Settling With SEBI: What the Settlement Regulations, 2026 Mean for Promoters and Directors

SEBI notified the Settlement of Administrative and Civil Proceedings Regulations, 2026 on 6 October 2026. They replace the 2018 regulations. Promoters, directors, key managerial personnel, companies and intermediaries facing SEBI proceedings are all affected. The regulations come into force on the day after the 30th day from publication in the Official Gazette.

SEBI’s own numbers explain the change. Its Board memorandum for the 24 September 2026 meeting says 1,576 settlement applications were filed in the last three years. Of these, 568 ended in settlement. Another 640 were returned, rejected or withdrawn, which is about 40% of the total.

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Why did SEBI Replace the 2018 Regulations?

SEBI looked at cases where a settlement was proposed but not accepted, and a penalty was imposed later. The settlement amounts proposed were on average eight times the penalty finally imposed. The memorandum says this difference defeated the purpose of settlement.

The old method also counted wrongful gains twice. A gain could set the base amount, and the same gain then had to be disgorged with interest. The new regulations keep gains out of the base amount and deal with them separately.

Commentators had raised similar points. An article in the ICSI’s Chartered Secretary journal (January 2026), by M. S. Sahoo, a former IBBI chairperson, and Sumit Agrawal, says most cases fell into the residuary row of the base amount tables. A gain of ₹1 crore and a gain of ₹1 therefore got the same base amount. The authors also found that the share of applications accepted swung between 25% and 82% across the years. In 2024-25, cases took about 312 days from filing to final order.

How is the Settlement Amount Calculated?

Regulation 10 sets one formula: SA = BA × (S + R + G + A − M). BA is the base amount. S is the stage of the proceeding, R is the applicant’s regulatory history and G is the gravity of the violation. A and M stand for aggravating and mitigating factors. If the bracket comes to less than one, it counts as one. The amount cannot be below ₹3 lakh for a first-time applicant or ₹7 lakh for others.

The base amount is the minimum penalty the law provides for the violation, multiplied by a number that depends on who is applying.

The stage factor runs from 0.2 for a voluntary application to 1.5 for a case before the Supreme Court. It is 0.4 before a show cause notice and 0.6 after one. Regulatory history adds 0.10 for each administrative warning, 0.20 for each earlier settlement order and 0.30 for each adverse order.

Settling without admitting the violation adds 0.25 for gravity. Insider trading adds 0.5. Fraud under the PFUTP Regulations adds 1.5. Aggravating and mitigating factors carry 0.20 each, and no more than five of each can apply.

Gains, losses avoided and investor losses are disgorged separately. Interest is 9% a year, rising to 12% a year after a final order until the application is filed.

What Changes for Promoters and Directors?

SEBI can now send a settlement notice before a show cause notice. The notice sets out the probable charges, and the entity has 60 days to apply. SEBI need not send one if it plans interim directions or prosecution. Settling at this stage costs less, because the stage factor is 0.4 against 0.6 after a show cause notice.

Under the 2018 regulations, directors and key managerial personnel who were not named in a show cause notice were sometimes asked to step down as part of a settlement. SEBI’s memorandum calls this unfair. Regulation 9(4) now says the terms apply to the person who applied.

Independent directors have the lowest multiplier. It also counts in their favour if they were independent directors at the time and gained nothing from the default. The position changes if the show cause notice says an independent director benefited from a fraud or took an active part in it. The base amount is then set at the executive director level.

A settlement does not require an admission, though settling without one adds 0.25 to the formula. Two other rules affect directors. Facts established against the applicant, or admitted by the applicant, in another proceeding on the same cause of action are treated as admitted in the settled proceeding (Regulation 3(4)). After the order, the applicant undertakes not to make public statements denying SEBI’s findings.

Compliance systems affect the amount. One aggravating factor covers a company or responsible person who knew of a risk and did not act on it. Not appointing competent officials, including a compliance officer, having no adequate safeguards and having no code of conduct all count as reckless for this purpose. Mitigating factors include early self-identification, corrective steps after the default and cooperation with SEBI.

Can SEBI Settle Cases About Misstated Accounts or Diverted Funds?

Yes, on conditions. Regulation 17 requires an applicant whose violation affects audited financial statements to disclose it to the stock exchange and in the explanatory notes to the annual financial statements. The disclosure can say it is made without admitting or denying the findings. Where funds were diverted, the applicant must bring the money back to the company with interest.

SEBI can refuse to settle a default that has market-wide impact, caused losses to many investors or affected the integrity of the market. Regulations 6(2) and 18(2) let it consider such a case if money and remedial terms can cure the harm. Wilful defaulters, fraudulent borrowers and fugitive economic offenders cannot settle at all.

Does a Settlement End Every Procedure?

No. It ends the SEBI proceeding it covers. The ICSI article notes that on 14 November 2025 the Bombay High Court held that a consent order cannot shield a person from criminal investigation or prosecution by other agencies on the same facts. Regulation 38 adds that a settlement order does not affect the rights of third parties arising out of the default. It is also not admissible as evidence in other proceedings about defaults it does not cover.

How Does the Process Work?

An application goes to an Internal Committee, then to a High Powered Advisory Committee, and a panel of whole time members decides it. SEBI issues a demand notice within ten days of the decision, and the applicant has 30 days to pay. The filing fee is ₹25,000 for a natural person and ₹35,000 for others. The time to apply after a show cause notice goes up from 60 to 90 days.

There are two fast-track routes. One covers specified defaults such as delayed disclosures, where the entity has 30 days to respond to SEBI’s notice. The other covers cases where the amount is up to ₹10 lakh with no disgorgement or remedial terms. These skip the advisory committee.

Filing an application does not stop the proceeding. After a show cause notice, the final order is kept on hold, and SEBI can still issue interim directions. If the applicant breaks the terms, SEBI can revoke the order after a hearing. Amounts already paid are not refunded.

Applicants with pending proceedings who did not apply earlier, or whose applications were rejected, returned or withdrawn under the 2018 regulations, get a one-time 90 days from commencement to apply. They pay 20% extra.

What is Still Unclear?

The one-time window raises a question. SEBI’s press release of 24 September 2026 says the window is limited to proceedings still pending before SEBI. Regulation 4(3) refers to any specified proceeding pending at commencement, and Regulation 2(1)(l) defines that term to include appeals before the Tribunal and the Supreme Court. The window may therefore reach them, and the point is unsettled. The regulations also do not say whether an applicant who misses the window can apply at a later stage.

Author: Sarika Aggarwal (Head – Advisory & International Relations)
Co- Author: Pawni, Intern