Experts and representatives of the Securities and Exchange Board of India (SEBI) believe that updating the settlement rules can help increase the recovery of illegally appropriated funds and protect shareholders in cases of financial misstatement and money misappropriation. The regulator's goal is to resolve such issues without lengthy legal proceedings.
Last week, the SEBI (Settlement of Administrative and Civil Proceedings) Regulations 2026 were approved at the board of directors meeting. These include significant changes regarding the calculation of the settlement amount, separate consideration of wrongful gains, expedited settlement procedures in certain situations, and expanded access to the settlement mechanism.
These new norms have not yet been officially published and will come into force 30 days after notification.
Position of the SEBI Chairman
Following the board of directors meeting, SEBI Chairman Tuhin Kanta Pandey stated that protecting investor interests in such cases must cover not only the settlement amount but also disgorgement and Remedial and Regulatory Principles (RRT), if applicable.
Pandey emphasized: 'Shareholder interests can be protected in various ways. One reliable way is that if money is misappropriated, it must be returned first. This is non-negotiable. We must understand that settlement is not just about the amount, but also includes disgorgement and RRT where applicable.'
According to the approved rules, the settlement amount will be linked to a specific formula, and RRT will be applied as necessary. Pandey noted that the settlement amount will be 'a certain number of penalties.' Settlement does not imply an admission or denial of guilt, but it does result in a financial impact on the company or individual.
New Notification Process and Its Features
The regulator will also send a settlement notification before issuing a show-cause notice, giving organizations a 60-day period to file for settlement.
Kamlesh Chandra Varshney, a permanent member of SEBI, commented on the need for such a notification to be disclosed for companies listed on securities exchanges: 'Disclosure by companies is required upon receipt of a show-cause notice. Most likely, since this (settlement notification) is not such a notice, it may not arise. But we will examine this specific aspect.'
He added that the settlement process can also accelerate the return of funds with interest, while RRT will continue to apply. Varshney explained that while cases are being heard in court, the situation with the company can change. The idea is to get the money immediately with interest, while the settlement amount still has to be paid, and RRT will be imposed—what was previously called non-monetary terms. Shareholders will benefit the most, as the money returns to the company with interest. This is how shareholder interests are protected.'
Comparison with International Practices
Sumit Agrawal, founder and managing partner of Regstreet Law Advisors, reported that the settlement notification is largely inspired by the Wells process in the US, although the American notification primarily invites a response to proposed allegations, whereas the SEBI notification is an invitation to settle before the issuance of a show-cause notice (SCN).
Agrawal also noted that the current rules contain a cumulative settlement route for certain violations, which is now being replaced by an expedited path. He stressed that SEBI needs to clarify whether disclosure of a preliminary settlement notification is required before an SCN for a company listed on a securities exchange, as listing rules already consider some regulatory actions as presumed material. He concluded that clarity on this matter will help both companies and investors.
Agrawal added that globally, regulators resolve a significant portion of enforcement cases, including instances of financial misstatement, through settlements.
The new rules also provide a one-time 90-day period for those who did not apply earlier or whose applications were rejected, withdrawn, or returned under the 2018 rules, subject to an additional payment of 20 percent of the settlement amount. This will only apply in cases where proceedings are ongoing.