Sebi’s settlement system under fire: Delays, high costs, and discretionary powers spark concern

Mumbai: The Securities and Exchange Board of India’s settlement mechanism, designed to offer a faster route to resolving securities law violations over longdrawn court proceedings, is facing mounting criticism over growing delays and perceived discretionary practices.

Intended to streamline enforcement and reduce litigation, the process is increasingly marred by inflated settlement amounts and stringent non-monetary terms, say experts.

Data from Sebi’s website reveals a significant surge in settlement amounts collected in 2024-25, reaching ₹851 crore as of 15 March—a sharp increase from the ₹125 crore collected in FY23 and ₹94 crore in FY24.

Even excluding a ₹643-crore settlement in a case involving the National Stock Exchange, its former chief executive Vikram Limaye, and former chief technology officer Umesh Jain, Sebi’s collection in FY25 is considerably higher than in the previous two financial years.

To be sure, Sebi may also have been handling a backlog of settlement cases that have been piling up. While data for FY25 is not yet publicly available, the number of pending applications at the end of FY24 had increased to 289 from 137 at the end of FY23, according to Sebi data that Mint has reviewed. The number of new applications increased to 434 in FY24 from 386 in the year before.

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Lawyers hired for settlement proceedings say the data point to a slower resolution pace and inefficiencies in handling the growing number of cases before Sebi.

“The significant increase in pending settlement applications before Sebi… raises concerns about potential delays in the settlement process," said Kunal Sharma, partner at law firm Singhania & Co.

Abhiraj Arora, partner at Saraf and Partners, added that the growing backlog of pending cases suggested inefficiencies in the process. “These issues may arise from stringent settlement terms, procedural complexities, and delays in processing applications."

An arbitrary mechanism?

Another major worry about Sebi’s settlement mechanism is the regulator’s discretionary power in deciding the settlement amounts.

Despite a formula involving base amounts, base values, proceeding conversion factors, and regulatory action factors, Sebi retains the right to recommend higher amounts based on specific circumstances.

Critics argue that Sebi often applies base values that are only tangentially relevant, leading to inflated settlement figures. Also, according to the critics, the regulator is reluctant to negotiate the base values during internal committee meetings, which they said raised questions about the process’s flexibility.

In Sebi’s settlement proceedings, an internal committee and a high-powered advisory committee evaluate settlement petitions and terms. These are then presented before a panel comprising Sebi whole-time members to be finalised.

While the internal committee comprises an officer not below the rank of chief general manager, the advisory committee includes a former Supreme Court or high court judge along with three external experts on the securities market.

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Sebi whole-time member Kamlesh Chandra Varshney has indicated that the regulator was in the “final discussions" stage to draft a standard operating procedure for settlement regulations.

Varshney also said that although the settlement process often cost more than litigation, the percentage of enforcement orders “coming for" settlement had increased from 10% five years ago to 45%, according to a recent report by new agency Press Trust of India.

Another major point of contention with Sebi’s settlement process is the increasing imposition of non-monetary terms, such as compliance undertakings and voluntary debarment, exceeding the scope of the original show cause notices.

“There is a possibility that non-monetary terms can create potential legal risks for applicants. These terms may include suspension of business activities, exit from management, or other restrictions, which could be perceived as more burdensome than the initial penalties," said Arora.

Sebi did not immediately reply to Mint’s queries.

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What recourse for applicants?

Legal experts pointed out that applicants experiencing delays in the settlement process have limited direct recourse within Sebi’s framework as its regulations do not explicitly provide mechanisms to expedite individual applications.

"However, applicants can approach the (high court) with writ petition seeking directions to expedite the settlement process," said Arora.

Vasudha Goenka, partner at law firm Cyril Amarchand Mangaldas, added: “In an event where the terms are not agreeable to either party, there is no compulsion to go ahead with the process. Hence, there is limited recourse for the applicant to challenge a rejection."

Experts, however, suggested that applicants could seek a judicial review if their case was rejected based on arbitrary factors, although courts generally refrain from interfering with the settlement procedure, recognizing Sebi’s discretion in these matters.

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