Securities and Exchange Board of India (“SEBI”), vide its circular dated July 20, 2024, had amended the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”), to provide flexibility to Venture Capital Funds (“VCFs”) registered under the erstwhile SEBI (VCF) Regulations, 1996 (“VCF Regulations”), for migrating to the AIF Regulations and to, inter alia, avail the facility of dealing with unliquidated investments of their schemes upon expiry of tenure. This was covered in our previous edition of Legalaxy.

SEBI, vide its circular dated August 19, 2024, has notified the modalities for migration of VCFs. The key points include:

• While applying to SEBI for migration to the AIF Regulations, the migrated VCF shall submit requisite information to SEBI in the format as specified in Annexure I to the circular, along with original certificate of registration issued under the VCF Regulations.
• VCFs having only schemes whose liquidation period has not expired shall have the facility to migrate till July 19, 2025. The tenure of scheme(s) of the migrated VCF, upon migration, shall be (i) in case a definite tenure was disclosed in the Private Placement Memorandum (“PPM”) of the scheme(s) under the VCF Regulations, such scheme(s) shall continue with the same tenure upon migration; (ii) in case a definite tenure was not disclosed in the PPM of the scheme(s), the residual tenure of the scheme(s) of the migrated VCF shall be determined prior to the application for migration, with the approval of 75% of investors by value of their investment in the scheme(s).
• VCFs having at least 1 scheme which has not been wound up post expiry of its liquidation period (as per Regulation 24(2) of the VCF Regulations) may apply for registration as migrated VCF on or before July 19, 2025, only if the VCF or any of its scheme(s) do not have any pending investor complaint with regard to non-receipt of funds/securities as on the date of the application. Further, a one-time additional liquidation period of 1 year, till July 19, 2025, shall be available to scheme of the migrated VCF, whose liquidation period has expired and is not wound up.
• Upon migration to the AIF Regulations, the investors on-boarded, investments held and units issued by the VCF or scheme(s) of the VCF registered under the VCF Regulations, shall be deemed to be that of the migrated VCF or its scheme(s), under the AIF Regulations.
• The flexibility to opt for migration shall not be available to VCFs wherein all the schemes of the VCF have been wound up and/or no investment has been made by schemes of the VCF which have not been wound up. Such VCFs shall submit an application to SEBI for surrender of their registration on or before March 31, 2025, failing which appropriate action shall be initiated to cancel the certification of registration.

Further, with respect to VCFs registered under the VCF Regulations that do not opt for migration to the AIF Regulations: (a) scheme(s) of VCFs, whose liquidation period has not expired, shall be subject to enhanced regulatory reporting as may be prescribed by SEBI in line with the regulatory reporting applicable to alternative investment funds under the AIF Regulations; (b) VCFs having at least 1 scheme whose liquidation period has expired shall be subject to appropriate regulatory action for continuing beyond the expiry of their original liquidation period.

It shall be ensured that the compliance test report prepared by the manager includes compliance with the provisions of the aforesaid circular.

To read the circular click here

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