SEBI Notifies Overhauled Settlement Regulations with New Penalty Formula and Fast-Track Window — October 9, 2026

The Securities and Exchange Board of India (SEBI) has officially notified comprehensive new settlement regulations, replacing the 2018 framework to make the resolution of civil and administrative proceedings faster, more predictable, and less litigious. Under the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026, the capital markets regulator has introduced a transparent mathematical formula for computing settlement charges, separated the treatment of wrongful gains, and created an expedited fast-track mechanism for smaller violations.

The overhaul comes after capital market settlement collections declined sharply in FY26 to ₹109.8 crore from ₹798.9 crore in FY25, accompanied by a drop in settlement applications from 703 to 439. The revised rules seek to lower litigation backlogs while retaining enforcement deterrence.

Predictable Formula-Driven Settlements

Under the previous regime, settlement sums relied heavily on discretionary multipliers that often resulted in amounts exceeding formal enforcement penalties. The new regulations base the settlement sum on a published, structured formula:

Settlement Amount = Base Amount × (S + R + G + A − M) + Legal Costs

• Base Amount (BA): Directly benchmarked against the minimum statutory penalty prescribed under securities laws for the specific infraction, adjusted by a multiplier reflecting the nature of the entity (e.g., market infrastructure institutions face higher baseline multipliers).
• Stage of Proceedings (S): Calibrated to reward entities that come forward earlier in the regulatory process.
• Regulatory Record (R): Factors in previous infractions or adverse regulatory orders against the applicant.
• Gravity of Violation (G): Measures the seriousness, conduct, and systemic risk posed by the default.
• Aggravating and Mitigating Factors (A & M): Accounts for proactive cooperation, self-reporting, remedial action, or alternatively, obstruction and repetitive non-compliance.

Disgorgement of Unlawful Gains Separated

A major structural shift in the 2026 framework is the unbundling of wrongful gains from penalty calculations. In earlier settlement proceedings, illegal profits or investor losses were absorbed into the baseline calculation, often leading to double counting.

Under the notified rules, settlement terms are divided into three clear pillars: the core settlement amount, disgorgement of wrongful gains or avoided losses, and remedial and regulatory terms (RRT), previously known as non-monetary conditions.

Where wrongful gains or losses caused to investors are quantified, they must be disgorged separately. For matters where no final order has been passed, annual interest on disgorgement is fixed at 9% from the transaction date. In cases where a final order has already been issued, interest is levied at 9% up to the date of the order and 12% thereafter until the settlement application is submitted, with no compounding interest charged on unpaid interest.

Fast-Track Mechanism for Procedural Lapses

To prevent routine and minor non-compliance cases from clogging regulatory machinery, SEBI has unveiled two fast-track settlement avenues:

• Monetary Threshold Route: Available for proceedings where the calculated settlement sum does not exceed ₹10 lakh and where non-monetary conditions are not required.
• Violation-Based Route: Specifically designed for routine technical lapses, such as delayed disclosures under listing regulations or procedural takeover code filings.

Eligible fast-track applications can bypass lengthy multi-tiered reviews by the High-Powered Advisory Committee (HPAC), moving directly from internal evaluation to the panel of Whole-Time Members to secure rapid closures.

Procedural Timelines and One-Time Relief

The revised regulations also give entities more operational leeway to resolve disputes. Except in instances involving egregious fraud, prosecution, or interim asset freezes, SEBI will issue a pre-inquiry settlement notice, granting entities 60 days to settle before a formal show-cause notice (SCN) is drafted. For entities that choose to apply after receiving an SCN, the application window has been expanded from 60 days to 90 days.

In addition, SEBI has introduced a one-time 90-day transition window for market participants whose applications were previously rejected, returned, or withdrawn under the 2018 framework. Entities with proceedings pending before the regulator can resolve their legacy matters through this special window upon payment of an additional 20% surcharge over the calculated settlement amount.

Tags: SEBI BSE NSE Capital Markets Ministry of Finance