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SEBI introduces new mechanism for summary settlement of proceedings

Finsec Law Advisors

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On December 27, 2017, SEBI notified amendments to the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (“Regulations”). This article discusses the changes brought by the amendment.

The Regulations provide procedural guidelines for settlement of administrative and civil proceedings. An entity against which a proceeding for violation of certain specified securities laws and regulations has been initiated by SEBI, can make an application to settle such proceeding by agreeing to various monetary and/or non-monetary settlement terms with SEBI. The application is examined by an internal committee, which determines the settlement terms and places them before a High Powered Advisory Committee (HPAC) of SEBI. The HPAC puts forth its recommendation on whether to grant a settlement on those terms before a panel of whole time members, on whose acceptance a settlement order is finally passed.

In contrast with this lengthy procedure, SEBI has now introduced a new mechanism for summary settlement of certain specified proceedings. As per the amendment, SEBI can issue a notice of settlement calling upon the noticee to file a consent application, even before the initiation of proceedings. These specific proceedings may include violations involving delay in filing of return, report, documents etc., delay in making disclosures or failure to make disclosures in proper format, delay in compliance with any legal requirements or SEBI directions, non-disclosure in relation to exclusively listed companies which have exited from regional stock exchanges, or such other violations as SEBI may determine. On receipt of the notice, the noticee will be given 30 days to file the application, remit the specified settlement amount and comply or undertake to comply with non-monetary terms. On non-compliance, regulatory proceedings may be initiated by SEBI and the noticee will lose the opportunity to file for settlement till the conclusion of such proceedings. The Noticee will have the opportunity to file for another settlement only during the pendency of proceedings before a Court or Tribunal. It is important to note that the noticee cannot also modify the settlement terms and can only seek a rectification in case their is any discrepancy in calculation, at the time of the filing. In such a case, the decision of SEBI shall be final.

We have observed that it takes around 6-8 months on an average for an order to be passed after the filing of the application under the regular settlement mechanism. The new summary settlement procedure will provide a straightforward mechanism for settlement of minor instances of defaults by eliminating the bureaucratic need for settlement terms to be approved by three different committees. The rationale behind SEBI's decision to suo moto ask the defaulters to file for settlement is to redirect its resources and focus on larger issues having a market wide impact. This amendment will assist in clearing the huge backlog of cases with SEBI and will also provide a quicker mechanism to settle to the defaulters with minor violations.