Sebi Proposes 50% Cut in Settlement Penalties

The Securities and Exchange Board of India (Sebi) has proposed to rationalise penalties for settling ongoing cases, aiming to reduce settlement amounts and speed up enforcement by simplifying how payments are calculated and allowing cases to be resolved earlier.

The proposed framework includes a new formula for calculating settlement amounts, which would be linked to statutory minimum penalties and factors such as the stage of proceedings, prior regulatory action, gravity of violations, and aggravating and mitigating circumstances. This is expected to reduce the average settlement amount for an infraction to about four times the regulatory penalty, compared with eight times at present.

Sebi also proposes allowing rejected settlement applicants to reapply at later stages of proceedings, including before a securities tribunal or the Supreme Court, subject to a 20% additional settlement amount if the reasons for the earlier rejection no longer exist.

A fast-track mechanism is also proposed for cases with a settlement amount of up to ₹10 lakh, which would not be referred to the High Powered Advisory Committee. This is expected to speed up the settlement process for smaller cases.

The regulator has invited public comments on the proposals until September 4, 2026. The proposed framework would also increase the maximum number of mitigating factors that can be considered from three to five, potentially lowering the amount payable in deserving cases.

## Why it matters The proposed changes are significant as they aim to make the settlement process more efficient and predictable. By simplifying the calculation of settlement amounts and introducing a fast-track mechanism, Sebi hopes to encourage more companies and individuals to settle cases quickly, rather than opting for lengthy and costly legal battles. This could help to reduce the backlog of cases and free up resources for more complex and serious violations.

The proposed framework would also prevent wrongful gains from being effectively counted twice, by excluding them from the base-amount calculation. This would ensure that companies and individuals are not penalised twice for the same violation.

## What happens next Sebi has invited public comments on the proposals until September 4, 2026. After considering the feedback, the regulator is expected to finalise the new settlement framework, which would then be implemented. This could lead to a significant reduction in settlement amounts and a speedier resolution of cases, which would be beneficial for companies and individuals involved in the settlement process.