AIFs hold nearly ₹180 crore despite exit plans due to pending issues

Sebi move to ease compliance burden for funds nearing closure

Several alternative investment funds (AIFs) that applied to surrender their registrations with the Securities and Exchange Board of India are continuing to hold nearly ₹180 crore in liquidation proceeds beyond the permissible period, citing pending litigation, tax demands, and residual operational liabilities.

 

In its March board meeting, Sebi approved amendments to AIF regulations to address such situations, allowing schemes to retain liquidation proceeds even after their tenure expires under specified conditions.

 

The regulator also plans to introduce a framework to classify such entities as “inoperative funds”, with lighter compliance requirements until their registration certificates are formally surrendered.

 

According to Sebi board meeting agenda papers, ₹112 crore across five cases is being retained due to ongoing litigation or tax demands, while ₹21 crore in one case is held in anticipation of such liabilities. Additionally, ₹45.4 crore across eight cases has been retained to meet residual operational expenses.

 

These retained amounts have prevented the funds from meeting the requirement of maintaining a nil bank balance— a prerequisite for surrendering registration — despite having completed their tenure and liquidated investments. Consequently, under existing norms, their surrender applications were returned.

 

AIFs are specialised investment vehicles catering to sophisticated investors, typically involving higher ticket sizes.

 

To address the issue, Sebi has now permitted AIFs to retain proceeds beyond the fund life, subject to conditions such as receipt of a litigation notice or tax demand, approval from at least 75 per cent of investors by value, or adequate justification for operational expense retention.

 

The industry has welcomed the move, noting that it will help ease compliance burdens for funds nearing closure. 

Easing compliance

• Sebi approved amendments to AIF regulations allowing certain schemes to retain proceeds under specific conditions
• Schemes may be classified as ‘inoperative funds’ with lighter compliance until registration is formally surrendered
• Schemes faced challenge in surrendering registration due to pending litigation and tax demands