SEBI Fines Exfinity Venture Partners, Vistra ITCL ₹10 Lakh Each For AIF Rule Violations

The Securities and Exchange Board of India (SEBI) has imposed a penalty of ₹10 lakh each on Exfinity Venture Partners LLP and trustee Vistra ITCL (India) Limited for multiple violations of the SEBI (Alternative Investment Fund) Regulations, including failing to wind up an alternative investment fund (AIF) scheme within the prescribed timeline.

Adjudicating Officer Jai Sebastian passed the order. Rejecting the investment manager's defence that the scheme was continued beyond its tenure to safeguard investors' interests, the Adjudicating Officer observed,

"Compliance with mandatory regulatory requirements cannot be substituted by a subjective flawed assessment of perceived investor benefit. Any action taken in contravention to the explicit regulatory provisions cannot be justified on the ground that it was purportedly undertaken in the interest of investors. Acceptance of such an argument would undermine regulatory certainty and defeat the very framework designed to safeguard interest of the investors and ensure orderly market conduct."

The proceedings were initiated against Exfinity Technology Fund, its investment manager Exfinity Venture Partners LLP, certain key managerial personnel and trustee Vistra ITCL (India) Limited for alleged violations of the AIF Regulations.

SEBI found that Exfinity Technology Fund Series I, whose extended tenure ended on August 14, 2021, was required to complete liquidation by August 14, 2022. However, the scheme was not wound up within that period. It continued beyond the permissible timeline and still held investments worth ₹6.34 crore as of December 2024.

The regulator also found that the fund delayed filing quarterly reports, breached the 25% limit on overseas investments, failed to undertake the mandatory half-yearly valuation of its investments and omitted material compliance lapses from its compliance report.

The noticees contended that the delay in winding up the scheme was caused by adverse market conditions and that extending the liquidation process was necessary to maximise value for investors. They also argued that the remaining lapses were technical and did not prejudice investors or the market.

Rejecting the contention, the Adjudicating Officer observed,

"It is noted that as per the regulatory framework prescribed by the AIF Regulations, a scheme of the AIF is mandatorily required to be wound up when the period of the scheme mentioned in the PPM is over."

The Adjudicating Officer held that the tenure specified in the Private Placement Memorandum is not merely a commercial arrangement between investors and the fund but a regulatory requirement under the AIF Regulations.

The order held that once the tenure expires, the obligation to wind up the scheme arises automatically and cannot be overridden by the consent of investors.

The order further observed, "The plea that the continuation was in the interest of investors or with the approval of investors cannot override the express regulatory mandate."

The Adjudicating Officer also held that Exfinity Technology Fund violated the AIF Regulations by delaying quarterly filings, exceeding the permissible overseas investment limit, failing to undertake the mandatory valuation of investments, and omitting material compliance failures from its compliance report.

While recording that those violations were established against the fund, the Adjudicating Officer did not impose a monetary penalty on it, observing that doing so would ultimately burden the investors.

The order held that Exfinity Venture Partners LLP, as the investment manager, bore the primary responsibility for ensuring that the fund complied with the AIF Regulations and applicable circulars.

It further held that Vistra ITCL (India) Limited failed to discharge its fiduciary responsibilities by not taking adequate steps to ensure compliance with the regulatory framework and timely winding up of the scheme.

Accordingly, the Adjudicating Officer imposed a penalty of ₹10 lakh each on Exfinity Venture Partners LLP and Vistra ITCL (India) Limited.