India’s markets regulator proposes comprehensive reforms to its settlement process, aiming to make resolutions quicker, clearer, and less costly while maintaining deterrence, in a move that could reshape enforcement dynamics.
India’s markets regulator has proposed a wide-ranging rewrite of its settlement regime, saying the aim is to make the process faster, clearer and less costly while still preserving deterrence. In a consultation paper released on August 14, the Securities and Exchange Board of India said it wants to replace the current framework with the draft Securities and Exchange Board of India (Settlement of Proceedings) Regulations, 2026, and invited public comments until September 4, 2026. According to SEBI, the review is meant to reduce litigation and improve the way regulatory breaches are resolved.
The move follows a period in which settlement has been heavily used but, in SEBI’s view, not always efficiently. The consultation paper says the regulator received 439 settlement applications in FY26, approved 170 and rejected, withdrew or returned 199. It also cites an internal study showing that, in matters that later resulted in penalties, the settlement amount first proposed was on average eight times higher than the eventual penalty. The paper says the Supreme Court and the Securities Appellate Tribunal have also pushed SEBI towards a more objective and robust policy.
At the centre of the proposal is a simpler method for calculating settlement amounts. SEBI wants to lower some stage-based values, rebalance aggravating and mitigating factors, and cap them equally so that positive factors can offset negative ones. It also proposes to replace the current approach to base amounts with a system linked more closely to the statutory minimum penalty and the nature of the applicant, such as an individual, intermediary or market infrastructure institution. The draft would also clarify how to count defaults, how to treat repeated conduct, and how to avoid double-counting wrongful gains, which would be used only for disgorgement.
The draft also widens the kind of cases that may be settled. Under the proposed rules, matters involving market-wide impact, losses to many investors or harm to market integrity would not be barred from settlement if the loss can be remedied through monetary terms or non-monetary terms, such as corrective disclosures or the return of diverted funds. SEBI also proposes to make settlement a default option rather than an exception. Applicants whose requests are rejected would be able to try again at the appellate stage in some cases, provided they pay an additional amount and the reasons for the original refusal no longer apply.
Other changes are designed to make the process less rigid. The draft would generally allow adjudication matters to be settled without non-monetary terms, except in disclosure cases, where corrective publication would still be required. It would also limit the use of voluntary debarment or suspension to serious violations and prevent SEBI from imposing settlement obligations on directors or senior managers who were not named in the show-cause notice. On procedure, the time to file after receiving a show-cause notice would rise from 60 days to 90, though SEBI would not allow that deadline to be extended. The regulator also wants to rename summary settlement as fast-track settlement and use it for cases worth up to ₹10 lakh, while giving itself limited power to relax some deadlines by up to 30 days in genuine cases of delay.
SEBI said the changes are meant to preserve settlement as a practical alternative to prolonged enforcement, while making outcomes more predictable and proportionate. For market participants, the consultation opens a brief window to argue that the new rules could reduce uncertainty and narrow the gap between the cost of settlement and the likely penalty in contested proceedings.
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