MCA Notifies New Development Bank as Body Corporate Under Companies Act

Notification S.O. 3140(E), Dated: 16.06.2026

SEBI has issued a circular allowing Alternative Investment Funds (AIFs) and erstwhile Venture Capital Funds (VCFs) to retain winding-up proceeds beyond the permissible fund life in specified circumstances. The circular also introduces a new ‘Inoperative Fund’ status for eligible funds seeking to surrender their registration while retaining monies to meet outstanding obligations.

The circular is effective immediately.

1. Retention of Winding-Up Proceeds Permitted

Under the revised framework, AIFs and VCFs may retain monies beyond the permissible fund life in situations involving:

• Pending or anticipated litigation;
• Regulatory demands or proceedings;
• Outstanding liabilities; and
• Residual operational or administrative expenses.

The measure is intended to facilitate the orderly closure of funds where certain obligations remain unresolved at the time of winding up.

2. Introduction of ‘Inoperative Fund’ Status

SEBI has introduced an ‘Inoperative Fund’ status for eligible AIFs and VCFs that wish to retain registration solely for limited purposes after completion of active fund operations.

This status allows funds to remain registered while retaining monies required to meet pending liabilities or other unresolved matters.

3. Eligibility for Inoperative Fund Status

An AIF may apply for Inoperative Fund status where:

• Its scheme(s) have not retained any monies beyond the permissible fund life; but
• The fund intends to continue holding registration solely in anticipation of a favourable outcome of pending litigation.

This provides a regulatory mechanism for funds awaiting the resolution of legal proceedings that may result in future recoveries or distributions.

4. Surrender of Registration

An Inoperative Fund must apply to SEBI for surrender of its certificate of registration only after:

• All liabilities have been fully discharged; and
• All retained monies have been distributed to investors across all schemes.

Accordingly, registration can be surrendered only after all pending obligations and distributions have been completed.

5. Objective of the Circular

The framework seeks to:

• Facilitate orderly winding up of AIFs and VCFs;
• Address practical challenges arising from pending litigation and liabilities;
• Protect investor interests;
• Provide regulatory clarity on post-winding-up obligations; and
• Streamline the registration surrender process.

6. Expected Impact

The introduction of the Inoperative Fund framework provides greater flexibility to AIFs and VCFs in managing residual obligations after the expiry of their fund life. The measure is expected to enhance regulatory certainty, ensure efficient fund closure and safeguard investor interests until all liabilities are settled and pending monies are distributed.

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