The Securities and Exchange Board of India (SEBI) has announced a significant revamp of its settlement framework, introducing a fast-track mechanism for minor transgressions and a new formula for calculating settlement amounts. This move aims to streamline the resolution of market violations while maintaining regulatory oversight.
New Fast-Track Settlement Route
Under the updated regulations, a new fast-track settlement route will be available for cases where the proposed settlement amount does not exceed Rs 10 lakh. This expedited process is designed to handle less severe violations more efficiently.
- Monetary Threshold Cases: These will progress directly from an internal committee to a panel of Whole Time Members for approval.
- Violation-Based Cases: SEBI will issue a notice to the entity, proposing enforcement proceedings and inviting them to settle by paying a specified amount.
Industry experts emphasize the critical need for the new framework to strike a balance between achieving faster resolutions and ensuring robust accountability and deterrence, particularly for serious market misconduct.
Revised Settlement Amount Formula
SEBI has also introduced a new formula for determining settlement amounts. This formula will be based on a base amount, which is linked to the minimum penalty prescribed for the violation under securities laws. Multipliers will then be applied based on several factors, including:
- The type of applicant
- The stage of proceedings
- The nature of the default
- Aggravating and mitigating factors
Importantly, wrongful gains, losses avoided, or losses caused to investors will not be factored into the base amount calculation. Instead, such quantified amounts will be disgorged separately, ensuring that entities do not profit from their illicit activities.
Enhanced Transparency and Timelines
The updated framework also brings changes to application timelines and settlement terms. SEBI will now issue a settlement notice, providing entities with 60 days to file a settlement application. Furthermore, the period for filing a settlement application after the service of a show cause notice has been extended from 60 to 90 days.
In a bid to offer a second chance, a one-time window of 90 days will be available from the commencement of the Settlement Regulations, 2026. This allows entities whose previous applications were rejected, withdrawn, or returned under the 2018 regulations to re-apply.
Addressing Serious Violations
The regulations also make provisions for settling cases involving serious violations such as misrepresentation of financial statements or diversion of funds. However, such settlements will be subject to appropriate remedial and regulatory terms, which may include mandatory disclosures and the requirement to bring back diverted funds. This ensures that while a settlement path exists, serious breaches still face significant consequences and corrective actions.
Makarand M Joshi, Founder partner of corporate compliance firm MMJC & Associated, noted, "Amendment to Settlement Regulations align with the Finance Minister and Prime Minister's emphasis on reducing litigation and enabling settlement of violations is a welcome shift towards trust-based governance. However, for serious violations like financial misstatement, diversion and fraud, the final framework must balance faster remediation with transparency, public accountability, and strong market-wide deterrence."
These comprehensive changes reflect SEBI’s ongoing efforts to enhance market efficiency, reduce litigation, and strengthen investor protection within India's dynamic financial landscape.