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SEBI replaces discretionary settlements with formula-based penalties

SEBI replaces discretionary settlements with formula-based penalties

Rule Changes

Rules in force since November 7 add fast-track route, online filing and separate disgorgement of wrongful gains

4 days ago: New regulations take effect

Overview

Updated Yesterday

The Securities and Exchange Board of India put its formula-based settlement rules into force on November 7. Companies accused of securities violations now calculate a settlement amount from a published formula instead of negotiating a number with the regulator.

SEBI also opened online filing, a settlement calculator and a help desk on November 6. Pending cases have 90 days from the November 7 commencement to apply, and applicants who refile rejected or withdrawn cases pay 20% more. Wrongful gains are recovered separately, with 9% annual interest from the transaction date to filing, or 12% after a final order.

Why it matters

Indian companies facing securities probes now get predictable settlement costs, with a fast-track route for small cases and separate disgorgement of wrongful gains.

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Key Indicators

₹10 lakh
Fast-track settlement threshold
Cases with settlement amounts up to ₹10 lakh skip the advisory committee and go straight to SEBI's panel of whole-time members.
40%
Settlement applications rejected or withdrawn under old rules
Of 1,576 applications filed over three years, 640 were returned, rejected, or withdrawn.
8x
Ratio of proposed settlement amounts to final penalties
SEBI's study of cases where settlement failed found proposed amounts averaged 8 times the penalty later imposed.
90 days
Window to file a settlement application after a show-cause notice
The deadline rose from 60 days under the 2018 framework to 90 days under the 2026 rules.
1,576
Settlement applications filed in three years
Under the 2018 framework, 568 resulted in settlement and 640 were returned, rejected, or withdrawn.

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Organizations Involved

Securities and Exchange Board of India
Securities and Exchange Board of India
Regulatory Agency
Regulations came into force on November 7, 2026; online filing and calculator are live

India's securities market regulator, responsible for enforcing securities laws and settling administrative and civil proceedings.
IC
SEBI Internal Committee
Regulatory Committee
Reviews settlement applications under the new framework

SEBI's internal body that reviews settlement applications and determines settlement terms.
HP
High Powered Advisory Committee (HPAC)
Advisory Committee
Advisory role in settlement process, skipped for fast-track cases

Advisory committee that reviews settlement applications before they reach SEBI's Panel of Whole Time Members.

Timeline

2018 November 2026

7 events Latest: 4 days ago
Tap a bar to jump to that date

  1. New regulations take effect

    Latest Regulation

    The 2026 regulations come into force, repealing the 2018 settlement framework.

  2. SEBI opens online settlement filing and calculator

    Announcement

    Ahead of the rules taking effect, SEBI launched an online application form, a settlement-amount calculator, FAQs and a help desk.

  3. New settlement framework reported in financial media

    Announcement

    Financial media report the formula-based settlement framework and fast-track route.

  4. SEBI announces notification of new settlement regulations

    Regulation

    SEBI says the regulations were notified on October 8, 2026, and will come into force on November 7.

  5. Regulations published in Gazette of India

    Publication

    New regulations published in the Gazette of India, starting the 30-day countdown.

  6. SEBI board approves new settlement framework

    Decision

    SEBI's board approves a formula-based settlement framework after stakeholder consultations.

  7. SEBI introduces settlement framework

    Regulation

    SEBI (Settlement Proceedings) Regulations, 2018 take effect, allowing entities to settle enforcement proceedings.

Scenarios

1

Fast-track route drives surge in small-case settlements

Likely Resolves by Q2 2027

Discussed by: SEBI and financial media covering the new framework

The ₹10 lakh fast-track route skips the High Powered Advisory Committee, moving cases directly from the Internal Committee to the Panel of Whole Time Members. If the route proves popular, SEBI's annual report will show a jump in settlements for minor violations, reducing the enforcement backlog.

2

Formula-based amounts boost overall settlement rate

Likely Resolves by Q2 2027

Discussed by: SEBI, which designed the formula to address the 40% rejection rate

The formula makes settlement amounts predictable, which could encourage more entities to apply. SEBI's study showed proposed amounts were 8 times higher than final penalties, deterring settlements. If the formula works, the settlement rate should rise above the historical 36%.

3

Formula-based settlement amount challenged in court

Possible Resolves by End of 2027

Discussed by: Legal analysts tracking securities enforcement

A company could challenge a settlement amount calculated under the new formula, arguing it exceeds statutory limits or is arbitrary. Such a challenge would go to the Securities Appellate Tribunal (SAT) or the Supreme Court, potentially forcing SEBI to revise the formula.

4

One-time window pulls in previously rejected applicants

Likely Resolves by Feb 5, 2027

Discussed by: SEBI's settlement regulations and law-firm analyses of the transitional provisions

SEBI opened a 90-day window from commencement for proceedings still pending, including applications it rejected, returned, or that were withdrawn. Applicants pay 20% more than the formula amount. A rush would show up in SEBI's settlement orders early next year.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

2018

SEBI Settlement Proceedings Regulations 2018

SEBI introduced its first comprehensive settlement framework, allowing entities to settle enforcement proceedings by paying a negotiated amount determined through a discretionary process.

Then

The framework processed 1,576 applications over three years, but 40% were rejected or withdrawn and only 568 resulted in settlement.

Now

A SEBI study found proposed settlement amounts averaged 8 times higher than final penalties, deterring entities from seeking settlements.

Why this matters now

The 2026 regulations replace this framework, addressing its unpredictability with a formula-based approach and a fast-track route for small cases.

2024-2026

SEBI's settlement outcome study (2024-2026)

SEBI studied settlement applications from the last two years where settlement couldn't be reached and penalties were imposed, finding proposed amounts averaged 8 times higher than final penalties.

Then

The study informed the design of the new formula-based framework, including the base amount linked to minimum statutory penalties.

Now

It led directly to the 2026 regulations, which separate disgorgement of wrongful gains from the settlement amount to remove double counting.

Why this matters now

The study is the evidence base for the new formula, which aims to make settlement amounts more predictable and closer to actual penalties.

Sources

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