MAR 03, 2017

Recent amendments in SEBI Settlement Regulations

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Ahead of deliberations in its Board meeting dated January 14th 2017, SEBI has approved and amended the existing Settlement Regulations through SEBI (Settlement of Administrative and Civil Proceedings) (Amendment) Regulations, 2017 with effect from 27.02.2017.

Here is the quick round-up of amendments so made in the existing Settlement Regulations:

  1. Condonation of Delay may be allowed with payment of additional fee and interest:- It is now specifically provided that Condonation of delay shall be allowed only upon filing of an application for condonation (with the settlement application) along with an additional processing fee of Rs. 2,000. Further, in case of applications filed with delay, the settlement fees amount so derived shall be enhanced by an additional simple interest @ 6% per annum on the settlement amount, to be calculated from the expiry of original filing period of application (i.e. 60 days from serving of SCN) till the date of filing.
  2. Rejected/Withdrawn application can be refiled:- An application for a default, for which an application has been earlier rejected by the Board or withdrawn by the Applicant can now be re-filed but subject to facts and circumstances of each case and payment of additional fees and /or interest as may be recommended by High Powered Advisory Committee (HPAC).
  3. Stricter Timelines for remitting settlement amount:- It is now provided that Settlement amount to be paid within 15 calendar days from the date of receipt of notice of demand, such period can be extended by panel of Whole Time Members but not beyond the 90th calendar day from the date of receipt of notice of demand. Payment after such 90th day will not be acceptable and application shall be rejected. It is further provided that in cases wherein the settlement amount is paid after 30th day from the date of receipt of notice of demand, an interest @ 6% p.a. shall be levied from the date of receipt of notice of demand till the date of payment of settlement amount.
  4. Indicative amount be calculated for each applicant, except in few cases:- It is now specifically clarified that in cases of default by multiple parties arising out of same cause of action, Indicative amount for settlement to be calculated for each applicant separately, except only for cases wherein the liability of applicants can be considered joint and several, like:-
    1. Acquirers and persons acting in concert under Takeover Regulations;
    2. Directors, where they have acted collectively for an act of the Company;
    3. Any other group of persons, as the IC/HPAC may recommend based on facts and circumstances of each case.
  5. Serving of settlement notice:- A specific provision is now provided in the amended regulations that before the issuance of a specific show cause notice, a settlement notice indicating the substance of charges and probable actions may be issued in advance (except in cases which are excluded from settlement) and the applicant will have an opportunity to file application within 15 calendar days from the receipt of such settlement notice. The applicant opting to settlement proceedings subsequent to such settlement notice will be able to take benefit of lower Proceeding conversion factor (PCF) i.e. 0.75 in calculation of settlement amount. It is also clarified that the settlement notice shall only be an indication of probable enforcement action and the board shall have the power to modify the proposed enforcement action based upon the facts.
  6. Relaxation in PCF for Suo-moto/Voluntary intimation matters :- Application filed voluntary/suo-moto before issuance of any SCN or even before issuance of settlement notice will now get benefit of lower PCF of 0.65, which is 0.85 in cases where SCN is issued or 0.75 in a case where pre-SCN notice is issued. Thus now in voluntary/suo-moto applications, the Indicative amount so arrived shall be reduced by 35%.

CP comments:

In wake of the increasing burden on SEBI’s enforcement side, it has tried to achieve an equilibrium between encouraging the ‘settlement route’ as a way of resolving non-grave defaults in securities market and strengthening the existing settlement process. The amendments provides an additional relaxation, for voluntary/suo-moto consent applications. Now the indicative amounts on voluntary/suo-moto be reduced by 35% as against earlier reduction of 25%. The provision of settlement notice have also been introduced to encourage settlement of defaults by following procedure under these regulations rather than prolonged adjudications and investigation proceedings, the indicative amounts in applications filed in such cases shall be reduced by 25% as against the reduction of 15% in cases wherein the applications are filed post issuance of SCNs. However, it requires clarification whether such settlement notice shall be sent in all consentable cases or it is upon discretion of SEBI. it is viewed that the intent of amendment regulations in providing different slabs of PCF is to encourage settlement of more matters (pending and prospective). However, the relaxations so granted are relatively marginal.

Besides advancing opportunities for settlement of defaults, the amended regulations brings more strengthened provisions in terms of period of filing of applications and payment of settlement amounts. The introduction of 6% simple interest on settlement amount in cases of delays in filing as well as in case of delay of payment of settlement amount will brace the settlement process.

These developments were definitely long awaited and surely is an attempt of Regulator towards ironing out the creases from Settlement process.