Summary:
SEBI has proposed changes to its settlement framework to simplify penalty calculations, speed up case resolution and make settlements more predictable. The proposal includes a simpler formula, separate treatment of wrongful gains, a longer application window and a faster route for smaller cases. The consultation paper is open for public comments until September 4, 2026.
The Securities and Exchange Board of India has proposed a major overhaul of its Settlement Proceedings Regulations, 2018, aiming to simplify the calculation of settlement amounts, reduce prolonged litigation and make the process more predictable for market participants. SEBI released the consultation paper on August 14, 2026, with public comments invited until September 4, 2026.
The proposal comes after settlement collections dropped sharply to ₹109.8 crore in FY26 from ₹798.9 crore in FY25, while settlement applications declined to 439 from 703. In FY24, SEBI had collected ₹94.5 crore through settlements.
How Will SEBI Calculate Settlement Amounts?
The current framework uses a relatively complex formula combining the Proceeding Conversion Factor, Regulatory Action Factor, base values, base amounts and legal costs.
SEBI now proposed a simpler formula:
Settlement Amount = BA × (S + R + G + A - M)
BA represents the base amount
S the stage of proceedings
R previous regulatory actions
G the gravity of the violation
A aggrevating factors
M mitigating factors.
Wrongful Gains to Be Treated Separately
A significant change is that wrongful gains or investor losses would no longer automatically inflate the base amount. Instead, disgorgement would be calculated separately.
For cases where no final SEBI order has been passed, interest on disgorgement is proposed at 9% annually from the transaction date until the settlement application. Where a final order has already been passed, interest would be charged at 9% up to the order date and 12% thereafter until the settlement application is filed.
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More Time to Apply for Settlement
SEBI has proposed increasing the deadline for filing settlement applications after a show-cause notice to 90 days from the existing 60 days, acknowledging that corporate entities and overseas applicants may require more time for internal approvals.
Separately, SEBI proposes issuing a settlement notice before a show-cause notice in most cases, except where prosecution is contemplated. The entity would then have 60 days to seek settlement before formal proceedings progress.
Fast-Track Route for Smaller Cases
The regulator also wants to expand fast-track settlements. Cases involving delayed disclosures, delayed compliance and similar procedural defaults could qualify for a simplified route.
Additionally, cases where the settlement amount is up to ₹10 lakh and no non-monetary conditions apply could bypass the High Powered Advisory Committee and move directly from the Internal Committee to the panel of Whole Time Members.
SEBI also proposes reducing the additional settlement amount for refiling a withdrawn application to 20% from 50%.
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Why Is SEBI Changing the Framework?
SEBI said the existing formula can sometimes produce settlement amounts significantly higher than penalties imposed through enforcement proceedings, potentially discouraging settlement altogether. The proposed framework seeks to retain deterrence while making the outcome more proportionate and predictable.
