Summary: SEBI issued a Consultation Paper on August 14, 2026, proposing complete overhaul of the existing settlement mechanism through the Securities and Exchange Board of India (Settlement of Proceedings) Regulations, 2026. This post discusses the rationale behind SEBI revisiting the settlement framework and outlines the key changes proposed for public consultation.
Background – two decades of settlement
For nearly two decades, the Securities and Exchange Board of India (SEBI) has offered market participants a settlement mechanism designed to reduce protracted litigations and provide a faster, more practical route for dealing with regulatory contraventions. From a 2007 circular[1], then moving to dedicated regulations introduced by the Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) Regulations, 2014, which were later replaced by the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 (2018 Regulations)[2], India’s settlement regime has steadily matured in line with market developments. SEBI is now once again reviewing the framework based on stakeholder meetings and a broader push to simplify the settlement process, and has released a consultation paper on August 14, 2026 (Consultation Paper), proposing the draft Securities and Exchange Board of India (Settlement of Proceedings) Regulations, 2026 (Draft Regulations), to replace the 2018 Regulations.
What prompted SEBI to revisit the Settlement Framework?
During FY26, SEBI received 439 settlement applications, approved 170 by passing appropriate settlement orders, and rejected, withdrew or returned 199.[3] Per a study of settlement applications filed over the past two years, where settlement could not be reached and a penalty was later imposed, SEBI noted that the settlement amount originally proposed was, on average, eight times higher than the penalty ultimately levied in the same matter.[4] Together, these figures indicate a substantially used mechanism, but one whose implementation may have become materially disproportionate to the objective it sought to achieve.
The Consultation Paper further states that time and again, the Supreme Court and the Securities Appellate Tribunal have under their judicial pronouncements[5] also prompted SEBI to adopt a more robust settlement policy and formulate objective criteria to regulate it.
Given the study and consistent judicial guidance, SEBI undertook a comprehensive review of the 2018 Regulations and has released the Draft Regulations for public comments. Set out below is a summary of the key changes proposed, along with our insights:
Key Changes Proposed
Simplifying Settlement Amount Calculation: Broadly, the formula for settlement amount has been simplified basis SEBI’s intent to bring down the average settlement amount to a level where settlement terms continue to have a deterrent effect without being prohibitive. The aim is to ensure that settlement continues to be a viable or a preferred route to save time and cost of litigation. Some of the notable changes proposed are:
- The values linked to stage of proceedings in certain cases have been lowered.
- Previously, the number of mitigating factors (favouring the applicant) or aggravating factors (against the applicant) that SEBI could apply were disproportionate, leading to higher amounts. It is now proposed to rectify this imbalance by applying equal weightage and capping them equally. With equal number of factors and equal weightage being applied, mitigating factors could potentially negate aggravating factors. Some new factors have also been added, including the flexibility to consider additional mitigating factors, given the circumstances of the case, subject to the capped number.
- The Draft Regulations propose to change the determination of ‘base amount’ basis a set of identified violations (which are not comprehensive) and a residuary clause, to base amount being determined basis minimum statutory penalty for violation in case of enforcement (subject to certain conditions) and nature of applicant (such as natural person, intermediary, market infrastructure institution, etc).
- Clarifications provided under the Draft Regulations on ‘count of default’, ‘repetitive default’ and addressing the issue of double counting of ‘wrongful gains’ as part of base amount, as well as disgorgement amount are welcome developments. Briefly, ‘count of default’ will be aggregated basis the number of defaults/ violations and not the number of provisions of law breached. The draft also spells out, through illustrations[6], when repeated acts should be treated as a single count rather than several counts of default (which aligns with the approach followed for penalty being imposed in case of enforcement). Also, it is proposed to do away with wrongful gains or investor losses being counted towards the base amount, with such amount being factored only towards disgorgement (as a non-monetary term (NMT)).
- Other changes proposed include: reduction in additional settlement amount payable for re-filing of an application withdrawn previously; removal of surcharge for settlement of multiple proceedings; standardised and more workable interest rates on disgorgement; and the option to use a weighted average for calculating interest amounts for cases involving large number of transactions.
Expanded Scope of Settlement: Settlement is a rule and rejection is an exception—a principle now proposed to be incorporated. Under the 2018 Regulations, for cases involving market wide impact, losses to a large number of investors, or harm to market integrity, SEBI has significant discretion in choosing not to settle such matters. That’s about to change. Such cases may now possibly be settled through the routine route (i.e. through Internal Committee, High Powered Advisory Committee, etc.) if the losses can be rectified through monetary or NMTs such as reversion of diverted or siphoned funds, corrective disclosures about misrepresentations (including under the financial statements). In effect, even seemingly serious allegations may get an option for settlement rather than a blanket refusal.
Furthermore, rejection of application may not completely close the settlement window and applicants may re-apply at the appellate stage, subject to certain conditions such as payment of an additional settlement amount, provided reasons for the earlier rejection no longer apply. This addresses the gap in the 2018 Regulations, which do not allow a second attempt at settlement, even where circumstances have genuinely changed since.
Relaxations regarding NMTs: As a general principle, adjudication matters may now be settled without imposition of NMTs. That said, in case of disclosure violations, settlement terms will comprise of disclosure obligations, ensuring that previously undisclosed information is made public. However, unlike the present situation, where disclosures are mandated upfront even before applications are submitted (regardless of the outcome of the settlement proceedings), it is now proposed to defer this obligation until after the WTM Panel approves the application, but before the settlement order is passed. It remains to be seen whether the general principle of ‘no NMTs’ will extend to settlement of similar violations where applications are made suo moto (where no show cause notice (SCN) has been issued).
Additionally, NMTs like voluntary debarment or suspension from market is expected to be used sparingly- where the violation is grave, and the applicant is a key operator or a main beneficiary of the default, or is a repeat offender, rather than being applied routinely.
Another change that comes as a major relief is that settlement terms can no longer require anyone other than the applicant entity (for instance a director or key managerial person of the applicant) who was not even named in the SCN to bear settlement obligations or step down from their position as an NMT.
Fast track settlement: The existing ‘summary settlement procedure’ is proposed to be re-branded as ‘fast-track settlement’, wherein, alongside the current violation-based summary settlement mechanism, the fast-track route will be opened for cases if in the opinion of the IC, the settlement amount does not exceed INR 10 lakh. Such monetary threshold based fast-track cases will not involve HPAC meeting, thereby speeding up disposal of such cases.
Procedural Reforms:
- The time available for filing after receiving SCN is proposed to be increased from 60 to 90 days. This is a welcome change especially for all those that may require additional time to assess the various available avenues. Interestingly, SEBI has not gone back to its stance on condonation of delay in filing settlement application and has excluded such timeline from the general power of relaxations proposed to be granted under the Draft Regulations, meaning that the 90-day timeline would be sacrosanct.
- The 2018 Regulations allow settlement prior to initiation of proceedings, but do not have a formal mechanism for a person to be aware of such proceedings. Under the Draft Regulations, SEBI can issue a settlement notice before a SCN is issued (except cases where prosecution is intended), giving entities 60 days advance notice of their option to settle. In some ways, this appears to be a reversal of SEBI’s 2020 position[7], sans the clarity on next opportunity available to settle such violation if the applicant does not apply under the settlement notice period.
- Following the principles of natural justice, applicants will now get a hearing before their settlement order is being revoked.
- Other procedural changes include an increase in application fees, the introduction of discretionary authority granted to SEBI to relax procedural timelines by up to 30 days in cases of genuine delays beyond the applicant’s control, simplification of settlement form, etc.
Conclusion
Overall, the proposals demonstrate SEBI’s genuine effort to foster transparency and reasonableness in the settlement process and to retain settlement as a viable solution to resolving regulatory infractions, as well as providing an alternative to prolonged litigation. Simplifying the settlement calculation formula and making it less discretionary, removing the double counting of wrongful gains, rebalancing aggravating and mitigating factors, and easing procedural timelines are all positive steps towards narrowing the gap between what settlement costs and what the violation would otherwise actually attract. Whether these amendments will achieve the objective, will depend on how such changes are applied in practice under different scenarios, but for now, market participants have an opportunity to voice their views/ suggestions on the Draft Regulations until September 4, 2026.
For further information, please contact:
Gazal Rawal, Partner, Cyril Amarchand Mangaldas
gazal.rawal@cyrilshroff.com
[1] SEBI Circular dated April 20, 2007, bearing reference no. EFD/ED/Cir-1/2007.
[2] basis Justice A. R. Dave (retd.) Committee recommendations under Report on Settlement Mechanism by the High-Level Committee to Review the Enforcement and Settlement Mechanism dated August 13, 2018.
[3] SEBI Annual Report, FY 2025-26.
[4] Paragraph 4 and 5 of the Consultation Paper.
[5] Supreme Court, Vishal Tiwari Vs. Union of India & Ors. (Writ Petition (C) No. 162 of 2023, Order dated January 3, 2024) and Securities Appellate Tribunal, Shubham Singhal Vs. SEBI (Appeal No. 191 of 2022, Order dated May 13, 2022)
[6] For eg., if a person trades multiple times based on the same piece of unpublished price-sensitive information, all those trades count as one default, not one for each trade. The same logic applies to a person front running several trades tied to a single client order, a company that misses multiple periodic disclosures within one year, or one document containing several misleading statements in each case, the underlying act is treated as one continuous default rather than being multiplied into several.
[7] Securities and Exchange Board of India (Settlement Proceedings) (Amendment) Regulations, 2020 dated July 22, 2020
