Sebi’s annual report has shown that on an average three settlement applications were filed last year, almost double compared to FY24, as enforcement and investigation by the regulator improved, making it difficult for offenders to contest charges.
Capital market offenders rushed to bury the hatchet and settle charges last year, data from Sebi’s annual report revealed, with offenders opting to buy peace with the regulator by paying settlement charges rather than contest the matter at judicial forums.
Sebi’s annual report for FY25 showed that the number of settlement applications nearly doubled last year, with the settlement amount up nearly eight times compared to a year ago. The trend amounts to nearly three settlement applications each working day received by Sebi last year.
The annual report published by Sebi showed that during FY25, Sebi received 703 applications for settlement, compared to 403 such applications in FY24. The total amount received by Sebi as settlement charges rose from Rs 94.5 crore in FY24 to Rs 799 crore in FY25. This number is expected to further rise as major settlement cases like the one involving NSE are pending. The exchange has approached Sebi to settle legacy issues of co-location and the dark fibre case, offering nearly Rs 1,400 crore as charges. NSE has also paid Rs 40.35 crore in June this year for violations found during Sebi’s inspection for the period between February 2021 and March 2022.
A top regulatory official told Moneycontrol on condition of anonymity that this rush for settlement is due to strong enforcement by the regulator. “With the existing tools and quality of enforcement the level of evidence and investigation has gone up, the evidences are strong and upfront, so offenders have less scope to contest, and in days to come this will further go up,” the official said.
However, Sumit Agrawal, a former Sebi officer and Senior Partner at Regstreet Law Advisors called it a sign of coercion, rather than voluntary resolution. Agrawal said, “Sebi’s enforcement posture leaves little room for genuine contest, virtually every SAT order granting relief is met with an appeal to the Supreme Court, often on narrow technical or procedural grounds, and pursued with the full weight of its institutional resources. Against such odds, ‘settlement’ becomes less a choice and more a compelled outcome.”
As per the data, out of 703 applications, Sebi disposed of 284 applications by passing appropriate settlement orders, while 272 applications were returned, rejected or withdrawn by applicants. These settlement applications were mainly for alleged violations of various regulations, like Takeover Regulations, insider trading, fraudulent trading practices regulations, disclosure regulations, FPI Regulations, Mutual Fund regulations etc. For 284 applications settled during FY25, Rs 799 crore were collected as settlement charges, and another Rs 65 crore or so were collected as disgorgement charges.
Regstreet’s Sumit Agrawal said the lack of statutory timelines for Sebi investigations and orders can prolong proceedings indefinitely, creating commercial uncertainty. “Orders frequently rest on circumstantial evidence, where the burden of proof effectively tilts the scales against the noticee. With no statutory timelines for issuing confirmatory orders, completing investigations, or delivering final orders, proceedings can linger indefinitely, imposing commercial uncertainty that most businesses cannot afford,” Agrawal added.
Legal experts also point towards the need to overhaul the settlement system, stating that it is bogged down by opaque decision-making and mathematical formulae that are complex and arbitrary.
One former Sebi official said that settlement orders now provide detailed accounts of alleged violations, unlike earlier, when the grounds for settlement were often not disclosed. This change, he said, reduces the confidentiality that once made settlements a preferred route for those accused. “Many times, individuals used to settle the cases through settlement mechanism because it did not expose the grounds of offence and hence was a preferred way to save the reputation. But now the alleged offenders have to pay the money as well as their alleged violations are also made public,” the official said.
The rising preference for settlements appears to have eased litigation at the Securities Appellate Tribunal (SAT). Only 533 new appeals were filed with SAT in FY25, down from 821 in the previous year.