Settlement is a significant enforcement route

Pending applications
499SEBI reported this balance at the end of 2025-26.
Settlement orders
170SEBI passed these orders during 2025-26.
Settlement charges
₹109.8 croreSEBI collected this amount during 2025-26, excluding ₹11.3 crore of disgorgement.

The Securities and Exchange Board of India’s new settlement regulations took effect on Saturday, 7 November, replacing the 2018 framework for resolving administrative and civil proceedings. The material change for listed-company investors is that cases involving misstated accounts or alleged diversion of funds can now be settled if corrective conditions are met.

Settlement already carries weight in SEBI’s enforcement work. The regulator received 439 applications in 2025-26, passed settlement orders on 170 and ended the year with 499 pending. Another 199 were rejected, withdrawn or returned, while SEBI collected ₹109.8 crore in settlement charges and ₹11.3 crore through disgorgement, which requires applicants to surrender wrongful gains or investor losses attributed to them.

The new framework therefore changes the possible outcome of hundreds of regulatory cases. A settlement can remove litigation uncertainty and produce earlier recovery. It can also end a proceeding without a full contested finding, making the conditions attached to each settlement more important than the number of cases closed.

The rules matter because settlement is a substantial part of SEBI’s enforcement system, not a route reserved for minor procedural cases.

Faster recovery helps shareholders only if settlement terms repair the company as well as close SEBI’s case.

The formula makes the cost more predictable

Minimum settlement
₹3 lakh or ₹7 lakhThe higher minimum applies to applicants that do not qualify as first-time applicants.
Corporate multiplier
4 timesThe base amount is the statutory minimum penalty multiplied by four for a body corporate.
Fast-track ceiling
₹10 lakhThe monetary route applies only when no disgorgement or remedial term is required.

The settlement amount starts with the minimum statutory penalty and adjusts it for the applicant and the case. The multiplier is four for a company, 3.5 for an executive director, controlling promoter or key managerial person, and 5.5 for a stock exchange, depository or other market infrastructure institution. Further factors cover the stage of proceedings, previous regulatory action, gravity, aggravating conduct and mitigating conduct.

Wrongful gains, losses avoided and losses caused to investors sit outside that calculation. SEBI requires them to be disgorged separately, with interest, instead of counting them both in the settlement amount and again as disgorgement. The regulator says this removes the double counting under the earlier approach.

The minimum settlement is ₹3 lakh for a first-time applicant and ₹7 lakh otherwise, but these are floors rather than standard prices. The Whole Time Member panel may accept, reject or alter a computed amount for recorded reasons. Companies can estimate the range more readily, but they cannot assume that paying the minimum will end a case.

Separate disgorgement removes double counting, but the formula still leaves SEBI discretion over both eligibility and the final amount.

Fund recovery is the main investor benefit

Interest before a final order
9% a yearThe rate applies to disgorgement and other payable amounts from the transaction date until the settlement application.
Interest after a final order
12% a yearThe rate rises after SEBI’s final order and runs until the settlement application.

A company accused of diverting or siphoning funds must bring the money back, with interest from the contravention to the settlement application, as part of the settlement terms. If alleged violations affected audited accounts, the company may also have to disclose the effect on the stock exchanges and in the explanatory notes to its next annual financial statements.

Those conditions address the balance sheet more directly than a conventional penalty. A fine paid by a listed company transfers cash from shareholders to the government. Returning diverted money restores cash or assets to the company, while corrected disclosure gives investors a basis for reassessing historical earnings, net worth and management credibility.

The benefit is conditional. Recovery depends on SEBI identifying the amount and enforcing the remedial term. The regulations permit applicants to state that financial-statement disclosures are made without admission or denial, and settlement orders do not establish every disputed fact through a contested hearing. Faster recovery helps shareholders only if settlement terms repair the company as well as close SEBI’s case.

For shareholders, repayment and corrected disclosure matter more than the amount paid to the government.

The strongest case against settlement is deterrence

Large-loss factor
₹5 croreClient losses exceeding this amount attract one aggravating factor of 0.20.
Prior settlement factor
0.20Each earlier settlement adds this amount to the regulatory-action factor.

The credible objection is that the formula does not scale sufficiently with the size of the alleged harm. CKG Nair and V Shunmugam, writing in BusinessLine, noted that two similar frauds producing gains of ₹6 crore and ₹600 crore can face the same calculated settlement amount, although the larger gain must be returned separately. Client losses above ₹5 crore add a factor of 0.20, rather than a charge that rises continuously with the loss.

They also argue that the company can pay an executive’s liability because the regulations allow applicants to pay settlement amounts individually or jointly. The financial cost can therefore fall on shareholders rather than the person whose conduct is alleged. An applicant may also settle without admitting or denying SEBI’s findings, although it cannot subsequently claim that the order lacked a factual basis.

The safeguards are substantial but incomplete. SEBI can reject matters affecting market integrity or large numbers of investors, exclude wilful defaulters, fraudulent borrowers and fugitive economic offenders, and require debarment, management exit or repayment. Whether it uses those powers consistently will determine the deterrent effect.

The strongest objection turns the assessment from clearly positive to mixed: easier closure can improve recovery while weakening personal deterrence.

The first orders will reveal the trade-off

Post-notice application period
90 daysThe notified regulations extend the period from the previous 60 days.
Pre-notice settlement period
60 daysAn entity normally receives this period after SEBI issues a settlement notice.
Transitional surcharge
20%The surcharge applies to eligible pending cases using the one-time window.

SEBI has opened a one-time 90-day window for eligible pending proceedings where an application was not filed, or was rejected, returned or withdrawn under the 2018 regulations. Applicants using it must pay 20% more than the normally calculated settlement amount. The window could reduce the 499 applications that were pending at the end of 2025-26 and draw older disputes back into negotiation.

Future cases also move earlier. SEBI must ordinarily issue a settlement notice before a show-cause notice, giving the recipient 60 days to apply, unless prosecution or interim directions are contemplated. After a show-cause notice, the notified deadline is 90 days. Some weekend reports described it as 120 days, but the regulations themselves say 90 days, so that is the period relied upon here.

Cases of up to ₹10 lakh can bypass the High Powered Advisory Committee when no disgorgement or remedial term is needed. The deciding evidence will be SEBI’s first published orders involving misstated accounts or diverted funds: the amounts recovered, disclosures required and restrictions imposed on the individuals concerned.

The first orders under the new framework will show whether SEBI uses settlement mainly to clear minor cases or also to repair serious corporate failures.

Sources

  1. Microsoft Word - Settlement Regulations 2026 --- English ---- Final · sebi.gov.in
  2. SEBI | Commencement of SEBI Settlement of Administrative and Civil Proceedings Regulations, 2026 · sebi.gov.in
  3. PR No.59/2026 Key decisions taken in the SEBI Board ... · sebi.gov.in
  4. Annual Report 2025-26 · sebi.gov.in
  5. SEBI's new settlement regulations come into force with online filing, fast-track mechanism · bfsi.economictimes.indiatimes.com
  6. Sebi's settlement norms overhaul: Rejig may aid diverted ... · business-standard.com
  7. SEBI's own path for settlement · thehindubusinessline.com