SEBI Overhauls Settlement Framework to Speed Up Recovery of Siphoned Funds — September 28, 2026

In a structural reform aimed at deterring corporate fraud and unblocking billions trapped in prolonged court proceedings, the Securities and Exchange Board of India (SEBI) has approved the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026. The revamped architecture is specifically engineered to expedite the repatriation of diverted assets to companies and their public shareholders while modernising how regulatory disputes are resolved.

Under the updated norms, entities accused of misrepresenting financial statements or siphoning corporate money will no longer be able to treat settlement payments as a simple exit fee. Instead, SEBI has decoupled the settlement amount from disgorgement and investor compensation, establishing that returning diverted money is an essential precondition.

Restitution Non-Negotiable in Fund Diversion

SEBI Chairman Tuhin Kanta Pandey underscored that protecting minority shareholders remains the paramount objective in financial misrepresentation disputes.

"Shareholders' interest can be protected in a variety of ways. One of the sure ways is that if there is a siphoning of money, it should come back first. That is non-negotiable," Pandey stated, emphasising that settlements in such cases will strictly encompass disgorgement along with Remedial and Regulatory Terms (RRT).

Historically, siphoning and misrepresentation disputes were prone to decade-long litigation across the Securities Appellate Tribunal (SAT) and civil courts. SEBI Whole-Time Member Kamlesh Chandra Varshney noted that endless courtroom battles often undermine investors because the financial condition of the company deteriorates long before a final order is executed. By mandating restitution alongside penal settlement terms, the revised regime enables the regulator to secure the return of corporate cash upfront with interest.

Key Mechanics of the 2026 Settlement Framework

The overhauled regulations establish a transparent, formula-driven approach to replace arbitrary calculations and simplify dispute resolution:

Core Reforms Under the Overhaul:

• Formula-Based Settlement Base: The baseline settlement amount will be anchored to the statutory minimum penalty applicable to the violation, adjusted for gravity, regulatory impact, and stage of proceedings.
• Separation of Disgorgement: Unlawful gains, avoided losses, and investor damages will be excluded from the base calculation and recovered separately through disgorgement to eliminate double-counting while ensuring full asset clawbacks.
• Prescribed Interest Rates: Disgorgement will carry an interest rate of 9% per annum from the date of the violation up to the settlement application date for matters pending before SEBI. For cases where orders have already been passed, interest will be 9% until the order date and 12% thereafter.
• Pre-Show-Cause Settlement Notices: SEBI will issue an advance settlement notice before issuing a formal show-cause notice (SCN), giving entities an initial 60-day window to apply for a resolution, provided an emergency interim order is not warranted.
• Fast-Track Window: A fast-track settlement mechanism is introduced for disclosure lapses and technical violations where the settlement value is up to ₹10 lakh.
• Appellate Exit Opportunity: A one-time 90-day window will be offered to entities whose applications were previously rejected, withdrawn, or returned under the 2018 regulations, subject to an additional 20% charge on the settlement fee for pending litigation.

Unlocking Billions Trapped in Appellate Backlogs

The policy shift comes amid an expanding backlog of enforcement actions. Official data indicates that more than ₹84,962 crore across 310 recovery cases remains tied up before court-appointed committees, parallel recovery proceedings, judicial stays, and liquidation forums. Furthermore, SEBI currently faces 1,066 pending appeals before SAT and 539 appeals before the Supreme Court, alongside 620 recovery matters sub-judice before judicial forums.

Market participants and legal experts anticipate that providing clearer appellate-stage settlement pathways will rationalise the enforcement pipeline. While entering into a settlement does not constitute an admission or denial of legal guilt, the obligation to disgorge siphoned capital alongside regulatory penalties ensures that listed companies regain access to stolen treasury balances.

The SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026 are slated to take effect 30 days after their gazette notification.

Tags: SEBI Securities Appellate Tribunal Supreme Court of India Corporate Governance Capital Markets