Draft SEBI Settlement Regulations, 2026 – What is Changing from the 2018 Framework?
30 August, 2026
The Securities and Exchange Board of India (“SEBI”) has proposed a significant overhaul of its settlement framework by issuing a Consultation Paper on Review of the SEBI (Settlement Proceedings) Regulations, 2018 on 14 August 2026.
The Consultation Paper contains a draft of the proposed Securities and Exchange Board of India (Settlement of Proceedings) Regulations, 2026 (“Proposed Settlement Regulations, 2026”), which are intended to replace the existing SEBI (Settlement Proceedings) Regulations, 2018.
The proposal seeks to make the settlement mechanism simpler, more predictable, less discretionary and easier to implement, while continuing to preserve the deterrent effect of securities laws. SEBI has invited comments from stakeholders and the public up to 4 September 2026. The draft is therefore a proposal and may undergo changes before final notification.
Background – Why is SEBI Revisiting the Settlement Framework?
SEBI’s settlement mechanism has evolved over time. It commenced through a circular dated 20 April 2007 and subsequently received statutory recognition through amendments to the SEBI Act, 1992, Securities Contracts (Regulation) Act, 1956 and Depositories Act, 1996.
The first formal regulations, the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014, were notified on 9 January 2014. These were subsequently replaced by the SEBI (Settlement Proceedings) Regulations, 2018, notified on 30 November 2018 and effective from 1 January 2019.
The settlement mechanism essentially provides an alternative to prolonged enforcement proceedings and litigation. Instead of allowing every regulatory matter to proceed through the entire adjudication and appellate process, an eligible applicant can seek settlement on agreed monetary and/or other terms, subject to SEBI’s approval.
After several years of experience with the 2018 framework, SEBI has undertaken a review to make the mechanism more effective.
The key reason: making settlement a meaningful alternative to litigation
SEBI studied settlement applications filed during the preceding two years where settlement could not be reached and the matter subsequently resulted in a penalty. After excluding outliers, SEBI found that the settlement amounts proposed in such cases were, on average, about eight times the penalties ultimately imposed.
SEBI considers this differential to be one of the factors that may discourage applicants from opting for settlement. Under the proposed methodology, SEBI estimates that the ratio could come down to approximately four times the eventual penalty.
The objective, therefore, is to strike a balance between two competing considerations:
Settlement should be sufficiently attractive to encourage early resolution, but sufficiently stringent to retain its deterrent value.
Existing 2018 Framework vs Proposed 2026 Framework
A broad comparison of some of the important proposed changes is set out below:
| Particulars | Existing 2018 Framework | Proposed 2026 Framework |
| Settlement philosophy | Settlement through a detailed regulatory framework and computation matrix | Simpler and more predictable framework intended to encourage settlement |
| Settlement amount | Existing methodology may result in comparatively high settlement amounts | SEBI estimates average settlement amount in comparable cases could reduce from about 8× to about 4× the eventual penalty |
| Calculation methodology | Detailed Schedule II computation involving Base Value, Base Amount and various factors | Simplified formula linked to statutory minimum penalty and defined factors |
| Stage of proceedings | Existing Proceeding Conversion Factor structure | Greater differentiation based on stage, with lower burden for earlier settlement and higher burden at later stages |
| Counts of default | Detailed violation-based computation | Greater emphasis on the underlying conduct; certain repeated acts arising from the same conduct may be treated as one default |
| Wrongful gain/loss | Relevant in the existing settlement framework | Proposed to be excluded from Base Amount calculation, while continuing to be relevant for disgorgement |
| Application after SCN | Existing 60-day framework with additional time under prescribed conditions | Proposed period of 90 days |
| Settlement before SCN | Settlement notice mechanism exists under the 2018 framework | Proposed Settlement Notice before SCN, with a 60-day period to apply in the proposed framework |
| Fast-track mechanism | Existing summary settlement mechanism | Proposed broader fast-track framework, including cases involving settlement amount up to ₹10 lakh and specified violations |
| Re-filing | Additional financial burden in specified cases | Proposed reduction of additional amount in specified re-filing situations, generally to 20% |
| Later-stage settlement | Subject to restrictions under the existing framework | Greater flexibility to apply/re-apply at later stages, including specified appellate stages |
| Adjudication matters | Monetary and non-monetary terms can form part of settlement | Proposed restriction on non-monetary terms in adjudication matters, subject to specified exceptions |
| Serious/market-impact cases | Certain categories face restrictions under the existing framework | More fact-specific approach where harm can be appropriately addressed through settlement terms |
The above is only a broad comparison of the proposed changes. The existing and proposed Regulations should be referred to for the precise position.
Major Features of the Proposed Settlement Regulations, 2026
1. Simplified and More Predictable Calculation
The proposed framework seeks to replace the existing detailed settlement computation with a simpler formula:
Settlement Amount = BA × (S + R + G + A – M)
where the formula takes into account:
- BA – Base Amount
- S – Stage of proceedings
- R – Regulatory Action Factor
- G – Gravity Factor
- A – Aggravating Factors
- M – Mitigating Factors
The proposed Base Amount is linked to the minimum statutory penalty, with different multipliers depending upon the category of applicant.
The proposed multipliers broadly range from 2 times for an Independent Director to 5.5 times for a Market Infrastructure Institution.
The intention is to make the calculation easier to understand and more closely aligned with the nature of the applicant and the seriousness of the alleged default.
2. Stronger Incentive for Early Settlement
The proposed framework places greater emphasis on the stage at which settlement is sought.
The proposed Stage Factor ranges from 0.20 for voluntary settlement to 1.50 where proceedings have reached the Supreme Court.
Thus, the basic policy is:
Earlier settlement → lower settlement burden
Later settlement → higher settlement burden
This approach is intended to discourage parties from using settlement merely after exhausting the enforcement and appellate process and, instead, encourage early resolution.
3. Greater Clarity on “Count of Default”
The proposed framework seeks to avoid disproportionate multiplication of the settlement amount merely because the same underlying conduct resulted in several acts or transactions.
In appropriate circumstances, multiple acts arising from the same underlying conduct may be treated as a single default.
This could be particularly relevant in matters involving repeated transactions, disclosures or communications arising from substantially the same conduct.
4. Separation of Settlement Amount and Disgorgement
The proposed framework seeks to exclude wrongful gains or losses caused to investors from the calculation of the Base Amount for determining the settlement amount.
However, this does not mean that wrongful gains would be ignored.
Such gains may continue to be addressed separately through disgorgement and appropriate investor restitution.
The proposal therefore seeks to avoid an excessive impact through the settlement calculation while preserving the principle that unlawful gains should not be retained.
5. Settlement Notice Before Show Cause Notice
A notable proposal is the introduction of a Settlement Notice before issuance of an SCN, except in cases where prosecution is proposed.
The Settlement Notice would provide the concerned person/entity an opportunity to consider settlement before the formal enforcement proceedings commence.
The proposed applicant would have 60 days from receipt of such notice to file a settlement application.
This could encourage early resolution and reduce the time and resources involved in prolonged enforcement proceedings.
6. Fast-Track Settlement
The proposed Regulations introduce a broader fast-track settlement mechanism.
One important category would cover cases where the settlement amount is up to ₹10 lakh. Such cases would not require consideration by the High Powered Advisory Committee and could move from the Internal Committee directly to the Panel of Whole Time Members.
The proposed framework also retains a violation-based fast-track route for specified violations.
This could make the settlement mechanism considerably more efficient for relatively lower-value or specified regulatory matters.
7. Greater Flexibility for Re-application
The proposed framework provides greater flexibility where a settlement application has been rejected or withdrawn.
In specified circumstances, an applicant may be permitted to seek settlement again at a subsequent stage, including at the appellate stage before the Securities Appellate Tribunal or the Supreme Court, where the circumstances leading to the earlier rejection no longer exist.
An additional settlement amount of 20% is proposed in specified cases.
The objective is to ensure that an earlier unsuccessful settlement attempt does not permanently prevent settlement where circumstances subsequently change.
Special Focus on Financial Misstatement and Diversion of Funds
The proposed framework also contains provisions addressing serious matters such as:
- misrepresentation in financial statements; and
- diversion or siphoning of funds.
In appropriate cases, settlement may involve disclosure of the relevant matter to investors/stock exchanges, corrective disclosures and restoration of diverted funds with interest, together with disgorgement where applicable.
This indicates that the proposed framework is not focused merely on collection of a settlement amount. It places significant emphasis on remediation, investor protection and restoration of funds.
What Does the Proposed Framework Mean for Companies and Company Secretaries?
From a corporate governance and compliance perspective, the proposed framework has several practical implications.
1. Early assessment of regulatory issues
A company should assess potential regulatory violations at an early stage. Waiting until enforcement proceedings reach an advanced stage may increase the settlement burden.
2. Importance of corrective action
Where a compliance failure is identified, prompt corrective measures, appropriate disclosures, strengthening of internal controls and prevention of recurrence should be considered.
3. Coordination among professionals
Settlement matters may have implications for legal proceedings, financial statements, stock exchange disclosures and governance.
Accordingly, the Company Secretary, CFO, legal advisers, compliance team and statutory auditors, wherever relevant, may need to coordinate before settlement terms are finalised.
4. Board and management involvement
Where the matter involves significant financial or regulatory consequences, the decision to pursue settlement should be appropriately considered by senior management and, where necessary, the Board or relevant Board Committee.
5. Settlement is not a substitute for compliance
The proposed framework should not be seen as making regulatory non-compliance commercially acceptable.
The fundamental principle remains:
Prevention and timely compliance are preferable to settlement of a regulatory violation.
Settlement is an alternative mechanism for resolving enforcement proceedings efficiently where the framework permits it.
Conclusion – Towards a More Practical Settlement Regime
The proposed SEBI (Settlement of Proceedings) Regulations, 2026 represent a significant proposed change in SEBI’s approach to settlement of enforcement proceedings.
The broad direction of the proposal may be summarised as:
Simpler calculation + greater predictability + stronger incentive for early settlement + faster resolution + continued deterrence.
SEBI’s own analysis indicates that the proposed changes could bring the average settlement amount in comparable cases down from approximately eight times to four times the penalty ultimately imposed. The objective is to make settlement sufficiently attractive to encourage resolution while retaining an appropriate deterrent against violations.
For listed companies and market participants, the proposal reinforces an important compliance lesson: robust preventive compliance remains the first line of defence. However, where a regulatory issue arises, early identification, prompt corrective action and informed evaluation of the settlement mechanism can form an important part of regulatory risk management.
The Proposed Settlement Regulations, 2026 are not yet final. They are presently subject to public consultation and may be modified following stakeholder comments and SEBI’s internal review. Accordingly, the existing 2018 Regulations continue to be relevant until the proposed framework is finally notified and becomes effective.
Professional Caution This article is intended solely for knowledge sharing and general informational purposes. It is based on SEBI’s Consultation Paper on Review of the SEBI (Settlement Proceedings) Regulations, 2018, dated 14 August 2026, and the draft Securities and Exchange Board of India (Settlement of Proceedings) Regulations, 2026 contained therein. The proposed provisions are subject to public consultation and may undergo changes before finalisation. Readers should refer to the final notified Regulations, applicable SEBI circulars/orders and professional advice, as may be appropriate, before taking any action or making any compliance decision.