X

Dec 17, 2018

Key Highlights of New Settlement Regulations Notified by SEBI

Share on

Securities and Exchange Board of India (“SEBI”) on 30th November 2018 vide notification no. SEBI/LAD-NRO/GN/2018/48 notified Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 (“New Settlement Regulations”) repealing Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (“Old settlement Regulations”) to enhance the settlement mechanism and cropping out the existing shortcomings. The main aim for coming up with whole new set of Regulations was to reduce burden of impending investigations before SEBI by opening doors in areas where settlement was not possible earlier.

The New Settlement Regulation will be effective from 01st January 2019 and comprises of the following changes:

  1. Changes in existing regulations
    1. Change in the Definition of “Securities law” and “Specified Proceedings”: As per the definitions “Securities Law” and “Specified Proceedings” prescribed under Old Settlement Regulations, settlement of offences was limited to the SEBI Act, the SCRA, the Depositories Act and the rules and regulations made thereunder.

      Post the inclusion of “the relevant provisions of the any other law to the extent it is administered by the Board” in the definitions of “Securities Law” and “Specified Proceedings” under New Settlement Regulations, SEBI is now empowered to settle matters w.r.t. provisions pertaining to any other law which are administered by SEBI including specific provisions of Companies Act, 2013.

    2. Revision in Limitation period for filing a Settlement Application: Under the New Settlement Regulations, SEBI revised the limitation period to ensure that only genuine applications are filed and the settlement process is not adopted as a means of forum shopping and to delay civil and administrative proceedings. The limitation period prescribed under New Settlement Regulations is as follows:
      • The Applicant shall file the settlement application within 60 days from the date service of SCN or Supplementary SCN, whichever is later.
      • SEBI may accept the application after the expiry of period of 60 days as specified above if it is satisfied that there were genuine reasons for not filing the same.
      • If the Settlement application is filed after 60 calendar days from the expiry of 60 days period as specified above i.e. 120 days from the service of SCN/Supplementary SCN; subject to the approval of SEBI, the settlement amount so determined will get increased by 25%.
      • No delayed application will be accepted by SEBI beyond the period of 180 days from the service of SCN/ supplementary SCN or after the first hearing whichever is earlier.
    3. Settlement applications in case of repetitive defaults: SEBI, under the New Settlement Regulations, removed the provision prohibiting an applicant from filing a settlement application for an alleged default if such alleged default was committed within a period of twenty-four months from the date of the last settlement order w.r.t. different cause of action. However, the Settlement application shall not be considered under the following circumstances:
      • If an earlier application had been rejected for the same alleged default;
      • If there is any pending audit or investigation or inspection or inquiry in respect  of  any cause of action, except in case of applications involving confidentiality
      • If there are any monies due under an order issued under securities laws which are liable for recovery.
    4. Increasing the Scope of Settlement: Under the Old Settlement Regulations, SEBI specifically prohibited the Settlement for the defaults involving the following:
      • Insider Trading and serious cases of fraudulent and unfair practices including front running provided if the applicant made good the losses due to the investors, his application may be considered;
      • failure to make open offer;
      • Defaults or manipulative practices by mutual funds, AIFs, CIS etc.
      • failure to redress investor grievances;
      •  Non-compliance of notices and summons issued by Board or the AO, cases involving refund of monies to investors.

      SEBI felt that the broad list of defaults which cannot be settled can be made principle based to settle the case purely depending upon the facts and circumstances of each case. Therefore, under the new regime all defaults can be settled including the defaults pertaining to PIT and PFUTP; except the alleged defaults which in the opinion of SEBI – have market wide impact, cause loss to a large number of investors, or affect the integrity of the market.

    5. Settlement applied by fugitive economic offender, willful defaulter etc. may not be settled: Under the New Settlement Regulations, SEBI has the power to not settle the matter if the Applicant of such Settlement Application is:
      • A willful defaulter
      • A fugitive Economic offender or;
      • Any such person who has defaulted in payment of any fees due or penalty imposed under securities laws.

      The terms “willful defaulter” and “fugitive economic offender” are not defined under SEBI Acts and Regulations. Therefore, the definition of “Willful defaulter” shall be taken from RBI master circular DBR.No.CID.BC.22/20.16.003/2015-16 and the definition of “fugitive economic offender” shall be taken from The Fugitive Economic Offenders Act, 2018.     

    6. SEBI can issue civil and administrative directions against the Applicant during the pendency of Settlement Proceedings: Under the New Settlement Regulations, a specific provision has been inserted clarifying that SEBI is empowered to issue interim civil and administrative directions against the Applicant if necessary, to protect the interest of investors and to maintain market integrity during the pendency of Settlement Proceedings.

      Hence, filing of a Settlement Application under these Regulations will prohibit SEBI from taking any Penal action but it may for the interest of investors and market integrity issue interim civil and administrative directions.

    7. Change in the constitution of the High Powered Advisory Committee (“HPAC”): Under the Old Settlement Regulations, the constitution of HPAC included a judge of a High court and three external experts of securities market. Further, the Old Settlement Regulations did not specify a situation where a member or members of the HPAC may recuse themselves with regard to certain applications for reasons relating to conflict of interests.

      HPAC constituted under the New Settlement Regulations can now have a judicial member who has been the Judge of the Supreme Court or a High Court and three external experts of securities market.

      Further, in order to impart transparency in the process, the role of the HPAC (including instances of recusal by members of the HPAC) are specifically defined under the New Settlement Regulation:

      • If any of the member of HPAC recused himself, then the remaining two or more members may submit their recommendation on the terms of settlement.
      • In situations, where no consensus is arrived upon by the members of the HPAC, the Judicial member’s recommendation would act as the veto.
      • If the judicial member has recused himself then the recommendations of all the members would be submitted before the Panel of Whole Time Members.
    8. Increase in Indicative Amount for Settlement: Earlier, the Indicative amount specified under Old Settlement Regulations for applicants was Rs. 2 lakhs for first time applicant and Rs. 5 lakhs for others.

      Under the New Settlement Regulations, the minimum Indicative amount has now been increased from 2 lakhs to 3 lakhs for first time applicants and from 5 lakhs to 7 lakhs for others.

    9. Status of existing Settlement Applications pending before SEBI: All the applications filed under the old Settlement Regulations and pending as on 1st January 2019 will be considered and adjudged as per the provisions of New Settlement regulations.
  2. New chapters/REGULATIONS introduced
    • Settlement Schemes
      • In the past, SEBI came up with Settlement Schemes to settle the case wherein there is large number of defaulters although under the Old Settlement Regulations there was no provision to regularize such Settlement Scheme.
      • Under the new regime, SEBI inserted the provision wherein it may provide for a Settlement Scheme for any class of persons involved in similar specified defaults.
      • Settlement through settlement schemes in a regularized manner would help SEBI in speedy disposal of similar matters which in turn is beneficial to SEBI as well as investors.
    • Settlement with Confidentiality:
      • A new chapter, “Settlement with Confidentiality” has been added to provide protection to any person that provides material assistance to the Board in its fact-finding process and proceedings.
      • The application has to be made to the Board prior to or pending investigation, inspection, inquiry or audit.
      • The Board would then decide on the facts and circumstances of the case to accept or reject the application seeking confidentiality.
      • The identity of the applicant seeking confidentiality and the information, documents, evidence furnished by the applicant would be considered as confidential under this Chapter.
      • Any disclosures which are required to be made as per the law, then they would not be covered under the confidentiality clause. 
      • For any violation of the disclosure and reporting requirements, no applications would be accepted seeking confidentiality.
      • The chapter also provides for interim confidentiality and assurance where no action would be initiated against the applicant if the Board deems it necessary that the information provided to it relates to a possible securities law violation that has occurred, is ongoing or about to occur.
Request a Call
Scroll