Purpose of the Settlement Mechanism
- Designed to offer a faster route to resolve securities law violations and reduce prolonged court litigation.
- Intended to streamline enforcement and lower the burden on the legal system.
Current Issues Highlighted
- Growing delays and inefficiencies in processing applications.
- Increasing perception of discretionary and inconsistent practices.
- Inflated settlement amounts and strict non-monetary terms causing concern.
Key Data Points
- Settlement amounts collected in FY25 (till 15 March): ₹851 crore.
- Comparatively higher than ₹125 crore in FY23 and ₹94 crore in FY24.
- Excluding the ₹643-crore NSE case, collections are still significantly higher.
- Pending settlement applications at the end of FY24: 289 (up from 137 in FY23).
- New applications in FY24: 434 (up from 386 in FY23).
Issues with Settlement Amount Calculations
- SEBI has a formula based on base amounts, base values, proceeding conversion factors, and regulatory action factors.
- Critics argue SEBI uses tangentially relevant base values, leading to inflated amounts.
- Lack of negotiation flexibility during internal committee meetings.
Settlement Process Structure
- Internal Committee: Officer not below chief general manager rank.
- High-Powered Advisory Committee: Includes a former Supreme Court or high court judge and three external securities market experts.
- Final approval by a panel of SEBI whole-time members.
Upcoming Changes
- SEBI whole-time member Kamlesh Chandra Varshney mentioned final discussions are underway to draft a standard operating procedure (SOP) for settlements.
Other Concerns
- Settlement process often more expensive than litigation.
- Enforcement orders coming for settlement increased from 10% to 45% in the past five years.
- Rising use of non-monetary terms (compliance undertakings, voluntary debarment) beyond the original show cause notices.
- Potential legal risks for applicants, including suspension of business activities or forced management exit.
SEBI’s settlement mechanism, despite its original intent to reduce litigation, is currently seen as opaque, expensive, and time-consuming. Reforms and a well-defined SOP are expected to address these growing concerns.
