capital funds, reducing regulatory uncertainty for legacy fund managers while establishing compliance closure through negotiated settlement rather than punitive enforcement orders.
Summary
The Securities and Exchange Board of India (SEBI) concluded enforcement proceedings against 29 venture capital funds on March 9, 2026, utilizing the Venture Capital Fund Settlement Scheme, 2025—a regulatory mechanism specifically designed to resolve compliance violations among legacy venture capital funds. The settlement represents a pragmatic regulatory approach to address systematic non-compliance issues that accumulated across the Indian venture capital ecosystem, particularly among funds that operated under outdated regulatory frameworks.
The core violation involved funds failing to liquidate their investments and wind up operations within mandated timeframes prescribed under their respective fund schemes. Under the original Venture Capital Funds Regulations, 1996, fund managers were required to liquidate holdings and conclude operations within defined periods. SEBI identified instances where funds continued to hold active investments beyond their permitted tenure windows, constituting direct breaches of applicable regulations. These compliance lapses were frequently compounded by the regulatory transition introduced in 2012, when SEBI replaced the 1996 venture capital framework with the more comprehensive Alternative Investment Funds (AIF) Regulations, 2012, creating ambiguity for funds operating under transitional provisions.
Rather than pursue formal enforcement orders and potentially lengthy litigation, all 29 funds elected to settle their cases through the 2025 settlement scheme. The settlement structure required collective payment of approximately ₹2 crore in settlement charges, with individual fund contributions ranging from ₹2 lakh to ₹9 lakh depending on the extent and duration of each fund's specific violations. This tiered approach reflected SEBI's calibrated enforcement philosophy, differentiating settlement costs based on violation severity rather than imposing uniform penalties.
Fund sponsors opting for settlement included prominent names in Indian alternative investment management: Gaja Capital, SBI Macquarie, ASK Real Estate, SIDBI SME Venture Capital, Kotak India Venture, and LIC Housing Finance Limited. The participation of established institutional sponsors alongside smaller fund managers indicated broad appeal of the settlement mechanism as a means to achieve regulatory closure without protracted enforcement proceedings.
The settlement scheme exemplifies SEBI's regulatory flexibility in addressing legacy compliance issues within the venture capital sector, enabling fund managers to resolve historical violations through negotiated settlement rather than adversarial enforcement. By providing a defined exit pathway, the scheme reduces regulatory overhang for affected funds while maintaining compliance accountability through monetary settlement contributions.
The core violation involved funds failing to liquidate their investments and wind up operations within mandated timeframes prescribed under their respective fund schemes. Under the original Venture Capital Funds Regulations, 1996, fund managers were required to liquidate holdings and conclude operations within defined periods. SEBI identified instances where funds continued to hold active investments beyond their permitted tenure windows, constituting direct breaches of applicable regulations. These compliance lapses were frequently compounded by the regulatory transition introduced in 2012, when SEBI replaced the 1996 venture capital framework with the more comprehensive Alternative Investment Funds (AIF) Regulations, 2012, creating ambiguity for funds operating under transitional provisions.
Rather than pursue formal enforcement orders and potentially lengthy litigation, all 29 funds elected to settle their cases through the 2025 settlement scheme. The settlement structure required collective payment of approximately ₹2 crore in settlement charges, with individual fund contributions ranging from ₹2 lakh to ₹9 lakh depending on the extent and duration of each fund's specific violations. This tiered approach reflected SEBI's calibrated enforcement philosophy, differentiating settlement costs based on violation severity rather than imposing uniform penalties.
Fund sponsors opting for settlement included prominent names in Indian alternative investment management: Gaja Capital, SBI Macquarie, ASK Real Estate, SIDBI SME Venture Capital, Kotak India Venture, and LIC Housing Finance Limited. The participation of established institutional sponsors alongside smaller fund managers indicated broad appeal of the settlement mechanism as a means to achieve regulatory closure without protracted enforcement proceedings.
The settlement scheme exemplifies SEBI's regulatory flexibility in addressing legacy compliance issues within the venture capital sector, enabling fund managers to resolve historical violations through negotiated settlement rather than adversarial enforcement. By providing a defined exit pathway, the scheme reduces regulatory overhang for affected funds while maintaining compliance accountability through monetary settlement contributions.
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