SEBI’s New Settlement Framework: Focus on Recovery and Remediation
India’s securities regulator is changing how it resolves violations of market rules. SEBI’s Board has approved the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026 in September 2026. The regulations are yet to be notified and, as reported, will take effect 30 days after notification.
In simple terms, a “settlement” lets a person or company accused of a violation close the proceedings by paying an agreed amount and taking certain steps, without admitting or denying guilt. The new framework keeps this idea but puts more weight on a question that matters to ordinary investors: is the money that was wrongfully taken actually being recovered?
Separating the Penalty from the Wrongful Gain
The most significant change is that the framework treats two things separately:
- The settlement amount, calculated through a defined formula, which works like a price for closing the case.
- Wrongful gains, meaning profits made or money diverted through the violation, which are to be recovered separately through disgorgement, i.e. handing back the ill-gotten gains.
This matters most in cases involving the diversion or siphoning of company funds. A penalty alone can leave investors out of pocket, because the amount paid to the regulator does not necessarily restore what was lost.
The revised framework emphasises that investor protection should extend beyond the settlement amount. Where applicable, settlements may also incorporate disgorgement and Remedial and Regulatory Terms (RRTs), requiring the settling party to undertake specified corrective measures. Recovery of diverted money is expected to be a central consideration.
Put simply, settlement is meant to answer not only what the wrongdoer pays, but also what was wrongfully taken and how the harm is put right.
A More Predictable Formula
SEBI’s earlier consultation paper proposed tying the settlement amount to the minimum penalty prescribed under securities laws, adjusted by multipliers that reflect the nature of the violation and the stage the proceedings have reached. It also proposed keeping wrongful gains out of that calculation, so the same amount is not counted twice.
If adopted as proposed, a clearer method would help companies and individuals estimate their exposure earlier and make a better-informed decision on whether to settle.
Settlement Before a Show-Cause Notice
The framework introduces a settlement notice that can be issued before a formal show-cause notice, the document that traditionally starts adjudication. A recipient would have 60 days, in the relevant circumstances, to file a settlement application.
This creates an earlier exit route, before a dispute becomes a full contested proceeding. It also means the period after receiving such a notice becomes critical. Companies should move quickly to review the facts, preserve documents and take stock of their position.
Faster Route for Smaller Matters
The consultation paper also proposed a fast-track process for smaller settlements, including amounts up to ₹10 lakh, which would not need to go before SEBI’s High Powered Advisory Committee (HPAC). The aim is to keep the committee’s time for complex cases and let simpler ones close sooner. Whether this survives in the final notified text remains to be seen.
Practical Takeaways for Listed Companies
Companies facing SEBI proceedings will need to look beyond the headline settlement figure. Key points to consider:
- Disgorgement: the possible return of wrongful gains, in addition to the settlement amount.
- Remedial obligations: corrective steps that may be required under the RRT.
- Timing: whether and when settlement is available, and the 60-day window after a settlement notice.
- Internal review: early fact-finding and proper documentation.
- Disclosure: SEBI officials have indicated that disclosure obligations for a settlement notice may differ from those for a show-cause notice, so companies should take advice on what must be disclosed and when.
A regulatory notice will increasingly call for a coordinated response from legal, compliance, finance and investor-relations teams.
The Regulatory Shift
SEBI is signalling that settlement should deliver three things together: resolution, recovery and remediation. For shareholders, the real test will be whether disgorgement and remedial measures lead to money actually returning to those who lost it. For regulated entities, the message is that early legal assessment and a considered settlement strategy matter more than before. The final position will become clear only once the regulations are notified and applied in practice.
