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The Securities and Exchange Board of India (SEBI) has issued a consultation paper proposing to replace the SEBI (Settlement Proceedings) Regulations, 2018 with a new framework, the Securities and Exchange Board of India (Settlement of Proceedings) Regulations, 2026.
For now, this is only a proposal. It does not create any new compliance requirement. SEBI may make changes after reviewing stakeholder comments and completing its internal process. Until a final notification is issued and the new rules take effect, the 2018 regulations continue to apply.
The proposed changes are important for listed companies, market intermediaries, directors, key managerial personnel, individual applicants and other persons facing, or expecting, eligible SEBI enforcement proceedings. SEBI has invited comments on the draft by 4 September 2026.
A consultation paper allows the regulator to place a policy proposal before the public and obtain feedback before making a final decision. It can explain the regulator's preferred approach, but it is not the same as a notified and effective regulation.
The draft states that the proposed 2026 Regulations would take effect on a date to be inserted. That date has been left blank. Businesses should therefore avoid treating the comment deadline, the PDF creation date or the publication of the consultation paper as the commencement date.
The consultation paper also says that the draft may change after public comments and internal review. Any compliance plan based on the proposal should consequently be treated as scenario planning, not as implementation of an existing legal duty.
SEBI's settlement process gives eligible parties another way to close certain civil and administrative proceedings. Instead of going through a long enforcement and appeal process, a matter can be settled on agreed financial terms and, where required, other conditions.
The settlement framework received statutory recognition through amendments to the SEBI Act, 1992, the Securities Contracts (Regulation) Act, 1956 and the Depositories Act, 1996. The first settlement regulations were notified in 2014. They were later replaced by the SEBI (Settlement Proceedings) Regulations, 2018, which came into force on 1 January 2019.
SEBI says it reviewed the existing framework after discussions with stakeholders and a clause-by-clause examination of the 2018 Regulations. The proposals were also considered by the High Powered Advisory Committee.
The consultation paper identifies a practical concern with the existing financial model. According to SEBI's study of selected unsuccessful or withdrawn settlement applications from the preceding two years, after excluding outliers, the calculated settlement amount was on average about eight times the penalty ultimately imposed. SEBI estimates that its proposals could bring this comparison down to about four times. This observation comes from the study described in the consultation paper, it should not be read as a universal ratio for every case.
SEBI wants the settlement process to remain strict enough to discourage violations, while making it easier to understand, more predictable and less dependent on discretion. The aim is also to make settlement a more practical option than lengthy litigation.
| Area | Existing position described by SEBI | Proposed approach |
| Settlement amount | Indicative amount based on multiplying and benchmark factors, plus legal costs | Base amount multiplied by stage, regulatory history, gravity, aggravating and mitigating factors |
| Application limitation | Generally 60 days from service of the show-cause notice for pending Board proceedings | Proposed increase to 90 days |
| Fast disposal | Summary settlement for specified violations | Violation-based and monetary-threshold-based fast-track routes |
| Monetary fast-track threshold | No general threshold route described | Up to Rs 10 lakh where no non-monetary term applies |
| Filing fee for a natural person | Rs 15,000 | Rs 25,000 |
| Filing fee for other entities | Rs 25,000 | Rs 35,000 |
| Refiling after withdrawal | 50% additional settlement amount | 20% additional settlement amount |
| Pre-show-cause opportunity | Lower calculation factor exists, but the paper says there is no general mechanism to alert a person | Proposed settlement notice before a show-cause notice, subject to exceptions |
| Timeline relaxation | No specific relaxation provision identified | Up to 30 days in qualifying circumstances, excluding the main limitation period |
| Pending applications | No specific relaxation provision identified | Proposed transition options based on the stage reached |
This table captures the direction of the proposals. The actual outcome in any matter would still depend on the final regulations, the alleged defaults, the enforcement stage, applicable factors and SEBI's decision-making process.
The 21 proposals cover changes to settlement calculations, application rules, fees, timelines and other key parts of the settlement process.
| No. | Proposal | Main proposed change | Draft reference |
| 1 | Settlement-amount calculation | Replace the existing model with BA × (S + R + G + A - M) | Regulations 10-20 |
| 2 | Application limitation | Increase the post-show-cause period from 60 to 90 days | Regulation 4(1) |
| 3 | Pre-disclosures | Move disclosure compliance to a later stage in the settlement process | Regulation 25(4)(c) |
| 4 | Market-wide impact and investor loss | Permit committee-level examination of whether monetary and non-monetary terms can address the concerns | Regulation 22(4)(c) |
| 5 | Non-monetary terms in adjudication | Ordinarily avoid non-monetary terms where the show-cause notice seeks only monetary penalty, except disclosure terms | Regulation 5(iv) |
| 6 | Voluntary debarment or suspension | Set clearer circumstances for using these terms | Regulation 5(v) |
| 7 | Filing fees | Raise fees to Rs 25,000 for natural persons and Rs 35,000 for others | Schedule I, Part B |
| 8 | Refiling after withdrawal | Reduce the additional amount from 50% to 20% | Regulation 4(5) |
| 9 | Application after rejection | Permit a fresh application at a later stage if the reason for rejection no longer applies, with 20% additional amount | Regulation 4(4) |
| 10 | Fast-track settlement | Create violation-based and Rs 10 lakh threshold-based routes | Regulations 26-30 |
| 11 | Pre-show-cause settlement notice | Give a proposed 60-day opportunity before a show-cause notice, subject to exceptions | Regulation 31 |
| 12 | Hearing before revocation | Provide an opportunity for a hearing before revoking a settlement order | Regulation 41(2) |
| 13 | Relaxation of timelines | Allow limited relaxation where delay is beyond the applicant's control | Regulation 44 |
| 14 | Redundant provisions | Remove provisions concerning adjudication penalty formula and compounding terms that SEBI says are not used | Reflected through omission from the new draft |
| 15 | Application form | Simplify and clarify required information | Schedule I, Part A |
| 16 | Definitions | Add or revise key expressions such as alleged default, days and specified proceeding | Regulation 2 |
| 17 | Terms affecting non-applicants | Generally restrict settlement terms to the applicant | Regulation 5(vii) |
| 18 | Financial misstatement and fund diversion | Provide disclosure, restoration and related settlement treatment | Regulation 18(3) |
| 19 | Calendar days | Replace mixed references to working and calendar days with “days” meaning calendar days | Regulations 2, 22 and 25 |
| 20 | Multiple applicants | Calculate the settlement amount separately for each applicant, while preserving joint treatment where applicable for disgorgement | Regulation 10(3) and Regulation 17(2) |
| 21 | Pending applications | Apply different transition routes depending on the application's stage | Regulation 46 |
The proposed changes cover key parts of the settlement process, including the settlement amount, application timelines, fees, fast-track routes and pending cases. Here is a closer look at what each proposal would change.
1. A New Settlement-Amount Formula
The draft proposes a new formula for working out the settlement amount:
Settlement Amount = BA × (S + R + G + A - M)
The calculation would take into account the applicant's role, the stage of the case, any previous regulatory action, the seriousness of the alleged violation, and factors that may increase or reduce the amount. The committees could still recommend a different amount in a particular case, but the reasons would have to be recorded.
2. Ninety Days to Apply After a Show-Cause Notice
The proposed time limit would increase from 60 to 90 days from the date of service of the show-cause notice or supplementary notice, whichever is later.
This would give applicants more time to review the allegations, collect records and decide whether to pursue settlement. Different rules would apply to matters pending before the Securities Appellate Tribunal or the Supreme Court.
3. Disclosure Compliance at a Later Stage
The draft proposes moving certain disclosure requirements to a later stage in the settlement process. The applicant would make the disclosure after approval by the Panel of Whole Time Members but before the settlement order is passed.
This could reduce the risk of making a sensitive disclosure before knowing whether the settlement will actually be approved.
4. Market-Wide Impact and Investor Loss
The draft would allow the relevant committees to examine whether serious concerns involving investor loss, market integrity or market-wide impact can be addressed through monetary and non-monetary terms.
This does not mean such matters would automatically qualify for settlement. The Panel of Whole Time Members would still have the final say.
5. Non-Monetary Terms in Adjudication Cases
Where a show-cause notice proposes only a monetary penalty, the draft says non-monetary settlement terms should generally not be added.
Disclosure-related terms would remain an exception where corrective action is needed.
6. Clearer Use of Voluntary Debarment and Suspension
The draft seeks to provide clearer situations for using voluntary debarment or suspension. These terms may apply in serious cases, including those involving key operators, main beneficiaries or repeat defaulters.
They may not be necessary where monetary terms are sufficient to address the issue.
7. Higher Non-Refundable Filing Fees
The proposed fees would increase as follows:
| Applicant | Existing fee | Proposed fee |
| Natural person | Rs 15,000 | Rs 25,000 |
| Other applicants | Rs 25,000 | Rs 35,000 |
The filing fee would remain separate from the settlement amount and other financial terms.
8. Lower Additional Amount after Withdrawal
The additional settlement amount for refiling after withdrawal would fall from 50% to 20%.
This could make it easier for applicants to reconsider settlement later, although withdrawal would still have consequences under the proposed framework.
9. A Later Application After Rejection
An applicant whose settlement application was rejected could apply again at a later stage if the reason for rejection no longer exists.
A 20% additional settlement amount would apply, and a fresh application would not guarantee acceptance.
10. Two Fast-Track Settlement Routes
The draft proposes two fast-track options:
The violation-based route would generally require payment and compliance within 30 days, with a possible 15-day extension in appropriate cases.
11. Settlement Notice Before a Show-Cause Notice
In specified cases, SEBI proposes giving a person a 60-day opportunity to apply for settlement before issuing a show-cause notice.
There would be exceptions, including certain prosecution and fast-track matters. SEBI could also change the proposed charges later.
12. Hearing Before Revocation
Before revoking a settlement order, the applicant would get an opportunity to be heard.
This is important because revocation could bring the underlying proceedings back into action, while amounts already paid would not be refunded.
13. Limited Relaxation of Timelines
The draft would allow limited relaxation where a delay was caused by circumstances beyond the applicant's control.
The power would apply only within the proposed limits and would not extend the main 90-day application period. A 1% increase in the settlement amount may apply in certain payment-related extensions.
14. Removal of Redundant Provisions
SEBI proposes removing provisions it considers unnecessary because they have not been used in practice.
These include provisions dealing with penalty calculations in adjudication matters and certain compounding matters that are handled under separate legal processes.
15. A Revised Settlement Application Form
The application form would be simplified and clarified.
Applicants would still need to provide details about the proceedings, alleged violations, proposed terms, disclosures and supporting documents. Missing key information could result in the application being returned.
16. New and Revised Definitions
The draft proposes clearer definitions for terms such as alleged default, days, settlement term and specified proceeding.
It also proposes treating “days” as calendar days, which would make the calculation of deadlines more consistent.
17. Settlement Terms for Applicants
The draft generally seeks to prevent settlement terms from requiring someone other than the applicant to take or avoid a particular action, unless the regulations specifically allow it.
This could provide greater clarity for directors and key personnel who are not themselves applicants.
18. Financial Misstatement and Fund Diversion
The draft provides specific treatment for cases involving financial misstatements or diversion of funds.
Depending on the circumstances, settlement terms may require public disclosure, corrections to financial statements or restoration of diverted funds with applicable interest.
19. “Days” to Mean Calendar Days
The draft proposes using calendar days instead of having different references to working days and calendar days.
This would make deadlines easier to interpret, although applicants would need to account for weekends and holidays when planning filings and payments.
20. Separate Calculation for Each Applicant
Where multiple applicants are involved, the settlement amount would generally be calculated separately for each person.
However, joint treatment may still apply to disgorgement, investor losses or other amounts where joint and several liability exists.
21. Transitional Treatment of Pending Applications
The draft proposes different treatment depending on where a pending application stands when the new framework begins.
Applications with approved terms could continue under the existing rules, while some applications would get an option to move to the new framework. Applications that have not yet received a recommendation could be processed under the proposed new regulations.
The proposed formula is:
Settlement Amount (SA) = BA × (S + R + G + A - M)
If the total of S + R + G + A - M is below one, the draft says it must be treated as one.
1. Base Amount (BA)
The base amount would begin with the minimum penalty under the relevant securities law, multiplied by a factor based on the applicant category:
| Applicant category | Proposed multiplier |
| Independent director | 2 |
| Natural person | 2.5 |
| Non-executive director | 3 |
| Executive director, promoter in control or key managerial person | 3.5 |
| Company, intermediary, pooled investment vehicle and others | 4 |
| Market infrastructure institution | 5.5 |
The draft contains additional rules for multiple defaults, overlapping violations, lead conspirators and independent directors alleged to have actively participated in or benefited from fraud. It also says the base amount should not be less than the penalty already imposed for the alleged default.
2. Stage-of-Proceeding Factor (S)
| Stage when application is filed | Proposed S value |
| Voluntary or suo motu | 0.20 |
| Before show-cause notice | 0.40 |
| After show-cause notice | 0.60 |
| Pending before specified Board/designated-member stage | 0.80 |
| Pending before Securities Appellate Tribunal | 1.00 |
| Pending before Supreme Court | 1.50 |
Where several proceedings arise from the same cause of action, the factor for the most advanced proceeding would apply.
3. Regulatory Action Factor (R)
The factor reflects the applicant's prior regulatory history:
| Prior action | Proposed value |
| No prior order | 0 |
| Administrative warning | 0.10 per warning |
| Settlement order | 0.20 per order |
| Adjudication, direction or disciplinary order | 0.30 per order |
The draft says stayed orders would also be counted. It also appears to contain duplicate numbering for sub-regulation (3), which should be corrected in the final drafting.
4. Gravity Factor (G)
An additional 0.25 is proposed for applications made without admitting the violation. Other specified gravity values include 0.25 for failure to make an open offer, 0.50 for certain offer-document violations, 0.50 for specified insider-trading violations and 1.50 for fraudulent and unfair trade-practice violations.
5. Aggravating Factor (A)
An aggravating factor would increase the settlement amount. Each applicable factor carries a value of 0.20, with a maximum of five factors. These may include obstructing the investigation, giving incorrect information, continuing the violation for a long period, causing client losses above ₹5 crore, ignoring earlier regulatory directions, gaining financially from the violation, repeated defaults and serious internal control failures.
6. Mitigating Factor (M)
A mitigating factor would work in the opposite direction and could reduce the settlement amount. Each factor carries a value of 0.20, with up to five factors considered. Examples include limited involvement, strong cooperation, accepting responsibility early, taking corrective action, compensating investors, financial difficulty and a change in management after the violation.
7. Minimum Amount and Other Additions
The draft proposes a minimum settlement amount of:
Legal costs may be added for proceedings defended by SEBI before the Securities Appellate Tribunal or Supreme Court. A 20% additional amount is proposed where settlement covers a proceeding under Section 12(3) of the SEBI Act together with another proceeding arising from the same cause of action.
Disgorgement and interest are separate matters. Draft Regulation 20 proposes 9% annual interest from the transaction date to the application date where no final Board order exists. Where a final order exists, it proposes 9% until the final order and 12% thereafter until the application. Interest would be charged only on the principal disgorgement amount, not on accumulated interest.
Because the calculation depends on the alleged defaults, statutory minimum penalty, applicant category, procedural stage and case-specific factors, a generic worked example could be misleading. A proper estimate should use the actual record and the final notified regulations.
The draft would allow an entity to apply for settlement of a “specified proceeding.” This expression broadly covers eligible proceedings that may be initiated by SEBI, proceedings pending before SEBI and appeals pending before the Securities Appellate Tribunal or the Supreme Court under the statutory provisions identified in the draft.
The proposed scope is not unlimited. Settlement would generally be unavailable where an audit, investigation, inspection or examination concerning the cause of action is still pending, except for a confidentiality application. It would also exclude an applicant categorised as a wilful defaulter, fraudulent borrower or fugitive economic offender.
Most importantly, Draft Regulation 6 preserves the Panel of Whole Time Members' authority to accept or reject an application in the interests of investors or development and regulation of the securities market. Eligibility to apply should not be confused with a right to obtain settlement.
The ordinary process can be understood as follows:
Filing an application would not automatically stop the enforcement process. The draft says proceedings may continue, but the final enforcement order would be kept in abeyance until the settlement application is decided. Interim directions may still be issued to protect investors or market integrity.
The draft proposes two fast-track routes to make settlement quicker in certain lower-risk or lower-value matters, while keeping the required approvals and compliance checks in place.
Before initiating proceedings for specified, generally procedural defaults, SEBI could issue a fast-track notice stating the alleged violation, proposed amount and any non-monetary term. The recipient would generally have 30 days to file, pay and comply. A correction to the calculation could be requested when filing.
This notice would not prevent SEBI from changing the enforcement action or charges. Failure to use the route within time may mean that a later settlement application is permitted only at the Tribunal or Supreme Court stage after the Board or adjudication proceeding ends.
If the settlement amount worked out by the Internal Committee is up to Rs 10 lakh and no non-monetary term is involved, the matter could skip the High Powered Advisory Committee. The revised terms would go directly to the Panel of Whole Time Members for consideration.
The proposed route may reduce processing layers for lower-value matters, but it still requires a decision by the appropriate authority and compliance with the approved terms.
The proposed regulations contain a broad, non-exhaustive list of possible non-monetary terms. These include improved internal procedures, employee training, enhanced audit and reporting, temporary suspension of business activity, exit from management, clawback, disgorgement, restrictions on acting as an officer or director, cancellation or lock-in of securities and temporary restraint from accessing the securities market.
The selection of a non-monetary term would depend on the applicant's conduct, role, gravity of the alleged default, market impact, investor harm, gains, remedial measures and the need to prevent recurrence.
Businesses should not assume that payment alone will conclude every matter. For serious governance, disclosure or investor-harm cases, corrective conduct may be as important as the monetary amount.
The draft retains a separate route under which an applicant may seek confidentiality in return for limited admission for settlement purposes and cooperation in relation to an alleged violation.
An application would need to provide detailed information about the applicant, other participants, the arrangement, its duration, involved persons, other authorities approached and the evidence offered. Interim confidentiality and assurance may be available while SEBI evaluates cooperation.
The draft proposes possible reductions in the calculated settlement amount based on priority status: up to 90% for first priority, up to 50% for second priority and up to 25% for third or later priority. These are maximum possible reductions, not automatic entitlements.
Confidentiality should not be understood as blanket immunity. The applicant would need to provide full, true and continuing cooperation, and the draft contains conditions governing protection and disclosure.
| Document | Main purpose | Important point |
| Settlement application | Gives identity, case, facts, charges and proposed terms | Full and true disclosure is required |
| Processing-fee proof | Shows payment of non-refundable fee | Separate from settlement amount |
| Undertaking and waiver | Records jurisdictional, procedural and appellate waivers | Continues to have consequences even after rejection or withdrawal in specified respects |
| Settlement calculation statement | Sets out BA, S, R, G, A and M | Legal costs and disgorgement shown separately |
| Fast-track notice | Offers settlement for specified violations before proceedings | Subject to strict filing and payment period |
| Settlement notice | Gives pre-show-cause settlement opportunity | Does not freeze or guarantee the stated charges |
| Confidentiality application | Provides information and evidence for cooperation-based protection | Must include prescribed particulars and supporting undertaking |
Applicants would also need the relevant show-cause notice or communication, authorisation or board resolution, identity and registration documents, details of related proceedings and supporting calculations.
The draft still has a few areas that may need clarification before the final regulations are issued:
These observations concern the drafting of the proposal. They do not amount to a conclusion that the provisions are invalid or that SEBI will adopt them without correction.
The proposed changes could affect different applicants in different ways, depending on their role, the stage of the matter and the nature of the alleged violation.
1. Listed Companies and Market Intermediaries
The longer 90-day application period may give larger organisations more time to assess their options. However, higher base amounts and possible disclosure or corrective terms could make serious matters more costly.
2. Directors, Promoters and Key Managerial Personnel
The proposed framework gives importance to the person's actual role and involvement. Decision records and evidence showing who was responsible could become more important when determining the settlement amount.
3. Natural Persons and Smaller Applicants
The proposed filing fee for natural persons would increase to Rs 25,000. The draft also provides for lower minimum settlement amounts in some cases, while factors such as limited involvement, cooperation and financial difficulty may be considered.
4. Applicants With Pending Matters
Those with pending applications may need to compare the treatment available under the existing and proposed framework before deciding which route is more suitable.
5. Compliance, Legal and Finance Teams
The changes would require these teams to work closely. They may need to assess eligibility, prepare disclosures, review financial exposure and gather documents before deciding whether settlement is the right option.
The proposed changes could make the settlement process easier in some situations, but they may also increase the cost and work involved for applicants. The main points are:
Potential benefits
Possible burdens
The final impact will depend on the wording of the final regulations and how the formula and available discretion are applied in actual cases.
SEBI has invited comments on the draft regulations by 4 September 2026. Comments should be submitted through the SEBI public-comment portal.
If a person faces a technical problem with the web-based form, the consultation paper provides the email address settle-help@sebi.gov.in. It specifies the subject line: “Public comments on Review of SEBI (Settlement Proceedings) Regulations, 2018”.
Stakeholders should submit early enough to address portal errors or document-upload issues. The paper does not say that late comments will be accepted.
The consultation does not require immediate implementation. It does, however, justify a focused review by organisations that may be affected.
These are practical recommendations, not duties imposed by the consultation paper.
SEBI may review the public comments, conduct further internal analysis and modify the draft. It may accept some proposals, revise them or decide not to proceed with particular provisions.
The consultation paper does not expressly specify when final regulations will be notified or brought into force. Businesses should therefore monitor SEBI's official legal and consultation pages rather than plan around an assumed date.
The proposed framework combines securities-law interpretation, financial calculation, documentation and operational remediation. Corpseed can support businesses in understanding the proposal and preparing for the next regulatory step.
Each SEBI enforcement matter has its own facts and procedural history. Professional support can help a business organise its records, understand the process and make an informed decision, but it cannot guarantee acceptance, settlement, a particular amount or any regulatory outcome.
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