2026 (1) TMI 433 - SCH - SEBI

AIF trustee debarment for SEBI rule breaches-no investor loss and fund winding-up led to bar treated as expired.

The dominant issue was whether the regulatory debarment imposed on an AIF trustee for alleged breach of SEBI AIF Regulations and circulars was ... Challenged the order passed by Appellate Tribunal - Punishment of debarring the appellant from taking up new assignments as a trustee of an Alternative Investment Fund of any category for a period of six months - Trust Violated the SEBI Alternative Investment Fund (AIF) and SEBI Circulars - HELD THAT:- Having regard to the peculiar facts and circumstances of the case, particularly the fact that no prejudice or loss has been caused to the investors and that the appellant appears to have taken remedial steps, including winding up of the fund and distribution/repayment of amounts to the investors, we are of the view that the punishment of debarring the appellant from taking up new assignments as a trustee of an Alternative Investment Fund for a period of six months is disproportionate to the nature of negligence or inaction sought to be attributed to the appellant. Further, it is not in dispute that a stay has been operating in favour of the appellant throughout and continues to operate even as on date. Thus, we are satisfied that the ends of justice would be adequately met by setting aside the order dated 28.11.2025. Ordered accordingly. Consequently, we allow this appeal and modify paragraph 19(ii) of the impugned order of the Appellate Tribunal so that the period during which the appellant was barred from taking up new assignments as a trustee shall be deemed to have expired. Issues: Whether the debarment direction preventing the appellant from taking up new assignments as a trustee of an Alternative Investment Fund for six months should be set aside as disproportionate and/or treated as having expired in view of intervening stay and remedial steps taken.Analysis: The appellate order imposing a six-month bar was examined in light of the factual findings that no investor prejudice or loss had occurred, that remedial steps including winding up and repayment had been undertaken, and that an interim stay had been operating in favour of the appellant throughout. Applying the principle that sanctions must be proportionate to the nature of the misconduct, and having regard to effectiveness of interim relief and steps taken to mitigate harm, the debarment was assessed for its necessity and proportionality. The consequence of the continuing stay and the established remedial measures was considered relevant to whether the period of debarment should remain operative.Conclusion: The six-month debarment is set aside and the period during which the appellant was barred is deemed to have expired; the appellant is entitled to undertake new trustee assignments.