General Newsletter – May 2026

CIRCULAR ON ONE-TIME RELAXATION WITH RESPECT TO VALIDITY OF SEBI OBSERVATIONS¹

The Securities and Exchange Board of India (“SEBI”), vide Circular dated April 07, 2026, has introduced a one-time relaxation regarding the validity of observation letters issued under the SEBI (ICDR) Regulations, 2018. As per Regulations 44(1) and 59C of the ICDR Regulations, a public issue is required to be opened within twelve months or eighteen months from the date of issuance of SEBI’s observations. SEBI noted that issuers have been facing difficulties in accessing capital markets due to ongoing geopolitical tensions in the Middle East, leading to delays, deferrals, or withdrawal of issuance plans. In view of these conditions and representations received from industry bodies, SEBI has extended the validity of observation letters expiring between April 1, 2026 and September 30, 2026 until September 30, 2026. This extension is subject to an undertaking from the Lead Manager confirming compliance with Schedule XVI of the ICDR Regulations at the time of submitting the updated offer document. This circular has come into force with immediate effect has been issued under Sections 11 and 11A of the SEBI Act, 1992.

RELAXATION FROM THE APPLICABILITY OF SEBI MASTER CIRCULAR FOR COMPLIANCE WITH THE PROVISIONS OF SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015 ON NON- COMPLIANCE WITH MINIMUM PUBLIC SHAREHOLDING (MPS) REQUIREMENTS²

SEBI through Circular dated April 07, 2026, has granted a one-time relaxation from the applicability of penal provisions under the SEBI Master Circular dated July 11, 2023, relating to compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Master Circular prescribes actions to be taken in cases where listed entities fail to meet Minimum Public Shareholding (MPS) requirements, including fines, freezing of promoter shareholding, and other consequential measures. SEBI noted that listed entities have faced difficulties in achieving MPS compliance due to capital market volatility arising from ongoing geopolitical tensions in the Middle East. Considering these representations and prevailing market conditions, SEBI has decided that for entities whose due date for MPS compliance falls between April 1, 2026 and September 30, 2026, the penal provisions under the Master Circular will not apply. Accordingly, stock exchanges and depositories have been directed not to take any penal action during this period. Further, any penal actions already initiated for such non-compliance during this period are to be withdrawn. The circular has been issued under Sections 11 and 11A of the SEBI Act, 1992. This circular came into effect immediately. 

EASE OF DOING BUSINESS- MECHANISM FOR LOCK IN PF PLEDGED SHARES UNDER SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2018³

SEBI through Circular dated April 08, 2026 has introduced a mechanism to operationalise the lock-in requirements for pledged shares under the SEBI (ICDR) Regulations, 2018. Pursuant to amendments notified on March 21, 2026, SEBI has provided that in cases where a lock-in cannot be created on specified securities, such securities may instead be recorded as “non-transferable” by depositories for the duration of the applicable lock-in period. This ensures compliance with lock-in requirements even in situations involving pledged shares. To implement this framework, depositories have laid down procedures to be followed by issuers, including incorporation of relevant provisions in the Articles of Association, issuance of necessary intimations to lenders or pledgees, and appropriate disclosures in offer documents. Depositories have also made corresponding changes to their systems and processes. Accordingly, stock exchanges, depositories, merchant bankers, and issuers are required to ensure compliance with this mechanism. The circular has been issued under Section 11(1) of the SEBI Act, 1992 and Section 26(3) of the Depositories Act, 1996. This circular came into effect immediately. 

NISM CERTIFICATION FOR SOCIAL IMPACT ASSESSORS⁴

SEBI through its Circular dated April 13, 2026, has clarified the certification requirement for Social Impact Assessors under the SEBI (ICDR) Regulations, 2018. As per Regulation 292A(f), a person acting as a Social Impact Assessor is required to be qualified through a certification program conducted by the National Institute of Securities Markets (“NISM”). This circular specifies that such assessors must obtain the ‘NISM Series XXIII – Social Impact Assessors Certification Examination’ and maintain a valid certificate. The circular also sets out the process for renewal of certification. An assessor can either retake the same certification examination or complete the ‘NISM Series XXIII – Social Impact Assessors Certification eCPE Program’ conducted by NISM to continue being qualified. Through this, SEBI has standardised the qualification requirement for Social Impact Assessors by prescribing a specific certification pathway, ensuring that only duly certified individuals undertake such assessments. The circular has been issued under Section 11(1) of the SEBI Act, 1992 read with Regulation 292A(f) of the ICDR Regulations. This circular came into effect immediately.

REVIEW OF REQUIREMENT RELATING TO REGISTRATION FOR A NOT FOR PROFIT ORGANIZATION ON SOCIAL STOCK EXCHANGE AND MINIMUM SUBSCRIPTION REQUIREMENT FOR ISSUANCE OF ZERO COUPON ZERO PRINCIPAL INSTRUMENTS⁵

SEBI through this Circular dated April 15, 2026, has introduced certain relaxations under the Social Stock Exchange (“SSE”) framework to facilitate ease of fundraising for Not-for-Profit Organizations (“NPOs”). Pursuant to a review undertaken in consultation with the Social Stock Exchange Advisory Committee, SEBI has extended the period of registration for NPOs on SSE from two years to three years, even if no funds are raised during this period. This additional one-year extension is subject to approval by the Social Stock Exchange. The circular also revises the minimum subscription requirement for issuance of Zero Coupon Zero Principal (“ZCZP”) Instruments. While the general requirement remains at 75% of the proposed issue size, it may now be reduced to 50%, provided that the funds raised are sufficient to meaningfully achieve the stated objectives of the issue. For this purpose, the Social Stock Exchange is required to undertake due diligence before granting in principle approval for such partial fundraising. Further, in cases of under-subscription, NPOs are required to disclose in the fund raising document, the manner in which the balance funds will be raised and the possible impact on the social objectives if such funds are not arranged. The circular also clarifies that funds must be refunded where the minimum subscription requirement is not met. These changes have been incorporated as modifications to the Master Circular dated January 19, 2026. This circular came into effect immediately.  

FRAMEWORK FOR NET SETTLEMENT OF FUNDS FOR TRANSACTIONS DONE BY FOREIGN PORTFOLIO INVESTORS (FPI’S) IN CASH MARKET⁶

SEBI vide circular dated April 24, 2026, has introduced a significant reform in the settlement mechanism for Foreign Portfolio Investors (FPIs) in the cash market by permitting net settlement of funds for certain transactions. Previously, FPIs were required to settle all their trades on a gross basis at the custodian level, meaning that even offsetting buy and sell transactions had to be funded independently. This system resulted in higher liquidity requirements, increased forex conversion costs, and operational inefficiencies, particularly during periods of heavy trading activity such as index rebalancing. To address these concerns, SEBI has now allowed netting of funds, albeit in a limited and structured manner. The benefit of net settlement is restricted to “outright transactions,” defined as transactions where an FPI undertakes either only purchases or only sales in a particular security within a settlement cycle. In such cases, the values of outright purchases and outright sales across securities can be netted to arrive at a single fund obligation. However, transactions involving both purchase and sale in the same security during the same settlement cycle referred to as non outright transactions will continue to be settled on a gross basis, thereby maintaining existing safeguards.

The circular further clarifies that where the value of outright purchases exceeds outright sales, the FPI must fund the residual obligation along with any obligations arising from non-outright transactions. Conversely, where outright sales exceed outright purchases, the surplus cannot be used to offset liabilities arising from non-outright transactions, thereby preventing excessive leverage or misuse of funds. Importantly, while the reform introduces netting for fund settlement, the settlement of securities will continue on a gross basis between FPIs and custodians. Additionally, statutory levies such as Securities Transaction Tax (STT) and stamp duty will continue to be imposed on a delivery basis, ensuring that the tax framework remains unaffected. Overall, this reform is aimed at enhancing capital efficiency, reducing funding costs, and improving operational ease for FPIs, while retaining adequate risk controls within the system. The circular has been issued under Section 11(1) of the SEBI Act, 1992, read with Regulation 44 of the SEBI (FPI) Regulations, 2019, and is to be implemented by December 31, 2026. 

EXTENSION OF TIMELINE FOR COMPLIANCE WITH TERMS AND CONDITIONS BY DEBENTURE TRUSTEES FOR CARRYING OUT ACTIVITIES OUTSIDE THE PURVIEW OF SEBI⁷

SEBI vide Circular dated April 28, 2026, has granted an extension of time for compliance by Debenture Trustees (“DTs”) in relation to activities falling outside SEBI’s regulatory purview. This development follows the amendments introduced on October 27, 2025 to the SEBI (Debenture Trustees) Regulations, 1993, wherein Regulation 9C was inserted to clarify the scope of permitted activities and require DTs to segregate non-SEBI regulated activities into separate business units within a prescribed timeframe. Subsequently, SEBI had issued an operational framework on November 25, 2025 outlining the terms and conditions governing such activities. However, based on industry representations highlighting operational challenges in setting up the necessary systems and processes, SEBI has now provided additional time for implementation. Accordingly, the timeline for compliance with the amended provisions and the operational framework has been extended by six months, with Debenture Trustees now required to ensure compliance by October 27, 2026.

OPERATIONALISATION OF PAST RISK AND RETURN VERIFICATION AGENCY (PARRVA)⁸

SEBI has operationalised the framework vide circular dated, April 29, 2026 for the Past Risk and Return Verification Agency (PaRRVA), marking an important step towards standardising how past performance data is verified and communicated in the securities market. Under this framework, credit rating agencies can be recognised as PaRRVA, working in coordination with a stock exchange acting as a data centre. In this regard, Care Ratings Limited has been recognised as PaRRVA, with the National Stock Exchange of India Limited acting as the PaRRVA Data Centre. After completion of the pilot phase, the system will become fully operational from May 4, 2026, meaning that performance verification will now move into a formal, regulated structure. A key impact of this circular is on Investment Advisers (IAs) and Research Analysts (RAs) who rely on past performance data to communicate with clients. SEBI has made it clear that such entities must enrol with PaRRVA within three months of its operationalisation (i.e., by August 3, 2026) if they wish to continue sharing certified past performance data.  

Further, there is a clear transition timeline while older (pre PaRRVA) performance data can still be used for a limited period, it can only be communicated until May 3, 2028, after which only PaRRVA-verified data will be permitted. The circular also refines the governance structure of PaRRVA by revising the composition of its oversight committee. The committee will now include representatives from PaRRVA, the data centre, intermediaries, and investor associations, along with an independent chairperson having regulatory experience. Importantly, SEBI has ensured that independent members will form the majority, strengthening oversight and credibility. This move introduces a more structured and transparent system for validating past performance claims, reducing the risk of misleading disclosures and bringing greater consistency in how risk and return metrics are presented to investors. This circular came into effect immediately and the other operational due dates are to be followed accordingly as mentioned above.

FAST-TRACK MECHANISM FOR PROCESSING OF PLACEMENT MEMORANDUM OF AIF’S FILED WITH SEBI⁹

SEBI vide Circular dated April 30, 2026, has introduced a fast track mechanism for processing Placement Memorandums (PPMs) of Alternative Investment Funds (AIFs), with the aim of speeding up fund launches and improving ease of doing business. Earlier, AIFs were required to file their PPMs through a Merchant Banker, after which SEBI would review the document, provide comments, and only then could the revised PPM be used making the entire process time consuming. To address this, SEBI has now simplified the process, especially for Angel Funds and other non-Large Value Fund (non-LVF) schemes. Under the new framework, AIFs can now launch their schemes and circulate the PPM to investors after 30 days of filing with SEBI, unless SEBI specifically advises otherwise.

In the case of a first-time scheme, this can be done either after receiving SEBI registration or after 30 days from filing whichever is later. However, any comments given by SEBI within this 30-day period must still be complied with before the launch. SEBI has also clarified timelines for fundraising AIFs must achieve their first close within 12 months from the date they become eligible to launch the scheme. Importantly, the responsibility for the accuracy and completeness of disclosures in the PPM now squarely lies with the Merchant Banker and the AIF manager, reinforcing accountability at their level instead of relying on prior SEBI review. To support this faster process, SEBI has specified a clear list of documents to be filed (such as due diligence certificates, declarations, and PAN details) and has mandated a standard disclaimer in the PPM. This disclaimer makes it clear that SEBI does not “approve” the PPM, and that the responsibility for disclosures lies with the issuer and the Merchant Banker. This circular shift the process from a pre-approval model to a disclosure-based, responsibility driven approach, allowing AIFs to raise capital more quickly while ensuring that accountability for accurate disclosures remains firmly with market participants. This circular came into force with immediate effect and would also be applicable to all PPMs of non-LVF schemes pending as on date with SEBI

AMENDMENT TO SEBI (MUTUAL FUNDS) REGULATIONS, 2026¹⁰

SEBI vide an amendment dated April 01, 2026 to the SEBI (Mutual Funds) Regulations, 1996 introduced the SEBI (Mutual Funds) Regulations, 2026, marking a comprehensive overhaul of the earlier regulatory framework governing mutual funds in India. Replacing the long-standing 1996 regulations, the new regime aims to simplify compliance, enhance transparency, and strengthen investor protection in line with evolving market dynamics. A key shift under the 2026 framework is the move towards a principle-based regulatory approach, where instead of prescribing rigid, detailed rules, SEBI has focused on broader standards and responsibilities for market participants. This is intended to provide greater flexibility to Asset Management Companies (“AMCs”) while ensuring that accountability for governance, disclosures, and investor protection remains robust. One of the most notable changes is the introduction of a more transparent cost structure, with clearer segregation of expenses to help investors better understand how their money is being utilised.

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Footnotes

1 HO/49/11/11(123)2026-CFD-RAC-DIL2/I/8760/2026 (https://www.sebi.gov.in/legal/circulars/apr-2026/one-time-relaxation with-respect-to-validity-of-sebi-observations_100786.html) 

2 HO/49/14/14(13)2026-CFD-POD2/ I/8772/2026 (https://www.sebi.gov.in/legal/circulars/apr-2026/relaxation-from-the applicability-of-sebi-master-circular-for-compliance-with-the-provisions of-the-sebi-listing-obligations-and-disclosure-requirements-regulations 2015-on-non-compliance-with-the-_100787.html#)  

3 HO/49/(17)2026-CFD-POD2/I/8965/2026 (https://www.sebi.gov.in/legal/circulars/apr-2026/ease-of-doing-business mechanism-for-lock-in-of-pledged-shares-under-sebi-issue-of-capital-and disclosure-requirements-regulations-2018_100826.html)

4 HO/49/14/11(12)2026-CFD-POD1/I/8806/2026 (https://www.sebi.gov.in/legal/circulars/apr-2026/nism-certification-for social-impact-assessors_100911.html)

5 HO/49/14/(10)2026-CFD-POD1/I/9380/2026 (https://www.sebi.gov.in/legal/circulars/apr-2026/review-of-requirement relating-to-registration-for-a-not-for-profit-organization-on-social-stock exchange-and-minimum-subscription-requirement-for-issuance-of-zero coupon-zero-principal-instruments_100935.html)  

6 HO/(1)2026-AFD-POD2/I/10157/2026 (https://www.sebi.gov.in/legal/circulars/apr-2026/framework-for-net settlement-of-funds-for-transactions-done-by-foreign-portfolio-investors fpis-in-cash-market_101090.html)

7 HO/(201)2026-DDHS-POD1I/10421/2026 (https://www.sebi.gov.in/legal/circulars/apr-2026/extension-of-timeline for-compliance-with-terms-and-conditions-by-debenture-trustees-for carrying-out-activities-outside-the-purview-of-sebi_101152.html)

8 HO/38/14/(4)2026-MIRSD-POD/I/10557/2026 (https://www.sebi.gov.in/legal/circulars/apr-2026/operationalisation-of past-risk-and-return-verification-agency-parrva-_101185.html)

9 HO/19/19/11(2)2026-AFD-RAC2I/10624/2026 (https://www.sebi.gov.in/legal/circulars/apr-2026/fast-track-mechanism for-processing-of-placement-memorandum-of-aifs-filed-with sebi_101213.html)

10 F. No. SEBI/LAD-NRO/GN/2026/294 (https://www.sebi.gov.in/legal/regulations/apr-2026/securities-and exchange-board-of-india-mutual-funds-regulations-2026_100744.html)

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