SEBI on 14th January 2022, notified SEBI (Settlement Proceedings) (Amendment) Regulations 2022 (Settlement Regulations). The amendments brought in the Settlement Regulations are with an intent to encourage more matters to be resolved through Settlement or Consent mechanism in a time bound manner.
The amended Settlement Regulations has on one hand made timelines for filing of settlement and payment of settlement fees stringent taking away the relaxation of delayed filings (even with incremental fees/interest) and at the same time has attempted to reduce and rationalize the overall settlement amount especially in cases of disclosure defaults. Amended Regulations also encourage and incentivize voluntary settlement (with or without confidentiality) by further reduction in the settlement fees for application filed before the issuance of any Notice by SEBI.
Key Amendments are summarized herein below:
- 1. Amendments in Timelines: As per the revised Settlement Regulations, the various timelines under the Regulations vis-à-vis filing of application, filing of revised settlement terms and remittance of settlement amount has been amended as following:
- 1 For any proceedings pending before SEBI, a settlement application as per Regulation 4, is to be filed within 60 Days from the date of service of the show cause or supplementary show cause notice whichever is later. Any application filed after the expiry of 60 days shall now not be accepted.
- The powers to the Board under Regulation 4(2) to consider application filed beyond 60 days but not later than 120 days subject to the condition that the settlement amount determined in accordance with the Regulations shall stand increased by 25% is now dispensed away with.
- The time provided for submission of revised settlement terms under Regulation 13(2)(c) has been extended from period of 10 working days to a period of 15 working days from the date of the Internal Committee meeting. Simultaneously the existing provision allowing the revised terms being submitted within 20 working days’ time subject to an incremental 10% of the recommended settlement amount is also done away with.
- Also, the time for remitting the settlement amount forming part of the settlement termsby the applicant is also to be now completed within 30 calendar days from the receipt of the notice of demand. Any discretion /power to Whole Time Member to extend the time from 30 days to up-till 90 days along with interest is now revoked.
- 2. Revised provisions w.r.t. Settlement Terms
- The amended Settlement Regulations now explicitly provides that the non-monetary settlement term under Regulation 9(2)(j) may require the applicant to restrain from accessing the capital market and/or prohibit from buying, selling or otherwise dealing in securities, directly or indirectly and associate with the securities market in any manner for the specified period.
- As an explanation to clause 9(4), it is also clarified that the legal cost, if any, forming part of the Settlement Terms (mainly in respect of settlements of the proceeding pending before the Tribunal or any Court under regulation 24) includes other expenses incurred by the Board in any other proceedings before any court or Tribunal in respect of such application
- Further, as per the revised Settlement Regulations, the Internal Committee as per Regulation13(2)(ba), may require the applicant to comply with certain condition precedents within a specified time period for consideration of the application for settlement.
- 3. Payment Mechanism
- As per the revised explanation to the Settlement Regulation 15(2)(a), the remittance of settlement amount forming part of the settlement terms is now to be done through the dedicated payment gateway provided for the purpose.
- Likewise, the payment of non-refundable processing fees (as per Schedule I, Part B), is also to be made through the dedicated payment gateway provided for the purpose.
- 4. Amendments brought in the calculation methodology for arriving at the Settlement Amount:
- Proceeding Conversion Factor (PCF): The existing values of PCFs (Schedule II, Chapter III, Table-I) have been revised with the new values wherein for the applications being filed voluntarily or with confidentiality has been reduced to 0.40 (from earlier 0.65) and applications being filed before issuance of notice of show cause or summary settlement has been reduced to 0.50 (from earlier 0.75) whereas for applications being filed after the passing of the orders by Appellate Tribunal or Courts it is increased to 1.50 (from earlier 1.20).PCF as the impact of reducing or increasing the indicative settlement amount. With reduction in PCF value, the applications being filed at earlier stages will have to now pay settlement amount which will be 0.25 times lesser than the earlier amount and for applications being filed at later stages (i.e. even after the orders of Tribunal/counts) will have to pay higher amounts (0.30 times higher than the earlier)
- Determining the Base Value (BV):As per the Revised Settlement Regulations, the mitigating factor as well as the aggravating factors under Chapter V clauses I, II and III to determine the Base Valueis also amended. The consolidated impact of this amendment in arriving at the Settlement amount may be marginally higher but this too will largely depend upon the circumstances of the cases.
- Base Amount: Base Amount as the name suggest, provide the base and constitute the substantial amount to arrive at the Settlement Amount. Amendments are made in Chapter VI Table VII, Table VIII and Table X which deals with violations pertaining the disclosure requirements under SEBI Takeover Regulations, SEBI Insider Trading Regulations as well as residuary provision respectively. As per the revised provisions, there is substantial reduction is Base Amount for disclosure violation reducing the base amount to as low as 10 Lacs (from earlier 20 lacs in case of SAST and 25 lacs in case of Insider trading violations). For residual provisions also there is substantial reduction in Base Amount from as much as 1 crore for body corporates to Rs. 40 Lacs. With the substantial reduction in the Base Amounts, the Settlement Amounts will be much lesser now making settlement a more lucrative especially in cases of technical non-compliances like disclosures without an element of fraud or insider trading.
Our take on the Amendments
From the overall amendments made in the Settlement Regulations, the intent of SEBI is clear to encourage speedy resolution of matters through settlement mechanism rather than long drawn investigations and adjudications. By making the timelines stringent with no discretion to allow any extensions at any stage of the application, it has ensured speedy disposal of the matter. Although with absolutely no exemption as to time frames, some of the genuine cases of delay filing or payment may get impacted. Allowing higher discounts (through reduced PCF) in case of voluntary and early applications, again shows that SEBI wants to encourage settling of proceedings through Settlement more so in case of procedural and non-serious non-compliances. The Settlement Proceedings are incontestable /non-challengeable before courts and SEBI has full discretion in all the matters filed for settlement before it and more cases being resolved through this mechanism will save lots of cost and time of the regulator which goes into defending its orders before Tribunals and Courts.
The Amended Regulations are also beneficial for applicants,as now settlements can be reached at much lower settlement amounts as compared to earlier mush higher and irrational amounts being charged and considering the higher penalties being imposed in adjudication proceedings. Although there is no change in the minimum settlement amount of Rs. 3,00,000 for the first-time violator, which can be little discouraging for some cases as minimum penalty prescribed under SEBI Act is only Rs. 1,00,000 for disclosure and procedural non-compliance cases.
Overall the amendments are beneficial and in-interest of both the Regulator as well as market participants.