The Securities and Exchange Board of India (SEBI) has introduced a new formula-based framework to calculate settlement amounts for administrative and civil proceedings involving alleged violations of securities laws.
Under the Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) Regulations, 2026, the amount will depend on several factors, including the stage of the proceedings, the applicant's regulatory history, the gravity of the alleged violation, and any aggravating or mitigating circumstances.
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The new framework replaces the SEBI (Settlement Proceedings) Regulations, 2018.
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It aims to make the settlement process more structured by linking the amount payable to the nature of the alleged default and the circumstances of each case.
How Is The Settlement Amount Calculated?
Under Regulation 10 of the new rules, the settlement amount is calculated using the following formula:
Settlement Amount (SA) = Base Amount (BA) × (S + R + G + A − M)
- BA: Base Amount
- S: Stage of Proceeding Factor
- R: Regulatory Action Factor
- G: Gravity Factor
- A: Aggravating Factors
- M: Mitigating Factors
If the combined value of these factors is less than one, it will be treated as one for the calculation.
The settlement amount cannot be less than Rs 3 lakh for a first-time applicant and Rs 7 lakh for other applicants.
A first-time applicant is defined as a person against whom no adverse order has been passed by SEBI or an adjudicating officer, and who has not previously received a settlement order from the regulator as on the date of filing the application.
What Determines The Base Amount?
The base amount is linked to the minimum penalty applicable for the alleged violation under the SEBI Act, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996. This amount is then multiplied by a factor based on the applicant's category.
The multipliers prescribed under the regulations are:
| Category of applicant | Multiplier |
|---|---|
| Independent director | 2 |
| Non-executive director | 3 |
| Executive director, promoter in control or key managerial person | 3.5 |
| Other natural person | 2.5 |
| Body corporate, intermediaries, pooled investment vehicles and others | 4 |
| Market infrastructure institution | 5.5 |
Where a case involves multiple alleged violations, the base amount is calculated for each count of default and then aggregated. If one alleged default attracts multiple violations and different base amounts, the higher amount is considered. Where separate defaults attract different base amounts, these are added together.
The regulations also provide that the base amount for a person identified as the lead conspirator, mastermind or key operator in the alleged violation will be doubled. An independent director alleged to have benefited from or actively participated in a fraud may also be treated at par with an executive director for this calculation.
The base amount cannot be lower than the penalty already imposed for the default for which the applicant is seeking settlement.
How Does The Stage Of Proceedings Affect The Amount?
The stage at which an applicant files the settlement application determines the value of the proceeding factor, or 'S'. The regulations assign higher values as the matter progresses through the enforcement process.
The prescribed values are:
| Stage of proceedings | Value of S |
|---|---|
| Voluntary, or suo motu application | 0.20 |
| Before the issuance of a show-cause notice | 0.40 |
| After the issuance of a show-cause notice | 0.60 |
| Pending before the Designated Member or the Board, as specified under the regulations | 0.80 |
| Pending before the Securities Appellate Tribunal | 1.00 |
| Pending before the Supreme Court | 1.50 |
This means the stage of the proceedings can have a direct bearing on the settlement calculation. Where multiple proceedings arising from the same cause of action are being settled, the most advanced proceeding will determine the applicable factor.
What Is The Regulatory Action Factor?
The regulatory action factor, or 'R', takes into account previous administrative warnings and orders issued against the applicant.
The value assigned under the regulations is:
No previous order: 0
Administrative warning: 0.10 for each warning
Previous settlement order: 0.20 for each order
Adverse order in adjudication, directions or disciplinary proceedings: 0.30 for each order
Orders that have been stayed by the Securities Appellate Tribunal or a court are also included while calculating this factor.
How Is The Gravity Of The Violation Considered?
The gravity factor, or 'G', accounts for the nature of the alleged violation.
A factor of 0.25 is added to settlement applications where the applicant seeks settlement without admitting a violation of securities laws. The regulations also prescribe additional values for certain categories of violations.
These include:
Failure to make an open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011: 0.25
Certain offer-document-related violations, without allegations under the SEBI Prohibition of Fraudulent and Unfair Trade Practices Regulations: 0.50
Violations of Regulations 3 and 4 of the SEBI Prohibition of Insider Trading Regulations, 2015: 0.50
Violations of the SEBI Prohibition of Fraudulent and Unfair Trade Practices Regulations, 2003: 1.50
These values are added wherever applicable while calculating the settlement amount.
What Are Aggravating And Mitigating Factors?
The new framework also considers circumstances that could increase or reduce the settlement amount.
Aggravating factors (A) carry a value of 0.20 each, subject to a maximum of five factors. These may include attempts to delay or obstruct an investigation, providing misleading information, misconduct continuing for at least 30 days, significant monetary losses to clients exceeding Rs 5 crore, ignoring earlier regulatory warnings, and evidence of premeditation or sophisticated methods.
Other circumstances listed in the regulations include the applicant benefiting financially from the violation, repeatedly committing a default, abusing a position of trust, or being identified as a key operator in the alleged activity.
Mitigating factors (M) also carry a value of 0.20 each, with a maximum of five factors. These may include minimal participation in the alleged default, proactive cooperation with SEBI, early disclosure of misconduct, acceptance of responsibility, and corrective measures taken to prevent a recurrence.
The ability of an applicant to compensate investors, payment of restitution, and certain delays in reporting may also be considered. The Panel of Whole Time Members will take these factors into account wherever applicable.
Are Wrongful Gains And Investor Losses Included In The Formula?
Wrongful gains, losses avoided and losses caused to investors are dealt with separately from the base amount calculation.
Under the new regulations, settlement terms may include the settlement amount, disgorgement of wrongful gains or losses avoided or caused to investors, and remedial and regulatory terms, wherever applicable.
This means that an applicant may have to pay an amount towards disgorgement in addition to the settlement amount. Applicable interest may also be payable on such amounts.
The separation is intended to avoid counting wrongful gains or investor losses twice while determining the settlement terms.
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Can The Settlement Amount Be Reduced?
The regulations also provide for reductions in cases where SEBI grants confidentiality to an applicant who provides substantial assistance in an examination, investigation, inspection or audit.
Applicants granted first-priority status may receive a reduction of up to 90% of the settlement amount. Those given second-priority status may receive a reduction of up to 50%, while applicants with third or subsequent priority status may receive a reduction of up to 25%.
The applicable reduction will depend on the conditions set out under the regulations and the applicant's priority status.
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