SEBI eases settlement norms, overhauls PMS regulations to improve market efficiency
SEBI approved a revamped settlement framework, replacing the Settlement Regulations of 2018, with a new formula for computing settlement amounts
A fast-track settlement route was created for cases where the calculated settlement amount is below ₹10 lakh, allowing such cases to skip referral to the High Powered Advisory Committee and move directly from an internal committee to a panel of Whole Time Members
Settlement notice timelines were extended: entities get 60 days to file a settlement application after a settlement notice, and 90 days to apply after a show-cause notice; a one-time 90-day window was also opened for entities whose past applications under the 2018 regulations were rejected, withdrawn, or never filed
The scope of matters eligible for settlement was expanded to include cases involving misrepresentation of financial statements or diversion of funds, subject to remedial conditions such as disclosures and restitution of diverted funds
The same board meeting also cleared a broader overhaul of Portfolio Manager regulations, including a new mutual-fund-focused PMS category with lower entry thresholds
SEBI's Settlement Mechanism — Section 15JB, SEBI Act, 1992
Settlement is a mechanism under securities law that allows an entity facing (or likely to face) enforcement action to resolve the matter by paying a determined sum or agreeing to specified terms, without admitting or denying guilt, instead of going through a full adjudication or prosecution process. This power derives from Section 15JB of the SEBI Act, 1992, inserted by amendment, and is operationalised through settlement regulations framed under it.
Key Details
- Section 15JB allows any person against whom proceedings have been initiated (or may be initiated) under Sections 11, 11B, 11D, 12(3), or 15-I of the SEBI Act to apply for settlement
- Settlement terms may include monetary payment and/or non-monetary conditions (e.g., debarment, restrictions on market access), as determined by SEBI under regulations made pursuant to Section 15JB
- The mechanism was first operationalised through the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014, later replaced by the SEBI (Settlement Proceedings) Regulations, 2018
- Settlement is distinct from adjudication (Section 15-I, which results in a formal penalty order after a hearing) and from prosecution (criminal proceedings under Section 24), which do not offer a negotiated resolution
The 2026 overhaul revises the 2018 Settlement Regulations, changing the computation formula and introducing tiered processing routes based on the value of the settlement amount involved.
High Powered Advisory Committee (HPAC) on Settlement
The HPAC is a statutory committee SEBI is required to constitute under Section 15JB to examine and recommend terms for settlement applications before a final decision is taken by SEBI's Whole Time Members. It exists to introduce an independent, quasi-judicial check on the settlement process, since settlement effectively substitutes for formal adjudication.
Key Details
- Composition: a judicial member who has served as a Judge of the Supreme Court or a High Court, plus three external experts with securities-market expertise
- Term of members: 3 years, extendable by a further 2 years; quorum for a meeting is 3 members
- Under the standard route, applications move: Internal Committee → High Powered Advisory Committee → Panel of Whole Time Members (final decision)
- Under the new fast-track route (settlement amount below ₹10 lakh), the HPAC layer is bypassed — the case moves directly from the Internal Committee to the Whole Time Member panel, shortening the process
Removing the HPAC step for small-value cases is the central efficiency reform in this board decision — it is designed to clear a backlog of low-value cases faster while preserving the full multi-layer scrutiny for larger, more consequential settlements.
Settlement vs Adjudication vs Prosecution — Enforcement Architecture Under the SEBI Act
UPSC frequently tests the distinction between different enforcement routes available to a regulator. Under the SEBI Act, three broad routes exist for addressing a violation: adjudication (formal, litigated, ends in an appealable penalty order), prosecution (criminal route, for serious/willful violations), and settlement (negotiated, faster, without an admission of guilt, available under Section 15JB for a defined set of provisions).
Key Details
- Adjudication orders under Section 15-I are appealable before the Securities Appellate Tribunal (SAT), and further to the Supreme Court
- Settlement applications can also be made even in cases already pending before appellate bodies, per the 2026 board decision, extending the availability of settlement further into the litigation lifecycle
- Serious violations — such as fraud that is found to have caused market-wide harm, or certain repeat violations — are excluded from the settlement route to prevent settlement from being used to escape accountability for grave misconduct
- The expanded scope now covers matters such as misrepresentation of financial statements and diversion of funds, provided remedial terms (disclosure, restitution) are met — a widening from the narrower default exclusions under the 2018 regulations
By expanding both the timelines and the categories of eligible violations, SEBI is signalling a shift toward faster, negotiated resolution as the default route for a wider set of securities-law violations, while retaining tiered scrutiny (HPAC, WTM panel) proportional to case value.
- Fast-track settlement threshold: settlement amount below ₹10 lakh
- Settlement notice response window: 60 days (after settlement notice); 90 days (after show-cause notice)
- One-time transition window for past-rejected/withdrawn applications: 90 days from commencement of the new Settlement Regulations, 2026
- HPAC composition: 1 judicial member (former SC/HC judge) + 3 external experts; term 3 years (extendable by 2)
- Legal basis: Section 15JB, SEBI Act, 1992
- Regulations superseded: SEBI (Settlement Proceedings) Regulations, 2018