NextFin News - The Securities and Exchange Board of India (SEBI) has formally closed enforcement proceedings against 29 venture capital funds, including prominent names like LICHFL Fund and SBI Macquarie Infrastructure Trust, after they collectively paid nearly ₹2 crore to settle allegations of securities law violations. The settlement, finalized on March 9, 2026, marks the culmination of a specialized regulatory window designed to clean up a legacy of "zombie" funds that had lingered beyond their legal lifespans under outdated 1996 regulations.
The regulator’s order reveals a systemic failure among older venture capital vehicles to wind up operations and liquidate assets once their investment tenures expired. By utilizing the VCF Settlement Scheme 2025, these 29 entities—which also include Tata Capital Special Situations Fund and True North Fund IV—opted to pay individual settlement charges ranging from ₹2 lakh to ₹9.5 lakh. This administrative amnesty allows the funds to avoid more severe punitive actions while finally shuttering schemes that had remained in a state of regulatory limbo for years.
This mass settlement is not merely a routine compliance exercise; it is a deliberate attempt by SEBI to purge the Indian private equity ecosystem of structural inefficiencies. Many of these funds were registered under the Venture Capital Funds Regulations of 1996, a framework that was largely superseded by the more robust Alternative Investment Funds (AIF) Regulations in 2012. However, a significant number of "migrated" funds failed to transition or exit properly, creating a backlog of non-compliant entities that complicated the regulator's oversight of the broader private markets.
The financial penalties, while relatively modest for funds of this scale, serve as a symbolic reprimand for the industry's historical laxity regarding liquidation timelines. For years, venture capital managers in India often struggled with "tail-end" assets—illiquid investments in struggling startups or infrastructure projects that proved impossible to sell. Rather than formally winding up, many funds simply stopped reporting or extended their lives indefinitely without proper regulatory approval. SEBI’s decision to offer a settlement scheme suggests a pragmatic realization that litigation against dozens of defunct or dormant funds would be less efficient than a structured exit.
The list of settling parties reads like a directory of India’s institutional investment history, featuring state-backed players like Canbank Venture Capital and regional development vehicles such as the Karnataka Information Technology Venture Capital Fund. Their inclusion highlights that compliance failures were not limited to small, independent shops but were prevalent across the institutional spectrum. By clearing these cases, SEBI is signaling that the era of regulatory "grandfathering" is coming to an end, and that even legacy funds must adhere to modern standards of transparency and terminal accountability.
Investors in these funds are the silent beneficiaries of this cleanup. Delayed liquidation often traps capital in unproductive vehicles, preventing the recycling of gains back into the economy. While the settlement resolves the legal dispute with the regulator, it also forces these managers to finalize the distribution of any remaining proceeds to their limited partners. The move aligns with SEBI’s broader push to professionalize the AIF industry, which has seen explosive growth in recent years and now demands a more rigorous approach to fund lifecycles.
The resolution of these 29 cases effectively closes a chapter on the 1996 regulatory era. As the Indian venture capital landscape matures, the focus is shifting from merely attracting capital to ensuring the orderly exit of that capital. SEBI’s Whole Time Members Kamlesh Chandra Varshney and Amarjeet Singh noted in the order that no further action would be initiated against these applicants, provided they adhere to the settlement terms. This "clean slate" approach is likely to be the final opportunity for legacy managers to exit the shadows before the regulator pivots toward more aggressive enforcement of the current AIF regime.
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