- Sebi proposed scrapping 20% extra charge in multiple-proceeding settlements cases
- A fast-track settlement route is proposed for cases up to Rs 10 lakh without HPAC review
- Settlement amounts to link with minimum penalty, excluding wrongful gains for disgorgement
Sebi on Friday proposed an overhaul of its settlement framework, including scrapping an additional 20 per cent settlement charge in certain multiple-proceeding cases and introducing a fast-track route for settlements involving amounts of up to Rs 10 lakh.
The proposals are part of a consultation paper seeking to replace the existing Sebi (Settlement Proceedings) Regulations, 2018, with a new framework aimed at making settlement of enforcement proceedings simpler, faster and more predictable.
The proposed changes follow consultations with stakeholders and a review of settlement applications filed over the last two years.
Sebi's study found that in cases where settlement was rejected or withdrawn and enforcement proceedings subsequently resulted in penalties, the settlement amounts proposed were, on average, about eight times the penalties finally imposed.
Under the proposed framework, the ratio could come down to around four times, the Securities and Exchange Board of India (Sebi) said, adding that the revised approach would retain deterrence while making settlement more attractive.
Under the fast-track mechanism, settlement cases involving an amount of up to Rs 10 lakh would not require a meeting of the High Powered Advisory Committee (HPAC). Such cases would move from the Internal Committee directly to a panel of Whole Time Members, according to its consultation paper.
The existing summary settlement process for specified violations would also be retained as part of the proposed fast-track framework.
Once the applicant makes the required payment, the settlement order would be passed by the competent authority before whom the proceedings are pending. If no proceedings are pending, the order would be passed by the panel of Whole Time Members.
Sebi has also proposed removing the additional 20 per cent settlement amount currently charged when multiple enforcement proceedings involving the same noticees are settled together.
Also, the regulator has proposed linking settlement amounts to the minimum penalty prescribed under securities laws, with different multipliers based on the applicant's category. Further, wrongful gains or investor losses would not be included in the base amount, but would continue to be recovered separately through disgorgement.
The regulator has also proposed clearer rules for calculating the number of defaults. The base amount would be calculated for each count of default and then aggregated, instead of being calculated separately for every provision of law alleged to have been violated.
Multiple failures to make event-based disclosures arising from a single event would be treated as one count of default, according to the proposal.
The regulator has proposed increasing the maximum number of mitigating factors that can be considered from three to five. It has also proposed adding factors such as a change in control or management of a corporate entity and the applicant being an independent director.
On interest payable on disgorgement, Sebi has proposed charging 9 per cent per annum from the date of the transaction until the filing of the settlement application where no final order has been passed.
Where a final order has been passed, interest would be charged at 9 per cent per annum from the date of the transaction until the date of the final order and at 12 per cent thereafter until the settlement application is filed.
The proposal also makes it clear that no interest would be charged on the interest amount.
For cases involving a large number of transactions where calculating interest from each transaction date is complex, Sebi has proposed using a weighted average for each year and charging interest from the middle of the year.
Sebi has further proposed increasing the time available for filing settlement applications in pending proceedings. Currently, an application has to be filed within 60 days of service of the show-cause notice.
The regulator said the 60-day period may be inadequate for corporates and entities based outside India, which may require more time to take a decision because of their organisational structure or overseas presence.
Sebi has sought public comments until September 4 on the proposals.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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