SEBI notifies new settlement rules with fast-track route and revised formula

What SEBI changed in its settlement rules

India's capital markets regulator has notified new settlement regulations, overhauling how penalties are calculated and introducing fast-track resolution pathways for securities market violations.

Under the Settlement Regulations, 2026, notified on 6 October, the Securities and Exchange Board of India (SEBI) has established a structured formula to determine settlement amounts while separating the disgorgement of illegal gains from base calculations.

The new framework splits settlement terms into three explicit components:

• Settlement amount: Computed using a base amount linked to the minimum statutory penalty for the violation.
• Disgorgement: Separate recovery of quantified wrongful gains, avoided losses, or investor losses.
• Remedial and regulatory terms: Corrective measures that entities must undertake, replacing what was previously termed non-monetary terms.

How the new settlement formula works

Previously, calculations often bundled illegal gains or investor losses directly into the settlement terms, leading to potential double counting.

Under the revised framework, SEBI explicitly excludes wrongful gains and investor losses from the initial base settlement amount. Where these figures can be measured, they will be recovered separately through disgorgement orders.

The base settlement amount is calculated against the minimum penalty prescribed for the specific offence under Indian securities laws. SEBI will then adjust this base figure up or down depending on the stage of the legal proceedings, the severity of the violation, aggravating and mitigating circumstances, past regulatory action, and legal costs.

Fast-track routes for smaller cases and specific violations

To speed up enforcement and clear backlogs, SEBI has created two distinct fast-track mechanisms:

• Monetary threshold fast-track: For cases where the settlement amount does not exceed ₹10 lakh, matters will bypass extra procedural tiers, moving straight from SEBI's internal committee to a panel of whole-time members for final orders.
• Violation-based fast-track: For specified offences, including certain disclosure-related breaches, SEBI will issue a direct notice stating a specific settlement fee. Once the entity pays the specified amount, SEBI's panel of members will issue the settlement order.

Settlement of financial misrepresentation and fund diversion

The new framework also allows entities involved in serious breaches—such as misrepresenting financial statements or diverting corporate funds—to apply for settlement.

However, SEBI has attached strict preconditions. Entities cannot settle these cases simply by paying money; they must complete mandatory remedial actions. This includes making full public disclosures and returning any diverted funds back to the impacted business before a settlement can be approved.