How to Apply for Settlement of SEBI Enforcement Proceedings Under the Consent Mechanism

SEBI's settlement mechanism allows entities facing enforcement proceedings to resolve matters by paying a settlement amount instead of contesting the charges through a full adjudication. This guide explains the current process under the SEBI (Settlement Proceedings) Regulations, 2018, and flags the key changes proposed under the draft 2026 regulations.

Step 1: Determine Whether Your Matter Is Eligible for Settlement

Settlement is available for most SEBI enforcement proceedings initiated by a show cause notice (SCN), including proceedings under the SEBI Act, 1992, the Securities Contracts (Regulation) Act, 1956, and regulations made thereunder. However, certain categories of violations are excluded from settlement. Under Regulation 5 of the 2018 Regulations, the following matters cannot be settled:

In practice, SEBI has exercised its discretion to reject settlement applications even in technically eligible matters where it considers the violation to be of a nature that demands a fully adjudicated order for the purpose of regulatory precedent. The SAT in Reliance Industries Ltd. v. SEBI (2019) observed that the settlement mechanism is a privilege, not a right, and SEBI retains full discretion to accept or reject applications.

Step 2: File the Settlement Application Within the Deadline

Under the 2018 Regulations, the settlement application must be filed within 60 days of receipt of the SCN. The application is submitted through SEBI's online settlement portal (accessible via the SEBI website) and must include:

The proposed 2026 regulations would extend this filing window to 90 days but make the deadline non-condonable. No extensions would be permitted under any circumstances.

Step 3: Understand the Settlement Amount Calculation

The settlement amount under the 2018 framework is determined by SEBI based on a multi-factor assessment that considers the nature and gravity of the violation, the track record and cooperation of the applicant, the wrongful gain made or investor loss caused, and the stage at which the application is filed (earlier filing generally results in a lower amount). SEBI's internal panel applies these factors to arrive at a recommended settlement amount, which is then reviewed by the High Powered Advisory Committee (HPAC).

In practice, the lack of a published formula has made it difficult for applicants to estimate their likely settlement exposure before filing. The proposed 2026 regulations address this by introducing a formula-based calculation where the base amount is tied to the severity category of the violation, and disgorgement is calculated separately. This would allow applicants to estimate their settlement range before filing and make informed decisions about whether to pursue settlement or contest the charges.

The Supreme Court in SEBI v. Kishore R. Ajmera (2016) 6 SCC 368 held that SEBI's regulatory actions, including settlement amounts, must be proportionate to the gravity of the violation. This proportionality principle applies equally to the settlement determination.

Step 4: The HPAC Review and SEBI's Decision

Once the settlement application is filed and SEBI's internal team has determined the recommended settlement terms, the matter is placed before the High Powered Advisory Committee (HPAC). The HPAC is an independent advisory body constituted by SEBI that reviews the proposed settlement terms and provides its recommendation to the SEBI Chairperson or the Whole Time Member (WTM) who passes the final settlement order.

The HPAC may recommend acceptance of the proposed terms, suggest modifications to the settlement amount, or recommend rejection. If the terms are modified, the applicant is given an opportunity to accept or reject the modified terms. If the applicant rejects the modified terms, the settlement application is treated as withdrawn, and the original enforcement proceedings continue.

Under the proposed 2026 regulations, cases qualifying for "fast-track settlement" (minor violations below a specified monetary threshold) would bypass the HPAC entirely, with SEBI's internal team making the final determination. This would reduce the disposal time for minor matters.

Step 5: Payment, Undertakings, and the Settlement Order

Once the settlement terms are finalised and accepted by the applicant, SEBI issues a settlement order. The applicant must pay the settlement amount within the time specified in the order (typically 15-30 days). The settlement order includes the following standard undertakings from the applicant:

Once the settlement amount is paid and all conditions are satisfied, SEBI closes the enforcement proceedings. The settlement order is published on the SEBI website, and the matter is recorded in the applicant's regulatory history.

Step 6: What to Do If Settlement Is Rejected or Withdrawn

Under the 2018 Regulations, if an applicant withdraws and later refiles, an additional surcharge applies. The proposed 2026 regulations would lower this surcharge to encourage applicants to refile with improved submissions rather than abandoning the settlement route entirely.

In practice, applicants should treat the initial settlement application as their best opportunity to present mitigating circumstances and demonstrate cooperation. The proposed 2026 regulations, once notified, would also allow settlement at the appellate stage before SAT and the Supreme Court, adding a second decision point for entities that have already received adverse orders.

Sources and References

1. SEBI (Settlement Proceedings) Regulations, 2018

2. SEBI Consultation Paper on Draft Settlement of Proceedings Regulations, 2026 (August 14, 2026)

3. SEBI v. Kishore R. Ajmera (2016) 6 SCC 368

4. SEBI Annual Report FY 2025-26 (settlement application statistics)

This article is for informational purposes only and does not constitute legal advice. For specific guidance on SEBI settlement proceedings, consult a qualified securities law practitioner.