The Securities and Exchange Board of India (Sebi) has proposed a comprehensive revamp of its settlement framework to make enforcement settlements simpler, quicker and more predictable. According to reports from Mint and ET Now, the market regulator has suggested replacing the existing Sebi (Settlement Proceedings) Regulations, 2018, with a new framework that includes significant changes to settlement charges and procedures. As per Mint, the proposed changes seek to make settlements more predictable while allowing greater flexibility in serious cases where investor harm and market impact can be adequately addressed.
The most significant proposal involves removing the additional 20% settlement charge currently applicable when multiple enforcement proceedings involving the same noticees are settled together. As reported by Mint and ET Now, Sebi has also introduced a fast-track mechanism for settlements up to ₹10 lakh that would not require a meeting of the High Powered Advisory Committee (HPAC). Under the proposed fast-track route, cases would move directly from the Internal Committee to a panel of Whole Time Members, with settlement orders issued after payment is made. The regulator has also proposed increasing the deadline for filing settlement applications from 60 days to 90 days after receiving a show-cause notice, providing additional time for corporates and entities based outside India.
According to Mint and ET Now reports, Sebi's analysis of settlement applications filed over the past two years revealed that when settlement applications were rejected or withdrawn, settlement amounts were, on average, approximately 8 times the penalties ultimately imposed. The regulator expects this ratio to fall to about four times under the proposed framework. The new method links settlement amounts to the minimum penalty prescribed under securities laws, with different multipliers applying depending on the applicant's category. As per Mint, different multipliers would apply ranging from 2 for independent directors to 5.5 for market infrastructure institutions, with the base amount calculated separately for each count of default and then aggregated. Wrongful gains and investor losses would not form part of the base settlement amount, with such amounts to be recovered separately through disgorgement.
As reported by Mint and ET Now, Sebi has proposed extending the current 60-day deadline for filing settlement applications from the existing 60 days after receiving a show-cause notice. The regulator noted that this period may not provide sufficient time for corporates and entities based outside India, particularly those with complex organizational structures or overseas operations. The proposed changes also include clearer rules for determining default counts and an increase in the maximum number of mitigating factors from three to five. According to ET Now, the additional mitigating circumstances could include a change in the control or management of a corporate entity, as well as the applicant's status as an independent director. Sebi has also proposed issuing a settlement notice before a show-cause notice, except in cases where prosecution is proposed, giving the concerned entity an opportunity to seek settlement within 60 days.
Sebi has proposed a significant change in how it handles cases involving market-wide impact, losses to a large number of investors or adverse effect on market integrity. Under the existing framework, such factors can prevent a case from being settled, with these cases not going through the scrutiny of the Internal Committee (IC) and High-Powered Advisory Committee (HPAC). As per Mint and ET Now, the proposed framework would allow the IC and HPAC to examine these factors and make recommendations to the panel of SEBI's Whole Time Members. However, the proposal would not make every market-wide impact case eligible for settlement, with the key consideration being whether the impact, investor losses or damage to market integrity can be adequately addressed through monetary and non-monetary terms. The regulator has also proposed allowing voluntary debarment from the securities market or voluntary suspension from trading as settlement terms in serious cases.
According to Mint and ET Now, Sebi has invited public comments on the proposed changes until September 4, 2026. The regulator stated that the revised approach would continue to maintain deterrence while making the settlement mechanism more attractive to applicants. The proposals follow consultations with stakeholders and analysis of settlement applications filed during the past two years, with the new framework designed to provide more predictable settlement outcomes for market participants. As per Mint, applicants whose settlement applications were earlier rejected, withdrawn or returned, or those who did not apply earlier, could seek settlement under the new framework if the proceedings are still pending, with such applications to be filed within 90 days of the new regulations coming into force and may attract an additional 10% settlement amount. The regulator has also proposed a revised mechanism for calculating interest on disgorgement amounts, with interest charged at 9% per annum from the transaction date until the settlement application is filed, increasing to 12% annually following the final order.
