SEBI notifies the SEBI (Settlement Proceedings) Regulations, 2018

On November 30, 2018, SEBI issued the SEBI (Settlement Proceedings) Regulations, 2018 (‘New Settlement Regulations’) which are effective from January 1, 2019, on the basis of the report of the High Level Committee chaired by Justice Dave and have replaced the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (‘Old Settlement Regulations’). The key changes introduced by the New Settlement Regulations are as follows:

(i)      Definition of ‘securities laws’ has been widened to include all laws administered by SEBI. The Old Settlement Regulations merely covered the SEBI Act, 1992, the Securities Contract (Regulations) Act, 1956 and the Depositories Act, 1996. Similarly, the definition of ‘specified proceedings’ has been expanded to include proceedings pending before any forum, and not just SEBI.

(ii)    The ‘cooling-off’ period of 24 months prescribed under the Old Settlement Regulations between the date of the last settlement order and an application for a new settlement has been done away with. Further, the restriction on applying for a settlement, if the applicant has received two settlement orders in the past 36 months, has also been removed.

(iii)   Under the Old Settlement Regulations, violation of laws pertaining to insider trading, communication of unpublished price sensitive information, fraudulent and unfair trade practices having market-wide impact (such as front-running, mis-selling to an investor, violation of internal code of conduct in insider trading), could not be considered for settlement, as these were considered ‘serious offences’. The New Settlement Regulations remove any such restriction, subject to the qualification that SEBI may not consider any such specified proceeding, where the alleged default tends to have a market-wide impact, cause losses to a large number of investors or affect the integrity of the market.

(iv)     A person cannot apply for a settlement if he is classified as a willful defaulter, a fugitive economic offender or a person who has defaulted in payment of any fees due or penalty imposed under any securities law.

(v)    The New Settlement Regulations additionally grant SEBI the discretionary power to settle a proceeding confidentially, in order to benefit applicants who agree to provide ‘substantial assistance in the investigation, inspection, inquiry or audit, to be initiated or ongoing, against any other person in respect of a violation of securities laws’. The applicant’s identity and any information, evidence or documents provided by the applicant will be kept confidential in such a case.

The New Settlement Regulations have introduced a new concept of ‘settlement schemes’, by way of which SEBI will specify the procedure and terms of settlement of specified proceedings under a settlement scheme for any class of persons involved in respect of any similar defaults specified. A settlement order issued under such a settlement scheme will be deemed to be a settlement order under the New Settlement Regulations.

Published In:Inter Alia - Quarterly Edition - December 2018 [ English japanese ]
Date: December 31, 2018