SEBI’s proposed settlement overhaul seeks to make settlements more predictable while allowing greater flexibility in serious cases where investor harm and market impact can be adequately addressed.
Market regulator Securities and Exchange Board of India (SEBI) has proposed a revamp of its settlement framework, including lower settlement amounts and a more flexible approach to cases involving market-wide impact and investor losses.
The regulator said an analysis of settlement applications filed over the past two years, excluding outliers, showed that settlement amounts proposed in cases that were later adjudicated were, on average, eight times the penalties ultimately imposed. Under the proposed framework, SEBI expects the gap to narrow to about four times.
New formula for settlement amounts SEBI has proposed linking the base settlement amount to the minimum penalty prescribed under the SEBI Act, Securities Contracts (Regulation) Act and Depositories Act. Different multipliers would apply depending on the applicant, ranging from 2 for independent directors to 5.5 for market infrastructure institutions.
The base amount would be calculated separately for each count of default and then aggregated.
The regulator has also proposed clearer rules for determining defaults. For instance, multiple insider trading transactions based on the same unpublished price-sensitive information could be treated as a single default.
SEBI has proposed removing wrongful gains and losses caused to investors from the base amount used to calculate settlement. These amounts, however, would continue to be recovered through disgorgement.
The move is aimed at avoiding double counting, as wrongful gains can currently be factored into both the settlement amount and disgorgement.
“The proposed changes recognise an important practical reality: settlement cannot work if the economic cost of settling is disproportionately higher than the likely outcome of adjudication,” said Sumit Agrawal, managing partner at Regstreet Law Advisors and a former SEBI officer.
He further said, by simplifying the formula, rationalising the treatment of defaults and removing the double counting of wrongful gains, the new framework seeks to restore the commercial logic of settlement. If implemented well, it should encourage earlier resolution of enforcement cases, reduce litigation and allow regulatory resources to be focused on matters that genuinely require adjudication.
Market-wide impact cases SEBI has also proposed a significant change in how it handles cases involving market-wide impact, losses to a large number of investors or an adverse effect on market integrity.
Under the existing framework, such factors can prevent a case from being settled. These cases currently do not go through the scrutiny of the Internal Committee (IC) and High-Powered Advisory Committee (HPAC). Applicants also do not get the same opportunity to present their case before the IC.
Under the proposed framework, the IC and HPAC would 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. The key consideration would be whether the impact, investor losses or damage to market integrity can be adequately addressed through monetary and non-monetary terms.
The proposal is particularly relevant to cases involving financial misstatement and diversion of funds.
SEBI has proposed that where funds have been diverted or siphoned off, applicants could be required to bring the money back to the company along with interest. Where financial statements have been affected, appropriate disclosures could also form part of the settlement terms.
Agrawal said the proposed change on market-wide impact could make the settlement mechanism more flexible.
“The proposed approach is more principled as it asks whether the regulatory concerns can be adequately addressed through appropriate monetary and non-monetary terms rather than treating market-wide impact as an automatic bar,” he said.
“Seriousness should determine the scrutiny and terms of settlement; it need not, by itself, make a matter incapable of settlement.”
Other Important changes SEBI has proposed a fast-track settlement route for cases involving settlement amounts of up to Rs 10 lakh. Such matters would bypass the HPAC and move from the IC directly to the panel of Whole Time Members.
The regulator has also proposed increasing the deadline for filing a settlement application after a show-cause notice from 60 days to 90 days.
SEBI has also proposed issuing a settlement notice before a show-cause notice, except in cases where prosecution is proposed. The notice would give the concerned entity an opportunity to seek settlement within 60 days.
SEBI has also proposed giving applicants another opportunity to seek settlement in cases where an earlier application was rejected. A fresh application could be filed at a later stage if the reasons for the earlier rejection no longer apply, subject to an additional 20 percent settlement amount. The option would also be available at the SAT or Supreme Court stage.
In addition, 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. Such applications would have to be filed within 90 days of the new regulations coming into force and may attract an additional 10 percent settlement amount.
SEBI has proposed allowing voluntary debarment from the securities market or voluntary suspension from trading as a settlement term in serious cases. This could apply where the violation is grave, the applicant is a key operator or the main beneficiary of the violation, or the applicant is a repeat offender.
The proposed framework would provide for separate calculation of the settlement amount for each applicant in cases involving multiple applicants with joint and several liability for wrongful gains. However, disgorgement of wrongful gains would continue to remain joint and several. The change is aimed at bringing greater consistency in the calculation of settlement amounts across multiple noticees.
Wrongful gains and losses caused to investors would no longer be included in the base amount used to calculate the settlement amount. However, such amounts would continue to be recovered separately through disgorgement, along with applicable interest. The move is aimed at avoiding double counting of wrongful gains in the settlement calculation
SEBI has invited public comments on the proposed Settlement Regulations, 2026 until September 4, 2026.