In order to provide for an alternative and efficient dispute resolution mechanism for securities law violations, the Securities and Exchange Board of India (“SEBI”) introduced the consent mechanism through a circular in 2007[1] (which was partially modified in 2012)[2]. This was subsequently codified through the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (“2014 Regulations”), pursuant to the notification of the Securities Laws (Amendment) Act, 2014, which expressly empowered SEBI to settle matters with a view to removing any ambiguity over the validity of the settlement process. This regime specifically excluded certain serious violations (e.g. insider trading, fraud) from the purview of the settlement mechanism. Explicit provisions which enabled initiation of settlement proceedings prior to the issuance of show cause notice were also introduced, to reduce administrative burden and cost on SEBI.

Briefly, settlement is an alternative mechanism, which provides a framework to bring closure to regulatory contraventions through the payment of a settlement amount, and compliance with other directions.

Taking from the learnings of the growth and development of the securities markets, both in India as well as offshore, and in order to iron-out the issues observed with the implementation of the 2014 Regulations, SEBI constituted a High Level Committee on December 14, 2017, under the Chairmanship of Justice A. R Dave (“Committee”) to review the settlement mechanism, and to suggest necessary modifications. Based on the recommendations of the Committee and the feedback received from the stakeholders, SEBI notified the SEBI (Settlement Proceedings) Regulations, 2018 (“2018 Regulations”), with effect from January 1, 2019, thereby repealing the 2014 Regulations. The 2018 Regulations made the regime principle-based, giving more flexibility to SEBI to settle certain serious offences, except in cases having market wide impact, causing loss to a large set of investors, or affecting market integrity. This also focussed on making settlement matters relating to investors more transparent (viz. disclosure violations, refund or exit options to investors) and for the first time, introduced confidential settlement in return for cooperation with SEBI in its investigations.

Based on its experience in the implementation of the 2018 Regulations, keeping in mind the dynamic nature of the Indian securities market, and to streamline and further harmonise the 2018 Regulations, SEBI initiated a consultative process in September 2021[3] in respect of its proposed amendments, most of which were approved in the board meeting held on December 28, 2021, and subsequently notified on January 14, 2022. The theme of the changes is clear – tighter timelines, lesser legroom for misuse and review of settlement amounts to ensure they are commensurate with the gravity of alleged violations.

Below is a snapshot of some of the key amendments that have been introduced:

1. Limitation period for settlement route:

In keeping with the objective to give even lesser wriggle room, from previous regime which enabled SEBI to condone any delay beyond 60 days from the date of service of its notices to capping it at 120 days (subject to additional costs), under the present regime, the 60 day timelines is now sacrosanct. The menace it seeks to curb is avoiding applicants waiting till the end of such timeline to initiate settlement, but is it really always the case?

While this assumes that a 60 day window is sufficient to file for settlement, there may be several factors at play that one may consider while opting forthe settlement route, which may be time consuming – seriousness of the allegations, complexity of facts, involvement of multiple parties, time period to which the allegations pertain, time lag in initiation of proceedings, time consuming processes (e.g. inspection of documents relevant to notices, despite SEBI being extremely facilitative by sharing documents electronically during the pandemic), some of which may require steps to be undertaken prior to opting to settle (e.g. compliance with disclosure violations, completion of exit processes, etc.). Such tight timelines, without any flexibility, is likely to pose challenges in so far as the applicants’ ability to access the settlement mechanism is concerned. It may also lead to additional work load and costs for adjudication departments at SEBI and remains to be seen whether sanction of such strict deadlines will continue to serve the twin objectives behind introduction of the settlement mechanism, that of an appropriate sanction, remedy and deterrence without resorting to litigation, lengthy proceedings and consequent delays.

2. Other measures for rationalisation of time:

Submission of revised settlement terms (“RSTs”): As an additional measure to ensure settlements are concluded within a reasonable timeline, even at the stage of submission of RSTs by applicants, post the date of Internal Committee (“IC”) meeting(s), has been rationalised to 15 working days (from 10 working days up to a  maximum of 20 days subject to a 10% increase in costs). In SEBI’s experience, this was often misused by applicants as a procrastinating tactic, thereby delaying the conclusion of the enforcement process. Any delay or failure to submit RST within 15 working days has now been specifically added as a ground for rejection of the settlement application. On balance, such rationalisation helps both SEBI and the applicants who can now avail of the timeline to consider their settlement options thoroughly, knowing well that SEBI will not consider granting additional time even upon payment of additional fee.

Remittance of Settlement Amount: Upon issue of notice of demand, applicants are now required to adhere to a strict 30 days period to remit the settlement amount and the flexibility to get this extended by an additional period of 60 days has been done away with altogether. The rationale was that this was hardly ever used and even practically, the applicant would be more or less aware of the amount upfront, having submitted RSTs. While that may be the case, the possibility of applicants suffering adverse circumstances, hampering their ability to remit the amount committed through the RST, cannot be entirely ruled out. In such cases, it is imperative that applicants are accorded sufficient time to arrange such funds, given that practically there will always be limited visibility on when the demand notice may be issued. SEBI’s attempt to rationalise the regulations is commendable, however, whether doing away with the flexibility altogether is a step in the right direction, remains to be seen.

3. IC to mandate condition precedents

 Any non-compliance of condition precedent(s) for settlement, within the time specified by the IC, has now been added as a matter based on which settlement application may get rejected.

Notably, while SEBI has always been empowered to consider factors that it deems fit while settling proceedings, through this amendment, it has now codified IC’s power to issue condition precedents before proceeding with settlement. This was specifically discussed in SEBI’s board meeting, in the context of an open offer being required prior to settlement. This brings clarity that there may be conditions that applicants may be required to mandatorily comply with to progress their settlement applications. 

4. Different treatment of ‘name lenders’ and core entities

Apart from the different calculation formulae being applied in case of individuals and corporate applicants, SEBI seeks to distinguish main perpetrators from applicants who may fit into the category of what has been termed ‘name lenders’ and seek to apply a more rationalised approach for determination of settlement terms for such name lenders so as to ensure that those who played a more active role are subject to a higher threshold for settlement. SEBI would have to be satisfied that such ‘name lenders’ had no knowledge of illegal activities and their mere involvement was permitting the use of their account to the main entity alleged to have committed the violation. Typically, under the settlement route, the merits of the case are not the subject matter of discussion. It will be interesting to see how this provision is implemented in practice and how deep would the settlement division delve to satisfy itself in such matters, especially in cases where such individuals are not identified as such in the show cause notice upfront, or the investigation report is not available to the noticee for them to leverage on such observation made therein. Given these nuances, it would be reasonable to assume that SEBI is going to be cautious in its implementation of this change to rule out any misuse.

Pertinently, while not defined previously, proviso to Clause 2 of Chapter I of Schedule II of the 2018 Regulations (now omitted), had provided an exception for such individuals, specifying that in such cases, the settlement amount may not exceed the minimum penalty for that violation under securities laws.

5. Calculation of indicative settlement amount

Certain factors for calculation of settlement amounts have also been reviewed and revised. These for instance are (i) downward revision of values corresponding to early stage of proceedings. To deter settlements being filed at later stages, the factors have been revised upwards (from 1.20 to 1.50); (ii) rationalised application of mitigating, aggravating, deliberate and reckless factors (subject to maximum limit) that go towards determination of base amounts, acknowledging that the previous regime of application of such values to a single instance could have resulted in amounts higher or lower that may not be commensurate to the facts/ defaults. Separately, given the change in regulatory landscape regarding introduction of system driven disclosures, base amounts attributable to disclosure violations under takeover code and regulations governing insider trading have also been rationalised.


With the markets (and the miscreants) becoming more and more sophisticated, via these new amendments, SEBI hopes to draw a fine balance between ensuring that the settlement route continues to be a viable option for applicants and not misused as a way of derailing enforcement proceedings. Approaching SEBI sooner than later is encouraged and may also benefit the applicant by way of lower settlement amounts. The rationalisation towards safeguarding interests of individuals who get embroiled in violations without their knowledge; encouraging early filing of settlement applications; and making settlement amounts commensurate with the violations, are all welcome moves.

However, not all circumstances are the same, there are shades of grey. Therefore, whether the move to cap the timelines (as opposed to the option of higher amounts acting as deterrent) is a step too far? – The proof will be in the pudding.

*The authors will like to acknowledge contribution of Associates Khyati G and Himeli Chatterjee.

[1] SEBI Circular dated April 20, 2007, bearing reference no. EFD/ED/Cir-1/2007

[2] SEBI Circular dated May 25, 2012, bearing reference no. CIR/EFD/1/2012

[3] SEBI Consultation Paper on Review of the SEBI (Settlement Proceedings) Regulations, 2018 dated September 14, 2021