SEBI issues draft settlement Regulations for comments

SEBI Act and related laws were
amended recently to provide specific legal backing for settlement by consent
orders. The background of this and some issues were discussed here
(which post has reference to earlier posts and other links too). One point made
was that the new law requires that such settlement should be on basis of
Regulations that are prescribed.
SEBI has now issued a consultation
giving also draft Regulations. It may be recollected that Guidelines
are already in place as
issued in 2012
, replacing the Guidelines
issued in 2007
. But since the new law requires Regulations, these draft
Regulations will pave way for the final version to be notified. SEBI has
invited comments to be sent latest by 30th October 2013.
The draft Regulations on first
impression are, like old wine in new bottle, the existing Guidelines in form of
Regulations in terms of structure and broad outline, though there are several
points of note, some of which are highlighted below.
The draft Regulations provide
that the terms of settlement and certain related matters shall be provided
through Guidelines. Thus, there will be flexibility since the Guidelines can be
more easily changed from time to time. It is quite possible that the existing
Guidelines may be re-issued without substantial changes, except removing those
portions that are already incorporated in the Regulations.
A curious three level approval
procedure has been laid down with SEBI having elaborate say in the matter of
approving/rejecting settlement. Firstly, the application for settlement will go
to the Internal Committee (IC) of SEBI. It would finalise the settlement terms
giving a chance to the applicant to submit revised terms. It may of course
reject the application outright at this stage if the nature of violation is of
such a specified nature or otherwise if the settlement terms are not
acceptable. If otherwise acceptable, the application is forwarded to the independent
High Powered Advisory Committee (HPAC), which, after possibly another round of
revision of terms, will give its recommendations. However, interestingly,
whatever the recommendation of HPAC maybe, the SEBI Panel (not the IC) has an
option to accept or reject it. In other words, even if HPAC accepts the proposal,
SEBI may reject it. And vice-versa.  It
can also ask the IC to consider a revision of settlement terms and gives its
fresh recommendations and begin the procedure all over again.
An interesting question will be
whether an order rejecting an application can be appealed before the Securities
Appellate Tribunal. Prima facie, the answer seems to be yes. In that case, what
will be more interesting would be the role of SAT – whether it can only require
SEBI to reconsider it, whether it can give guidelines for making the order
holding some part of the order to be wrong, or whether it can even settle the terms
The cooling period for an
application for another settlement is two years. But this period of two years
commences not from the date of last default, but from the date of
last settlement order. This effectively vastly increases the
practical gap between two defaults that can be settled. Further, an applicant
can, in one lifetime, can make only two settlements.
If a criminal complaint has been filed
under specified provisions for the default, then an application cannot be made.
A fees of Rs. 5000 would have to
be paid with the application, which appears to be non-refundable irrespective
of the outcome of the application.

There are other ambiguous
and even seemingly contradictory provisions in the Regulations. However, one
awaits the final Regulations and revised Guidelines for the final framework of
this law that has helped curbed prolonged litigation, even as the settlement
process becomes more complicated, discretionary and non-transparent.

About the author

CA Jayant Thakur

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