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. The appeal challenged the Securities Appellate Tribunal order dated 28.11.2025 which had 'allowed in part' the appeal and, inter alia, modified the sanction to prohibit the appellant from taking 'new assignments as a trustee of Alternative Investment Fund of any category for a period of six months,' while setting aside the separate restraint on associating with SEBI registered intermediaries. On review of the record, the Court held that, 'having regard to the peculiar facts and circumstances,' the six-month debarment was 'disproportionate to the nature of negligence or inaction sought to be attributed' to the appellant. The Court emphasized that 'no prejudice or loss has been caused to the investors' and that remedial steps had been taken, including 'winding up of the fund and distribution/repayment of amounts to the investors.' It also noted the undisputed fact that a stay had operated in the appellant's favour throughout. Accordingly, the Court set aside the SAT order dated 28.11.2025 and modified paragraph 19(ii) so the bar period 'shall be deemed to have expired,' permitting the appellant to undertake new trustee assignments.