The Securities and Exchange Board of India (SEBI) is looking to reshape the way enforcement matters are settled, with a proposed framework aimed at making the process faster, more transparent and easier to navigate. The capital markets regulator has proposed replacing the existing SEBI (Settlement Proceedings) Regulations, 2018, with a new set of rules. Among the key recommendations are the removal of an additional 20 per cent settlement amount in certain cases involving multiple proceedings and the introduction of a quicker route for settlements involving amounts of up to Rs 10 lakh.
The proposed changes are based on stakeholder consultations and SEBI’s review of settlement applications submitted over the past two years. The regulator is also seeking public comments on the proposals until September 4.
One of the biggest changes under consideration is a fast-track mechanism for smaller settlement cases.
Under the proposed system, applications involving settlement amounts of up to Rs 10 lakh would not have to go before the High Powered Advisory Committee (HPAC). Instead, such matters would move from the Internal Committee directly to a panel of Whole Time Members.
SEBI has also proposed retaining the existing summary settlement mechanism for specified violations as part of the new fast-track framework.
Once the applicant makes the required payment, the authority responsible for the proceedings would issue the settlement order. In situations where no proceedings are pending, the order would be issued by the panel of Whole Time Members.
20 Per Cent Additional Settlement Charge May Be Scrapped
Another significant proposal concerns cases where the same noticees are involved in multiple enforcement proceedings.
At present, an additional 20 per cent settlement amount may apply when multiple proceedings are settled together. SEBI has proposed removing this additional charge, potentially reducing the financial burden for applicants seeking to resolve more than one proceeding through settlement.
The broader objective is to make the settlement route more predictable while retaining its deterrent effect.
SEBI’s analysis found a substantial difference between proposed settlement amounts and penalties eventually imposed in cases where settlement applications were either rejected or withdrawn.
According to the regulator, settlement amounts initially proposed were, on average, around eight times higher than the penalties eventually imposed after enforcement proceedings. Under the proposed methodology, SEBI expects that ratio to come down to approximately four times.
New Formula Proposed For Calculating Settlement Amounts
SEBI has also outlined a revised approach for determining settlement amounts. The proposed formula would be linked to the minimum penalty prescribed under applicable securities laws.
Different multipliers would be used depending on the category of the applicant. However, wrongful gains and losses suffered by investors would not form part of the base settlement calculation.
Instead, such amounts would continue to be recovered separately through disgorgement.
The regulator has additionally proposed clearer provisions for determining the number of defaults involved in a case. Under the suggested approach, the base amount would be determined for each default count and then combined, rather than being calculated independently for every legal provision allegedly breached.
Single Event May Count As One Default
The proposed framework could also simplify the way certain disclosure-related failures are counted.
Where several event-based disclosure failures originate from one underlying event, SEBI has proposed treating them as a single default. This could make the calculation of settlement amounts less complicated in cases involving multiple disclosure requirements linked to the same occurrence.
The regulator also wants to expand the number of mitigating factors that can be considered while determining settlement amounts.
The maximum number of mitigating circumstances would increase from three to five. Possible additional factors include a change in the control or management of a corporate entity and whether the applicant is an independent director.
SEBI Suggests New Rules For Disgorgement Interest
The regulator has also proposed changes to the manner in which interest on disgorgement amounts is calculated.
If a final order has not yet been passed, interest would be levied at 9 per cent per annum from the date of the relevant transaction until the settlement application is submitted.
If a final order has already been issued, the proposed 9 per cent annual interest would apply from the transaction date until the date of the final order. Following the final order, the rate would rise to 12 per cent annually until the settlement application is filed.
The proposal also specifies that interest would not itself attract further interest.
For cases involving a large number of transactions, calculating interest individually from every transaction date may be difficult. SEBI has therefore proposed using a weighted annual average and calculating the interest from the midpoint of the relevant year in such circumstances.
Settlement Application Deadline May Be Extended
SEBI is also considering giving applicants more time to seek settlement after receiving a show-cause notice. Currently, a settlement application has to be filed within 60 days of receiving the notice. The regulator believes this window may be inadequate for some companies and entities, particularly those headquartered outside India.
Complex organisational structures and overseas operations can require additional time for internal decision-making. SEBI has therefore proposed extending the existing 60-day deadline.
