SEBI's new settlement rules start today: the formula, fast track up to Rs 10 lakh and a February 2027 deadline

The new formula is published in Regulation 10.

Settlement Amount = Base Amount × (S + R + G + A − M)

S is the stage of the proceeding, R the regulatory action factor, G the gravity factor, A aggravating factors and M mitigating factors. If the sum in brackets is less than one, it is treated as one. The amount cannot be less than Rs 3 lakh for a first-time applicant or Rs 7 lakh for others.

The Base Amount is the minimum penalty set by statute, multiplied by a factor that depends on who is applying.

The ladder tells its own story. Those with more power pay more, and an exchange or clearing corporation pays the most. Anyone identified as a lead conspirator, mastermind or key operator has the base amount doubled.

Disgorgement of wrongful gains applies wherever it can be quantified, with interest at 9%, rising to 12% after a final order. SEBI can also add remedial and regulatory terms, such as disclosures, refunds to investors, bringing back siphoned funds, suspension or debarment.

Who can apply, when, and what is excluded

There are several routes: a voluntary application before any notice, a response to a notice issued before a show cause notice, an application after a show cause notice or at the appellate stage, fast track settlement and settlement with confidentiality.

The application fee is Rs 25,000 for a natural person and Rs 35,000 for others.

The fast track has two forms. A violation-based version covers matters such as late disclosures and delayed filing of returns. A threshold-based version applies when the amount is up to Rs 10 lakh and no disgorgement or remedial terms are needed, and that goes directly to a panel of SEBI's Whole Time Members.

Other cases go through more layers: an Internal Committee of SEBI officials, then a High Powered Advisory Committee of four, led by a former judge, then a panel of Whole Time Members.

Some matters cannot be settled. These include cases where an application was rejected earlier for the same default (unless the reason no longer applies), where an audit, investigation or inspection on the same cause is still pending, and where the applicant is a wilful defaulter, fraudulent borrower or fugitive economic offender. SEBI may also refuse where a default has market-wide impact, caused large-scale investor losses or affects market integrity, unless monetary and remedial terms can adequately deal with it.

Why it matters

Settlement is how a very large share of regulatory disputes end, and it saves time for both sides. The new rules push people to come forward early. An early application attracts a lower stage factor and less interest. Withdrawing and refiling, or refiling after a rejection, costs 20% more. A person who has seen an application rejected, returned or withdrawn under the 2018 rules, or who never filed, gets a fresh chance if they apply by 4 February 2027.

The publication of a formula and calculator is a real gain in transparency. Applicants can see what a case is likely to cost before deciding, which may reduce the sense that terms are set behind closed doors.

There are criticisms. A published price for misconduct can look like a licence fee, and investor groups have long argued that large players can treat settlement as a cost of doing business. The confidentiality route will raise similar questions, since the public interest usually lies in knowing who broke the rules. However, SEBI retains the power to refuse cases of market-wide harm, and a settlement order can be revoked if an applicant fails to comply, did not make full and true disclosure or breaks its undertakings, in which case proceedings resume from where they stopped.

Applicants should also read the fine print. Filing before a show cause notice keeps the notice in abeyance, but filing afterwards lets proceedings run up to the final order. Filing does not stop SEBI from passing interim directions. Facts admitted or established against an applicant in other proceedings on the same cause of action are treated as admitted. Information offered in a failed application cannot be used as evidence in court, but that protection falls away if a settlement order is revoked.

Pending applications have transition rules. Where the advisory committee's recommendation was accepted before 7 November, the 2018 rules apply. Where it was made but not yet approved, the applicant has 30 days from notice to choose. Where no recommendation had been made, the 2026 rules apply.

SEBI's FAQs carry a disclaimer that they are not an interpretation of law, so anyone affected should read the regulations themselves and take professional advice. Queries can go to settle-help@sebi.gov.in.

This article is for information and is not investment advice.