The Securities and Exchange Board of India (SEBI) is a regulatory body which oversees the securities markets in India. The Government of India enacted the SEBI Act, 1992, in pursuance of which the board was given a legal status, and finally, on April 12, 1992, it became operational. SEBI’s creation marked a shift towards centralized regulation aimed at fostering market transparency, investor protection, and market integrity.
It operates under the ambit of the Ministry of Finance and is headquartered in Mumbai. Its regulatory powers span multiple areas of the securities market, such as equities, derivatives, commodities, and mutual funds. SEBI’s responsibilities include not just checking stock exchanges but also regulating market intermediaries like brokers, depositories, and custodians.
The main goals of SEBI consist of ensuring fair and orderly conduct in the market, deterring insider trading and market manipulation, and fostering investor education and awareness. Through stringent enforcement mechanisms, SEBI strives to uphold compliance with regulatory norms, imposing penalties and sanctions for violation of Securities Law.
In the sphere of regulatory bodies like SEBI, the disputes are complex and involve various factors, including market structure, infrastructure, competition, consumer-related concerns, and other technical matters such as interconnection, investment, and trade. Regulators aim to resolve disputes quickly while preventing service interruptions and minimizing welfare losses for all stakeholders.
Traditional court litigation is often viewed as a lengthy process for dispute resolution, as many laws do not keep pace with evolving social norms and fast-paced technological developments in telecommunications, making litigation both expensive and time-consuming. Considering the prevailing situation, governments in different countries have been introducing reforms in the existing regulatory framework to ease trade and investments.
Mechanisms like Alternative Dispute Resolution (ADR)—defined as ‘set of approaches and techniques aiming at the resolution of disputes in a non-confrontational way’—have taken a leading role in reducing commercial litigation worldwide.
Considering factors like the fast-paced growth of securities markets in India, various Committee reports, and the shift in government’s approach towards resolution of disputes, SEBI in 2007 introduced a mechanism for consent-based settlement for any civil or administrative proceeding which may be initiated by the Board against any market player for alleged violation of any provision of securities law.
Such a mechanism allowed the defaulting entity to avoid the formal investigation and imposition of penalties by SEBI by paying a certain amount of money and agreeing to conditions mandated. This mechanism helped SEBI and the defaulting entity as it reduced litigation costs and safeguarded precious time. Also, it increased the foreign investor confidence in Indian markets, leading to a paced growth in securities markets.
This article looks to explain the concept of consent-based settlement—a form of Alternate Dispute Resolution (ADR)—in reference to SEBI’s Settlement Proceedings Regulations, its positive effects, and how it has helped the growth of Indian securities markets.
Settlement, a form of Alternative Dispute Resolution
While elaborating upon the legality of the concept of settlements, one may consider its relevance under the law of Arbitration. It can be construed that this branch of law establishes Arbitral Tribunals specifically referring to the Arbitration and Conciliation Act, 1996, which is entrusted with hearing the dispute of the parties and pass an appropriate award having a binding effect. Here it can be pointed out that parties to the dispute are two separate entities, which may not be in conflict due to a breach of a statutory provision of any law of the land, but contesting against one another on account of a legal injury which may have arisen due to breach of a contractual obligation.
The Arbitral Tribunal, while hearing or before initiating the proceeding, can request the parties to resolve their dispute through mutual settlement on agreed terms via procedure of Conciliation, Mediation or any other form of Alternative Dispute Resolution (ADR). Also, it has been provided by the Act that if the parties settle the dispute during the pendency of an arbitral proceeding, the tribunal may record the settlement terms and pass an arbitral award based on such an agreement in accordance with the provisions of Section 31 of the said Act.
Such a mechanism of settlement is evidently dissimilar to that of a procedure of consent-based settlement followed by a regulatory body like SEBI. The major point of difference lies in the fact that under the arbitral proceeding, the parties to the dispute are two separate entities having private interests and which may have fallen into a dispute on account of breach of a contractual obligation by any of them. On the other hand, SEBI is a statutory body constituted under the SEBI Act, 1992 by the Government of India to regulate the securities market of India. The Board has been entrusted with the power to impose penalties against a market entity on discovery of a violation of any provision of securities law. SEBI may settle the matter without admitting or denying the existence of the alleged fact by the entity on payment of a certain amount of money.
So, it can be inferred that Arbitration Law protects the private rights of the parties and on the other hand, SEBI’s Settlement Regulations are fulfilling a public purpose, and can be related to a sovereign function of the government, delegated to the Board for the effective regulation and development of the securities markets of India.
Settlement under Securities Law
According to Section 15JB of the SEBI Act, 1992, an individual who is subject to any proceedings that have been commenced or could potentially be commenced under Sections 11, 11B, 11D, sub-section (3) of Section 12, or Section 15-I, is allowed to submit a written application to the Board proposing a settlement for the ongoing or forthcoming proceedings related to the claimed violations.
Subsections (2) to (5) of this section state other rules like the Board, after evaluating the nature, severity, and effects of the defaults, concurs with the proposal for settlement, which involves payment by the defaulter or other terms established in line with the regulations formulated under this Act. The settlement process will be carried out according to the procedures outlined in the regulations established under the SEBI Act. No appeal shall be permitted under Section 15T against any decision made by the Board or adjudicating officer under this section. All settlement amounts, with the exception of the disgorgement amount and legal expenses, collected under this Act will be deposited into the Consolidated Fund of India.
Moreover, Section 2(1)(e) of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 includes the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act, 1992), Securities Contract (Regulations) Act, 1956 and the Depositories Act, 1996 in the ambit of “securities laws”.
In contrast to the traditional adjudication where rights and liabilities of the parties are set up following the principles of justice, settlement mechanism provides a convenient method of resolving the dispute under which an entity can avoid its liability without admitting or denying the facts and conclusion of law.
It will not be a correct statement to claim that India is the leading country in the world in terms of introducing settlement-related reforms in regulatory body for securities markets. The Securities and Exchange Commission (SEC) of the USA can be attributed to introducing this mechanism in its securities markets, also setting the standards for its functioning. Similarly, the Financial Conduct Authority (FCA) of the United Kingdom has contributed much to this regard.
A major point of distinction between the settlement mechanism followed by the SEC in the USA and SEBI in India is the amount recovered under settlement proceedings. The SEC is known for imposing huge monetary liabilities in its settlement agreements which is seen nowhere in rest of the world. On the other hand, settlement in India is a relatively new process, and entities often rely on the well-established judicial system of the country especially if the alleged violation involves a significant amount, taking into account the financial strength of such entity.
Evolution of SEBI’s Settlement Framework
The Board issued a circular in the year 2007 setting up the “consent mechanism” as “an alternative and efficient dispute resolution tool for violations of securities law”. Afterwards, with the aim of codifying and simplifying the legal complexities in the process, the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 were enacted following the Securities Laws (Amendment) Act of 2014. The resolution procedure under this regime did not apply to certain major offences, namely, insider trading or fraud.
As of December 14, 2017, SEBI had established a “High-Level Committee” (Committee), led by Justice A. R. Dave, to evaluate the existing settlement framework and propose enhancements informed by insights gained from the growth and development of both Indian and global securities markets. The recommendations made by the Committee, along with feedback from stakeholders, resulted in the implementation of “the SEBI (Settlement Proceedings) Regulations, 2018,” which took effect on January 1, 2019, replacing the earlier rules set in 2014.
This new framework has given SEBI greater flexibility to resolve serious offenses, except those that significantly affect the market, lead to losses for many investors, or undermine market integrity. Additionally, it introduced the concept of “Confidential Settlement” in exchange for cooperation with SEBI during its investigations and aimed to enhance transparency on investor-related settlement issues such as violations of disclosure requirements and options for refunds or exits for investors.
Also, a few minor procedural issues have been fixed by SEBI in a series of amendments in its settlement regulations in the following years.
Procedure for Settlement under the Regulations
The Settlement (Proceedings) Regulations, 2018 provide a structured and time-bound process for settling the alleged violations of securities laws of the country.
Firstly, any person against whom a proceeding has been initiated or may be initiated for violations related to securities laws of India can apply for settlement. An application can be filed before the issuance of show cause notice and after initiation of the proceedings. It shall be mentioned here that violations related to fraud, grave market manipulation, and insider trading are barred from the purview of settlement regulations. Moreover, Regulation 5 restricts defaults having market-wide impact, criminal cases, or matters under investigation by other authorities.
Secondly, the application must have full and true disclosure of facts, a proposal for settlement terms, and must be accompanied by a non-refundable application fee of Rs. 15,000 for individuals and Rs. 25,000 for body corporates. Also, the confidentiality provisions of Regulation 23 can be used if show cause notice has not been issued.
Thereafter, the application is reviewed and scrutinized by an Internal Committee (IC) which later holds meetings with the applicant to finalize settlement terms. Later, IC sends its report to the High-Powered Advisory Committee (HPAC) having agreed settlement terms. The HPAC reviews IC recommendations and sends its advice to the Panel of Whole Time Members (WTM), which makes the final decision based upon the recommendations of the IC and the HPAC.
Also, SEBI uses a self-developed calculator, which is available on its website, to calculate the amount of settlement money which the applicant may be liable to pay. This calculator takes into consideration the provisions of regulations and factors like the gravity of the alleged default, monetary loss caused to investors, illegal gains, illegal avoidance of loss, earlier sanctions by SEBI, etc. to arrive at the settlement amount.
After WTM gives its nod to the settlement terms, an order is passed by the authorized officer and published on the website of SEBI.
Impact on Market and Stakeholders
One of the most vital impacts of this scheme is the reduction in the litigation backlog. The traditional enforcement proceedings and adjudication use the limited resources of the Board. Its orders are often challenged by the affected entity in the Securities Appellate Tribunal (SAT), then the High Court and lastly the Supreme Court. Such litigation journey often takes years to finally reach a conclusion which discourages the potential investors from trading in Indian securities markets. Settlement fulfills two purposes simultaneously — firstly, it imposes an injury for the wrong committed by an entity and secondly, it gives an opportunity to such entity to make things right.
Another achievement of settlement provisions can be seen in raising investor confidence and market integrity. Effective settlement proceedings have helped in reinforcing credibility, enhancing public trust on SEBI, and most importantly, reduction in uncertainties. Moreover, this mechanism has promoted a culture of self-reporting and cooperation as the market entities have shown an attitude of voluntarily informing SEBI about the committed unlawful acts to avoid any future proceeding. On one hand, it safeguarded such entities from SEBI proceedings and on the other, they protected their market reputation.
Shortcomings
The settlement mechanism has been vital in enhancing procedural efficiency and has eased regulatory stress in the securities markets. However, one should also consider the compromises which the government has made while adopting such a policy.
Firstly, this scheme has posed a threat in the sense that violators can pay a share of their unlawful monetary profit every time they commit an intentional breach of securities law to avoid any legal trouble. In such a scenario, entities with monetary power can positively escape the penal consequences of their illegal acts, thereby undermining ends of justice.
Secondly, in most of the settlement applications, a decision is arrived at without the entities allegedly in default admitting or denying the findings of facts and conclusions of law. Such an approach is again a compromise with the well-established principles of natural justice. Moreover, it dilutes the public accountability of wrongdoers.
Thirdly, the settlement orders of SEBI are barred from judicial review. Section 15-JB(4) of the SEBI Act, 1992 expressly bars any settlement order including rejection orders from appeal in any court of law in India. Such a provision clearly puts entities in a critical position, as if they had opted for settlement, then they cannot move back even if the terms are unfair or violate any of their legal rights.
Lastly, the hierarchical structure of settlement bodies under SEBI, namely, IC, HPAC, and Panel of WTMs, often creates complexities in the settlement proceeding. At times, frustration is caused between the members of these bodies due to distinct viewpoints over a set of issues. Such a structure contributes to procedural delays, communication gaps, and confusion, thereby frustrating the entities.
Concluding Lines
SEBI’s Settlement Framework is certainly a pragmatic evolution in India’s regulatory landscape that seeks to balance the goals of enforcement, efficiency, and market development. The framework has undoubtedly reduced litigation, fostered trust of market players in regulatory bodies like SEBI, and improved predictability and stability in the securities markets.
The concerns which shall be given due consideration by the Board may be in enhancing transparency in settlement proceedings, ensuring equitable access for all classes of market participants, and most importantly, striking a distinctive line between the serious violations and ordinary violations, so that grave violations may not be settled and face legal consequences.
Going forward, SEBI’s approach to settlement must remain principled and proportionate so that the mechanism does not become a tool for regulatory evasion, rather a cornerstone of collaborative compliance.
End Notes:
- Khan, T.A., Dautaj, Y. and Yadav, A. (2022) Alternative Dispute Resolution in the Regulatory Regime, Forum of Indian Regulators. Available at: https://foir-india.org/upload/Dispute%20Resolution%20in%20the%20Regulatory%20Regime.pdf (Accessed: 25 June 2025).
- Singh, A., Bindal, S. and Malik, A. (2024) Avtar Singh’s Law of Arbitration and Conciliation: Including Alternative Dispute Resolution Systems. Lucknow: EBC.
- Government of India (2018) Securities and Exchange Board of India Act, 1992, Legislative Department. Available at: https://www.sebi.gov.in/sebi_data/attachdocs/1456380272563.pdf (Accessed: 25 June 2025).
- SEBI (2023) Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 (as amended on August 09, 2023), Securities and Exchange Board of India. Available at: https://www.sebi.gov.in/legal/regulations/aug-2023/securities-and-exchange-board-of-india-settlement-proceedings-regulations-2018-as-amended-on-august-09-2023-_75281.html (Accessed: 25 June 2025).
- Rao, Y.P., Awasthi, A. and Prabhat, S. (2023) An Analysis of the SEBI Settlement Mechanism, Shodh Samagam. Available at: https://shodhsamagam.com/uploads/issues_tbl/1687507000n-Analysis-of-the-SEBI-Settlement-Mechanism.pdf (Accessed: 25 June 2025).
