SEBI's settlement rules set for a big revamp; experts call for balance between speed and accountability

The Securities and Exchange Board of India (SEBI) has approved a new settlement framework, which will include a new formula for computation of the settlement amount and introduce a new fast-track settlement route for cases where the settlement amount doesn't exceed Rs 10 lakh.

Experts say the settlement framework must balance speed with accountability and deterrence.

Under the fast-track mechanism, monetary threshold-based fast-track cases will proceed from an internal committee directly to a panel of Whole Time Members. For violation-based fast-track settlements, SEBI will issue a notice calling upon an entity against which enforcement proceedings are being proposed to settle the matter by paying the amount stated in the notice.

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Makarand M Joshi, Founder partner of corporate compliance firm MMJC & Associates, noted that SEBI’s data showed settlement applications peaked at 703 in 2024-25, then moderated to 439 in 2025-26, with 170 applications disposed of. This, he said,d reflected both the growing use of settlement and the need to make the mechanism more efficient.

"Amendment to Settlement Regulations align with the Finance Minister and Prime Minister's emphasis on reducing litigation and enabling settlement of violations is a welcome shift towards trust-based governance. However, for serious violations like financial misstatement, diversion and fraud, the final framework must balance faster remediation with transparency, public accountability, and strong market-wide deterrence," he said.

Under the settlement framework, 
settlement terms will now comprise settlement amount, disgorgement of wrongful gains, if applicable, and remedial and regulatory terms, if applicable, the market regulator said on Thursday.

The new formula introduced by SEBI to determine the settlement amount will be based on a base amount linked to the minimum penalty provided for the violation under securities laws, with multipliers based on type of applicant, stage of proceedings, nature of the default, and the aggravating and mitigating factors.

Also, wrongful gains, loss avoided, or loss caused to investors will not be considered while determining the base amount and such amounts, where quantified, will be disgorged separately.

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SEBI will now issue a settlement notice giving 60 days to file a settlement application, and there will now be a 90-day period for filing a settlement application after service of a show cause notice. This used to be 60 days earlier.

Further, one-time window of 90 days from commencement of the Settlement Regulations, 2026 available to entities who either did not apply earlier or whose applications were rejected, withdrawn or returned under the 2018 Regulations.

The regulations also provide for settlement of cases involving misrepresentation of financial statements or diversion of funds, subject to appropriate remedial and regulatory terms, including disclosures and bringing back diverted funds.