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SEBI Settlement Mechanism – An Overview

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The evolution of the SEBI Settlement Mechanism underscores the dynamic landscape of regulatory compliance in the financial markets. The settlement mechanism provides an opportunity to any person against whom proceedings have been initiated and are pending or may be initiated by SEBI to settle the same.

While SEBI came out with procedural guidelines for settlement for the first time in its circular dated April 20, 2007, the Parliament only recognised the power of SEBI to pass settlement orders with the addition of Section 15JB to the SEBI Act, 1992 in 2014 with retrospective effect form 2007.

To streamline and codify settlement proceedings, SEBI enacted the SEBI (Settlement of Administrative and Civil Proceedings) Regulations in 2014. Subsequently, the regulatory framework was revisited by a High Level Committee under the Chairmanship of Justice AR Dave which gave birth to the current of the SEBI (Settlement Proceedings) Regulations in 2018.

The 2018 Regulations expanded the ambit of settlement mechanism reflecting the regulatory body’s commitment to comprehensive oversight.

Under the 2018 regulations, a person against whom SEBI proceedings have been initiated or may be initiated may file a settlement application while (i) admitting the findings of fact and conclusions of law or (ii) neither admitting nor deny the findings of fact and conclusions of law. The applicants are required to furnish a written waiver from later preferring an appeal before SAT or any other court of law.

SEBI may accept settlement proposals, taking into account factors such as the nature, gravity, and impact of the alleged violations. The terms of settlement can encompass both monetary and non-monetary components.

To illustrate the process, let’s revisit the Settlement Order dated July 14, 2021, in the matter involving the late Mr. Rakesh Jhunjhunwala and others regarding dealings in the Aptech Ltd. scrip with alleged Unpublished Price Sensitive Information. In this case, a settlement application was submitted by several of the entities involved, which SEBI approved without admission or denial findings of fact and conclusions of law.

Mr. Sumit Agrawal, Managing Partner at Regstreet Law Advisors, who had represented the late Mr. Rakesh Jhunjhunwala before SEBI offered his insights into the SEBI settlement mechanism. He emphasized that settlements allow defendants to resolve insider trading charges without admitting to the underlying facts. The language shift from “neither admits nor denies” to “without admitting or denying the findings of fact and conclusions of law” in the new settlement regulations reflects the preservation of legal innocence until proven guilty. Settlements often serve as a means to bring closure to matters and avoid protracted litigation.

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com.

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