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SEBI Proposes Streamlined Dispute Resolution for AIFs

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  Published in Stocks and Investing on Thursday, February 5th 2026 at 14:40 GMT by Business Today
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New Delhi - February 5th, 2026 - The Securities and Exchange Board of India (SEBI) today unveiled a comprehensive proposal to significantly reduce bureaucratic hurdles and accelerate dispute resolution for Alternative Investment Funds (AIFs), a move widely seen as a vote of confidence in the burgeoning alternative investment landscape. The draft framework, released for public consultation, addresses persistent pain points for AIFs caught in legal battles - namely, protracted delays, escalating costs, and complex regulatory compliance issues - aiming to unlock potentially billions of rupees in capital currently frozen in litigation.

This initiative arrives at a crucial juncture. The AIF industry, which caters to sophisticated investors like institutional funds, pension schemes, and high-net-worth individuals, has experienced exponential growth over the past decade, becoming a vital engine for funding startups, private equity ventures, and other non-traditional asset classes. However, this rapid expansion hasn't been without its challenges. An increasing number of disputes - ranging from valuation disagreements and fund manager conflicts to allegations of non-compliance - have begun to clog the legal system, hindering investment and stifling innovation.

SEBI's proposal isn't simply about speeding up existing processes. It represents a fundamental shift towards a more proactive and preventative approach to dispute resolution. The core of the framework centers around a tiered system prioritizing Alternative Dispute Resolution (ADR) mechanisms like mediation and arbitration. Sources within SEBI indicate that the regulator believes a significant percentage of AIF disputes can be resolved amicably through these channels, avoiding the time and expense of formal court proceedings.

"We recognize the vital role AIFs play in fueling economic growth and fostering innovation," stated a high-ranking SEBI official, speaking on background. "However, protracted disputes create uncertainty and discourage investment. This framework is designed to provide AIFs with a clear, efficient, and cost-effective pathway to resolve conflicts while safeguarding the interests of all stakeholders - investors, fund managers, and the broader market."

The draft framework specifically outlines a streamlined process for initiating ADR, including the appointment of independent mediators and arbitrators with expertise in AIF-related matters. It also proposes guidelines for data disclosure and transparency, ensuring that all parties have access to the information necessary to reach a fair and informed settlement. Furthermore, SEBI is considering establishing a dedicated fast-track arbitration tribunal specifically for AIF disputes, further accelerating the resolution process.

The proposal also tackles the issue of regulatory compliance during disputes. Currently, AIFs involved in legal battles often face continued regulatory scrutiny, even if the dispute doesn't directly relate to compliance. The framework suggests a temporary suspension of certain non-critical compliance requirements during the dispute resolution phase, reducing the administrative burden on AIFs and allowing them to focus on resolving the matter at hand. This aspect of the proposal is expected to be met with particular enthusiasm by industry participants.

Industry experts are already praising SEBI's proactive approach. "This is a very welcome development," says Rohan Verma, Partner at a leading venture capital firm specializing in AIF investments. "The current dispute resolution process can be incredibly slow and expensive, significantly impacting returns for investors. A streamlined framework that prioritizes ADR will undoubtedly encourage more investment in the AIF sector."

However, some analysts caution that the success of the framework will depend on its effective implementation. "The devil will be in the details," warns Priya Sharma, a financial regulation expert. "SEBI needs to ensure that the ADR mechanisms are truly independent and that the arbitrators have the necessary expertise. Strong enforcement and clear guidelines will be crucial to building trust in the system."

SEBI is actively soliciting feedback from industry stakeholders, legal professionals, and the public on the draft framework. The regulator has set a deadline of March 15th, 2026, for submissions. This public consultation period is seen as a critical step in ensuring that the final framework is robust, practical, and effectively addresses the needs of the rapidly evolving AIF industry. The move underlines SEBI's commitment to balancing investor protection with the need to foster a dynamic and competitive financial ecosystem.