SEBI has notified the 2026 Settlement of Administrative and Civil Proceedings Regulations, replacing the 2018 framework. The update mandates a clear separation between regulatory settlement amounts and the disgorgement of wrongful gains. This change aims to bring more predictability to how companies settle legal disputes, though it may increase total compliance liabilities for firms involved in violations.
The Securities and Exchange Board of India (SEBI) has introduced the 'Settlement of Administrative and Civil Proceedings Regulations, 2026,' notified on October 6, 2026. This new framework, which comes into effect 30 days after notification, replaces the 2018 rules and fundamentally changes how market participants resolve legal or regulatory disputes with the regulator.
The most significant reform is the mandatory separation of two distinct costs. Previously, settlement amounts often blended regulatory penalties with the return of ill-gotten gains. Under the 2026 regulations, companies must clearly calculate and pay the 'settlement amount'—defined as the administrative regulatory cost—and 'disgorgement'—the restitution of any wrongful gains or losses averted—as two separate line items. This ensures that funds intended to rectify investor losses are explicitly earmarked for that purpose, while administrative penalties are handled separately.
To address long-standing concerns regarding transparency, the regulator has introduced a formula-based system for calculating settlement amounts. This approach is linked to the minimum penalty prescribed for specific violations and adjusted based on the stage of the proceedings, the gravity of the misconduct, and other mitigating or aggravating circumstances. By moving to a structured formula, the regulator aims to reduce the opacity that often characterized previous settlement negotiations, providing companies with a clearer roadmap for potential financial exposure.
For smaller entities or less severe infractions, the framework introduces a fast-track settlement route specifically for cases involving amounts up to ₹10 lakh. This mechanism is intended to speed up the resolution of minor cases, reducing the procedural burden and time required for both the regulator and the entities involved.
While the new framework offers greater predictability, it may also lead to higher total financial liability for companies facing regulatory scrutiny. The requirement to disgorge wrongful gains is now non-negotiable and must be calculated accurately alongside any administrative fines. This means that firms can no longer negotiate away the return of investor money, effectively raising the cost of non-compliance. Additionally, organizations may face an initial increase in compliance costs as they update their internal controls and audit systems to align with the stricter disgorgement and remediation requirements.
As these regulations become operational in November 2026, market participants are expected to conduct internal reviews of their compliance frameworks. Investors should track how companies currently under regulatory investigation adapt to these terms, particularly whether the new formula-based system leads to a faster resolution of long-pending legal disputes.