SEBI Overhauls Settlement Framework to Cut Litigation

The Securities and Exchange Board of India (Sebi) has proposed a significant overhaul of its settlement framework, aiming to simplify calculations and reduce additional charges for refiling applications.

This initiative also seeks to permit settlement applications even at appellate stages before the Securities Appellate Tribunal (SAT) and the Supreme Court, as detailed in a new consultation paper introducing draft 2026 regulations.

Understanding the Existing Settlement Mechanism

Currently, Sebi’s settlement mechanism allows entities to resolve regulatory proceedings without admitting guilt, in exchange for a specified settlement amount.

A study by the regulator revealed that previously proposed settlement amounts were, on average, eight times higher than the penalties ultimately imposed in cases that did not settle.

Key Reforms in the Proposed Framework

The core objective of these proposals is to reduce litigation and offer a more straightforward, less discretionary, and easily implementable resolution method for market participants.

• The new framework suggests a formula linking the base settlement amount to minimum penalties, with multipliers based on the applicant’s type and the stage of proceedings.
• This could potentially reduce settlement amounts to about four times the penalty, a notable shift from previous figures.
• Wrongful gains or losses to investors would be excluded from the base settlement amount, though they would still be considered for disgorgement as a non-monetary term.
• Sebi also aims to clarify how defaults are counted, proposing that repeated acts stemming from the same underlying conduct be treated as a single default.

Experts view these changes as a significant move towards establishing a more credible alternative to lengthy litigation, emphasizing rationalized settlement amounts and the crucial ability to settle at appellate stages.

Revised Application Process and Fee Adjustments

Several procedural and financial adjustments are also part of the proposed reforms to streamline the settlement process.

• The additional settlement amount for refiling withdrawn applications is set to decrease from 50% to 20%.
• Fresh applications will be allowed even after rejection at higher judicial levels, with an additional 20% settlement amount.
• Minimum filing fees are slated to increase: from Rs 15,000 to Rs 25,000 for individuals, and from Rs 25,000 to Rs 35,000 for other entities.
• Furthermore, Sebi plans to issue a settlement notice before a show-cause notice in certain situations, providing entities a 60-day window to apply for settlement.