Markets regulator SEBI has notified new regulations that provide a revised formula for calculating settlement amounts and a fast-track route for cases involving settlement amounts of up to ₹10 lakh. According to a notification dated October 6, the new framework separately provides for disgorgement of wrongful gains, loss avoided or loss caused to investors, removing the existing double counting of such amounts when calculating settlement terms. The Settlement Regulations, 2026 establish a comprehensive framework for settling specified administrative and civil proceedings involving alleged violations of securities laws, with the broader objective of simplifying the settlement framework and reducing the scope for inconsistent or unpredictable outcomes. As per ET Now, the new framework restructures how settlement terms are arrived at and separates the disgorgement of wrongful gains from the base settlement amount calculation, addressing a longstanding criticism of the previous framework.
The new formula for calculating the settlement amount will be based on a base amount linked to the minimum penalty prescribed for the violation under securities laws. As reported by The Hindu BusinessLine, the base amount will be adjusted using factors related to the stage of proceedings, regulatory action, gravity of the violation, aggravating factors and mitigating factors, besides legal costs. Wrongful gains, loss avoided or loss caused to investors will not be included while determining the base amount, such amounts where quantified will instead be disgorged separately. The minimum settlement amount is ₹3 lakh for first-time applicants and ₹7 lakh for other applicants, with settlement amounts calculated separately for each applicant and paid individually or jointly as applicable. The revised formula is intended to bring greater consistency to settlement calculations by specifying the factors that influence the amount, making the process easier to understand and more predictable for entities seeking to settle regulatory proceedings. According to ET Now, this structured approach replaces a more discretionary calculation and is intended to bring greater predictability and transparency to the settlement process.
SEBI has introduced two types of fast-track settlement routes - violation-based and monetary threshold-based. According to the notification, under the monetary threshold-based route, cases where the settlement amount does not exceed ₹10 lakh will move directly from the internal committee to a panel of whole-time members. For violation-based fast-track settlements, SEBI will issue a notice offering the entity an opportunity to settle the matter by paying the amount specified in the notice, with the settlement order being passed by the panel of members after payment of the settlement amount. Regulation 28 applies where the calculated settlement amount is up to ₹10 lakh and neither disgorgement nor remedial and regulatory terms are applicable, such applications may proceed directly from the Internal Committee to the Panel of Whole Time Members without High Powered Advisory Committee consideration. The ₹10 lakh threshold relates to the settlement amount under this route and should not be interpreted as a blanket exemption from securities laws. As per ET Now, the two-track fast-track system is designed to free up regulatory bandwidth for larger and more complex cases while ensuring that smaller violations are resolved efficiently without lengthy proceedings.
The new regulations specify three components of settlement terms: settlement amount calculated under the revised formula, disgorgement of wrongful gains, losses avoided or losses caused to investors, and remedial and regulatory terms (RRT). The third component, previously referred to as non-monetary terms, reflects its role in addressing regulatory concerns arising from violations. Misrepresentation of financial statements and diversion of funds can now be settled subject to appropriate remedial and regulatory measures, including making necessary disclosures and bringing diverted funds back. These measures ensure that settlements address the underlying regulatory concerns rather than simply paying an amount and closing the matter. The two fast-track mechanisms are designed to speed up eligible cases, particularly those involving smaller settlement amounts or specified categories of violations, while preserving the ability to require corrective action through remedial and regulatory terms.
The Settlement Regulations, 2026 establish specific application deadlines and procedural requirements. An entity may apply for settlement at any stage, subject to the regulations, with the application generally must be filed within 90 days of service of the show-cause notice or supplementary show-cause notice, whichever is later. The application must include the prescribed form, undertaking and waiver, basis of computation and a non-refundable application fee. Applicant may elect the applicable processing route within the prescribed 30-day period where proceedings are pending before SEBI. Once the settlement recommendation is accepted, a demand notice must be issued within ten days, with the applicant required to remit the settlement amount within 30 days of receiving the notice. The framework provides for examination by an Internal Committee, recommendations from the High Powered Advisory Committee where applicable, and a final decision by the Panel of Whole Time Members, with settlement orders published on SEBI's website subject to confidentiality protections.
