SEBI has issued a consultation paper seeking public and stakeholder comments on proposed changes to the existing settlement mechanism and the draft SEBI (Settlement of Proceedings) Regulations, 2026, following a review of the SEBI (Settlement Proceedings) Regulations, 2018. SEBI stated that its study of settlement applications filed in the preceding two years, excluding outliers, found that proposed settlement amounts in cases where settlement was not reached were, on average, eight times the penalties ultimately imposed; the proposed changes are intended to reduce this to four times. SEBI said the review aims to reduce litigation and provide a simpler, less discretionary and easier-to-implement alternative resolution mechanism while maintaining deterrence. The proposed changes were considered by the High Powered Advisory Committee after stakeholder consultations. SEBI has invited comments on the draft Settlement Regulations, 2026 until September 04, 2026, through its web-based public comments form.
Securities and Exchange Board of India
Consultation Paper on Review of SEBI (Settlement Proceedings) Regulations, 2018
SEBI- Aug 14, 2026 | Reports : Reports for Public Comments
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Objective:
1. The objective of this consultation paper is to seek comments/views/ suggestions from the general public and stakeholders on the changes proposed in the existing settlement mechanism and on the Securities and Exchange Board of India (Settlement of Proceedings) Regulations, 2026 (“Settlement Regulations, 2026”).
Background:
2. The mechanism which witnessed its commencement by way of a circular dated April 20, 2007, has come a long way over the period. During this journey, settlement framework got statutory recognition by way of amendments made in the Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956 and Depositories Act, 1996, through Securities Laws (Amendment) Ordinance, 2013. This ultimately resulted into making of Securities Laws (Amendment) Act, 2014, on August 25, 2014. Section 15JB of the Securities and Exchange Board of India Act, 1992, section 23JA of the Securities Contracts (Regulation) Act, 1956 and section 19-IA of the Depositories Act, 1996, as inserted by the aforesaid amendments, specifically empowered SEBI to frame regulation for settlement of administrative and civil proceedings. First regulation on SEBI’s settlement process came to be notified on January 09, 2014 as SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 with Securities Laws (Amendment) Act, 2014 giving it a retrospective effect from April 20, 2007. Thereafter, Settlement Regulations, 2018 were notified on November 30, 2018 which came into force from January 01, 2019. Settlement Regulations, 2018 replaced SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014.
3. In order to reduce litigation and provide alternative mode of resolution thereby providing clarity and ease of understanding of regulations, SEBI has undertaken the review of existing settlement mechanism. As a part of this initiative, SEBI held meetings with the stakeholders to understand their concerns/comments/views/suggestions on the existing framework providing for settlement of enforcement proceedings.
4. SEBI has also conducted a study of settlement applications filed in the last two years where settlement could not be reached and subsequently resulted in imposition of penalty. While conducting this study, efforts have been made to have cases which were proximate to the outcome of the enforcement proceedings and for the said purpose, outliers were left out. The study showed that settlement amounts proposed and not accepted in such matters were average 8 times higher than the penalty amount ultimately came to be imposed in such cases.
5. As stated above, the data of cases rejected/withdrawn in settlement (after excluding outliers) was tested and it has been found that on an average settlement calculated in these cases was about 8 times of penalties finally imposed in such cases. If the above proposals are approved, this would come down to 4 times which appears to be more reasonable. It has deterrent value against violation/fraud and is also not too high to deter applicants to opt for it. The above proposals are justified in the light of generally accepted principal that settlement produces faster, more practical and economically sound results than prolonged litigation. Hence, it should be simpler, less discretionary and easy to implement. Indian Courts have repeatedly emphasised the importance of settlement, especially in civil and commercial disputes. In Afcons Infrastructure Ltd. Vs. Cherian Varkey Construction Co. P. Ltd. (2010) 8 SCC 24, Hon’ble Supreme Court observed that the courts should refer the appropriate matters to Alternative Dispute Resolution (ADR) mechanism under Section 89 of Code of Civil Procedure, 1908 (CPC). In Salem Advocate Bar Association, Tamil Nadu Vs. Union of India (2005) 6 SCC 344, Hon’ble Supreme Court while upholding constitutional validity of Section 89 of the CPC discussed the importance of mediation. These judgments reflect judicial policy favouring compromise wherever possible.
Hon’ble Supreme Court in Vikram Bakshi and Ors. v. Sonia Khosla (Dead) by Legal Representatives (2014) 15 SCC 80 observed as under:
“……….. 16. According to us it would have been more appropriate for the parties to at least agree to resort to mediation as provided Under Section 89 Code of Civil Procedure and make an endeavour to find amicable solution of the dispute, agreeable to both the parties. One of the aims of mediation is to find an early resolution of the dispute. The sooner the dispute is resolved the better for all the parties concerned, in particular, and the society, in general. For parties, dispute not only strains the relationship but also destroys it. And, so far associety is concerned it affects its peace. So what is required is resolution of dispute at the earliest possible opportunity and via such a mechanism where the relationship between individual goes on in a healthy manner. Warren Burger, once said:
“The obligation of the legal profession is … to serve as healers of human conflict … we should provide mechanisms that can produce an acceptable result in shortest possible time, with the least possible expense and with a minimum of stress on the participants. That is what justice is all about.”
Mediation is one such mechanism which has been statutorily brought into place in our justice system. It is one of the methods of alternative dispute resolution and resolves the dispute in a way that is private, fast and economical. It is a process in which a neutral intervenor assists two or more negotiating parties to identify matters of concern, develop a better understanding of their situation, and based upon that improved understanding, develop mutually acceptable proposals to resolve those concerns. It embraces the philosophy of democratic decision-making [Alfin, et al., Mediation Theory & Practice (2nd Edn., 2006) Lexis Nexis]. xxx xxx xxx
This Bench is of firm opinion that mediation is a new dimension of access to justice. As it is one of the best forms, if not the best, of conflict resolution. The concept of Justice in mediation is advanced in the oeuvres of Professors Stulberg, Love, Hyman, and Menkel-Meadow (Self-Determination Theorists). Their definition of justice is drawn primarily from the exercise of party self determination. They are hopeful about the magic that can occur when people open up honestly and
empathetically about their needs and fears in uninhibited private discussion. And, as thinkers, these jurists are optimistic that the magnanimity of the human spirit can conquer structural imbalances and resource constraints.
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19.3. Professor Carrie Menkel-Meadow presents a related point of view in making the case that settlement has a political and ethical economy of its own and writes:
Justice, it is often claimed, emerges only when lawyers and their clients argue over its meaning, and, in turn, some authoritative figure or body pronounces on its meaning, such as in the canonical cases of the late twentieth century … For many years now, I have suggested that there are other components to the achievement of justice. Most notably, I refer to the process by which we seek justice (party participation and empowerment, consensus rather than compromise or command) and the particular types of outcomes that might help to achieve it (not binary win-lose solutions, but creative, pie-expanding or even shared solutions).”
[Emphasis supplied]
The aforesaid observations have also been quoted with approval by Hon’ble Supreme Court in Patil Automation Private Limited and Ors. Vs. Rakheja Engineers Private Limited (MANU/SC/1004/2022) as under:
”……… 57. On the one hand, the staunchest criticism against mediation has been that it is opposed to the fundamental principle of access to justice. It is in keeping with the traditional notions of the right of a person to have a dispute adjudicated by an impartial and a trained Judge. On the other hand, as noticed by this Court in Vikram Bakshi (supra), mediation offers a completely new approach to attaining the goal of justice. A win-win situation resulting from assigning a greater role to the parties themselves, with no doubt, a spirit of accommodation represents a better and what is more in the era of docket explosion, the only meaningful choice. The realisation has been growing over a period of time, that formal court rooms, long drawn-out proceedings, procedural wrangles, mounting and crippling costs, delay, which never wanes but only increases with the day that at least, in certain categories of cases, mediation can be the way out. It, undoubtedly, requires a complete change in the mindset. The change in approach, undoubtedly, can be achieved only if the litigants become aware of its benefits in comparison with the great disadvantage in waiting in the serpentine queue for the day of reckoning to arrive in a court of law. The role of the Bar is vital in taking mediation forward. With increase in population and a skewed Judge-population ratio and a huge spiralling of litigation in the courts, it is logical, just and imperative, to attempt and persevere in out of the box thinking. We can no longer afford to remain in the past. A clean break with the past is urgently needed. What was a mere writing on the wall as early as in the last decades of the previous century has become the harsh reality. It is important that the courts also adapt to the changing times. At least when the Parliament has decided to move ahead, it becomes the court’s duty not to greet it with undue scepticism. It becomes necessary to fulfil the intention of the Parliament by realising the true role of judiciary…………. ”
The above judgements relate to commercial disputes but the principle is equally applicable on other disputes with Govt/regulator as one of the party. Recently, Hon’ble Supreme Court in Vishal Tiwari Vs. Union of India & Ors. 2024 INSC
3. observed as under:
“64. The Expert Committee was also directed to suggest measures to (i) strengthen the statutory and/or regulatory framework; and (ii) secure compliance with the existing framework for the protection of investors. Pursuant to its remit, the Committee in its report dated 6 May 2023 has made the following suggestions:
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d. Settlement Policy: SEBI must have a robust settlement policy and formulate objective criteria to regulate it. It must not be hesitant to enter settlements whereby financial injury commensurate with the alleged violation may be inflicted on the party;
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66. The Expert Committee has made the above suggestions after applying its mind to the wealth of information collected from SEBI, market participants, invitees and from their own expertise. These suggestions merit favourable consideration with a positive intent. We direct the Government of India and SEBI to consider these suggestions and to take the benefit of the efforts put in by the Expert Committee.
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Further, in Shubham Singhal Vs. SEBI (Appeal No. 191 of 2022, Order dated 11.05.2022) and other connected appeals Hon’ble SAT observed as under:
“……………. 17. We are, thus, of the opinion that SEBI should reconsider and seriously give a thought in coming out with a fresh scheme under Clause 26 of the Settlement Regulations, 2018. Such scheme can be a onetime scheme for this class of person. The terms of settlement should be attractive so that it could attract the noticees / entities to come forward and settle the matter which will ameliorate the harassment of penalty proceedings to the noticees and at the same time would help to clear the backlog of these pending matters before various AOs…. ..
In B. N. Rathi Comtrade Private Limited Vs. SEBI (Appeal No. 282 of 2023, Order dated 12.12.2023) and other connected appeals Hon’ble SAT observed as under:
“………………… 7. We are, thus, of the opinion that SEBI should consider and seriously give a thought in coming out with a scheme under Clause 26 of the Settlement Regulations. Such scheme can be a onetime scheme for this class of person. The terms of settlement should be attractive so that it could attract the noticees / entities / appellants to come forward and settle the matter and at the same time would help to clear the backlog of these pending matters before various quasi judicial authorities………. ..
Hon’ble SAT in its order dated 16.01.2026, in the matter of Sukhraj Kaur Rajbans Vs. SEBI (Appeal No. 63 of 2025) and other connected appeals, observed as under:
“…21. It was submitted at the bar that about 1000 cases of illiquid stock option cases are pending. SEBI had launched settlement schemes earlier. Keeping in view the spirit of Section 89 of Code of Civil Procedure, 1908, it is desirable for SEBI to consider launching another settlement scheme which may result in disposal of large number of cases…..”
Thus, our judiciary has also favoured settlement, particularly, in Civil disputes. The changes proposed in the Consultation Paper are aimed to achieve such larger objective, without compromising on the need to create deterrence.
6. After taking the comments/views/suggestions of the stakeholders, a clause by clause review of SEBI (Settlement Proceedings) Regulations, 2018 (“Settlement Regulations, 2018”/ “Existing Regulations”) was undertaken by SEBI. Proposed changes, thus emerged on review of the Settlement Regulations, 2018 in the light of comments/views/suggestions of the stakeholders, were placed before the High Powered Advisory Committee (“HPAC”).
7. HPAC gave its comments/suggestions on the changes proposed to existing settlement framework and the proposed SEBI (Settlement of Proceedings) Regulations, 2026 (“Proposed Regulations”). Comments/suggestions of HPAC were duly considered and wherever required have been duly incorporated in the proposed SEBI (Settlement of Proceedings) Regulations, 2026.
8. List of changes proposed to be made in the existing settlement framework, is annexed as Annexure I to this consultation paper.
9. Having regard to the changes proposed to the existing settlement framework, a proposed draft of SEBI (Settlement of Proceedings) Regulations, 2026 has been prepared. The drafting of proposed SEBI (Settlement of Proceedings) Regulations, 2026 is subject to change and modification pursuant to receipt of the public comments and internal review. The said draft is annexed as Annexure II to this consultation paper.
Public Comments:
10. In view of the aforesaid, comments/views/suggestions of general public and stakeholders is sought on the draft of SEBI (Settlement of Proceedings) Regulations, 2026. The comments/ suggestions on the draft Settlement Regulations, 2026 should be submitted latest by September 04, 2026, through the following link: https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doP ublicComments=yes
111. In case of any technical issue in submitting your comments through web based public comments form, you may write to [email protected] with the subject: “Public comments on Review of SEBI (Settlement Proceedings) Regulations, 2018”.
