SEBI’s New Settlement Framework: What Companies and General Counsels Need to Know
Status as on 29 September 2026, as per the press release issued by the Board of the Securities and Exchange Board of India (SEBI) and press reports. The Regulations are not yet notified and may vary in the final form.
The new settlement regime by SEBI is designed to make settling more appealing than contesting: an earlier exit before a show-cause notice (SCN), a formula-based price and a one-time second chance. But details that decide the real cost are unpublished.
At its 215th meeting on 24 September 2026, SEBI’s Board approved the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026 replacing the 2018 Regulations. They take effect the day after the 30th day from notification, which was still pending.
Why SEBI Changed the Framework
SEBI’s consultation paper of 14 August 2026 studied failed settlement applications that ended in penalties. Failed settlement applications resulted in proposed amounts averaging roughly eight times the penalties ultimately imposed. The new formula is projected to reduce this differential to approximately four times though this remains untested in practice.
Settlement Before an SCN
SEBI will issue a settlement notice, which it calls a Wells Notice, before an SCN, giving 60 days to apply, except where prosecution or an interim order is contemplated. As Regstreet’s Sumit Agrawal told Business Standard, the US Wells process invites a response to proposed charges, whereas SEBI’s notice invites settlement. The press release does not say what the notice will disclose so recipients may struggle to judge the case before deciding. After an SCN the filing window rises from 60 to 90 days. SEBI is silent on SCN reply timelines, so follow the date in the SCN.
What Settlement Will Cost
The settlement amount will be Base Amount × (S+R+G+A−M) + Legal Costs, covering stage, regulatory action, gravity, and aggravating and mitigating factors. No multipliers or factor values are published, so amounts cannot yet be calculated. SEBI says disgorgement of wrongful gains now sits outside the formula, ending double counting. Interest is charged only on the disgorgement amount, not on interest already accrued. Where proceedings are pending before the Board, it runs at 9% per annum from the date of the violation until the settlement application is filed. In other matters, it runs at 9% until the final order and 12% thereafter until filing.
Faster Routes and a Second Chance
Fast-track settlement covers settlement amount up to ₹10 lakh and certain disclosure violations. A one-time 90-day window from commencement lets earlier non-applicants, and those whose applications were rejected, withdrawn or returned, apply for specified pending matters at an extra 20%. The release does not say how applications pending under the 2018 Regulations will be treated.
Misstatement and Disclosure
Financial misstatement and fund diversion cases remain settleable, subject to remedial terms such as bringing back diverted funds, which Chairman Tuhin Kanta Pandey called non-negotiable. The release does not separate promoters’ and directors’ exposure from the company’s. On disclosure, Whole-Time Member Kamlesh Chandra Varshney indicated that listed companies most probably need not disclose a settlement notice, since it is not an SCN, though SEBI will examine the point. Until it clarifies, assess each notice under Regulation 30 of the LODR Regulations.
What General Counsels should do now
Companies should map all ongoing and anticipated SEBI proceedings by forum and stage, as the one-time settlement window covers specified pending proceedings and the stage affects the settlement formula. Disgorgement and interest should be estimated wherever gains or losses are quantified, as these are payable over and above the settlement amount. The settlement amount itself should remain open until the multipliers and factor values are published.
The decision to apply under the 2018 Regulations or wait for the new window, which carries an additional 20% charge, should be postponed until the transition rules are clarified. While this is being done, the current filing deadlines should be maintained. Companies should also have a procedure for evaluating settlement notices, notifying the board or audit committee, and documenting the Regulation 30 disclosure requirements, as well as verifying insurance notification requirements. If the directors or promoters are also noticees, their interests should be considered separately, and, if required, with independent legal advice. Companies should wait for the Gazette notification for clarity on the multipliers for applicants, the values of S, R, G, A and M, violations that can be settled in a fast-track manner, transition provisions and SEBI’s stance on disclosure.
The Bottom line
The framework is an actual improvement in structure. It provides an earlier exit, a clear formula and individual treatment of disgorgement. Whether it will provide the cheaper, more predictable settlements that SEBI is looking for will depend on numbers that have not yet been published and on the amount of discretion that SEBI will allow in practice. In the meantime, companies must get ready for the process without making a commitment to a strategy.
