SEBI Proposes Eased Rules for AIFs Stuck in Disputes
The Securities and Exchange Board of India (SEBI) has floated a proposal to ease regulatory hurdles for Alternative Investment Funds (AIFs) that are unable to wind up due to ongoing tax or legal disputes. The consultation paper, released on February 5, 2026, seeks public feedback by February 26 on measures aimed at helping funds navigate closure while remaining compliant.
Under the proposed framework, AIFs could retain funds beyond their permissible life in cases of litigation or tax notices, with 75% investor approval for anticipated liabilities, or for operational expenses documented for up to three years. Such funds would be classified as “inoperative funds” and face reduced compliance obligations, including halting new scheme launches and management fees, with surrender applications processed only after all liabilities are settled.
The move follows repeated requests from industry stakeholders highlighting difficulties faced by funds nearing closure but entangled in prolonged disputes. SEBI’s Alternative Investment Policy Advisory Committee (AIPAC) reviewed and recommended these proposals, which also include amendments to Regulation 29(7) of the AIF Regulations, 2012, to allow more flexibility in fund distribution.
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