The Securities and Exchange Board of India’s (SEBI) revised settlement framework will keep recovery of money allegedly diverted from a company separate from the amount paid to settle regulatory proceedings, lawyers said.
The distinction could be important in fund-diversion and siphoning cases, where the return of money to the company would not substitute for the settlement amount or disgorgement, where applicable.
“Settlement amount will be based on prescribed formula having regard to the nature of defaults and payable to settle such default and resolve the matter,” said Gazal Rawal, Partner at Cyril Amarchand Mangaldas.
The settlement amount is credited to the Consolidated Fund of India, while disgorgement is generally based on wrongful gains or loss averted and is credited to the Investor Protection and Education Fund. Rawal said settlement itself is an alternate route for resolving enforcement proceedings and does not amount to restitution or shareholder recovery.
SEBI Chairman Tuhin Kanta Pandey said recovery of diverted money would remain a separate consideration. “The biggest beneficiary is that shareholders will get money with interest back into the company,” he said.
“The new framework separates wrongful gains from the base settlement computation and permits them to be addressed independently through disgorgement or appropriate remedial and regulatory directions,” said Tushar Kumar, Advocate at Supreme Court of India.
Thus, restoration of ₹100 crore allegedly diverted does not mean that ₹100 crore constitutes the settlement amount; equally, payment of the settlement amount cannot ordinarily become a licence to retain the economic fruits of the alleged misconduct, he said.
Rohit Jain, Managing Partner at Singhania & Co., said settlement in fund-diversion cases could improve shareholder recovery if restoration of the money, disgorgement and remedial measures remain part of the settlement terms.
“Crucially, the settlement amount is not restitution: it represents the regulatory consideration computed by reference to statutory penalties and prescribed multipliers, whereas diverted monies, wrongful gains or investor losses are recovered separately, thereby avoiding double counting,” Jain said.
SEBI has also proposed allowing a settlement notice to be issued before a show-cause notice (SCN) in certain cases. Pandey said the change would allow entities to approach SEBI earlier in the process. “The earlier you come for settlement, the lesser you pay,” he said.
Rawal said the pre-SCN route could reduce the time and cost involved in running the SCN and settlement processes in parallel. However, the lower factor proposed for the pre-SCN stage may not by itself result in a substantially lower settlement amount, as the nature of the default and other factors would also affect the calculation.
The revised formula also proposes clarifications on “counts of default”, “repeated default” and avoiding double counting of disgorgementoain said the formula provides greater predictability by taking into account factors including the stage of proceedings, regulatory history, gravity and aggravating or mitigating circumstances.
SEBI is also proposing a revocation provision. Pandey said the regulator had faced a case in the past where a court asked it to issue an order again after a settlement-related development.
Jain said the provision would allow SEBI to revoke a settlement obtained through misrepresentation or where there is subsequent non-compliance and revive the underlying proceedings. The regulator has retained its “gatekeeping” mechanism, under which it can reject settlement applications in cases it considers unsuitable for settlement.
While SEBI has clarified the broad principles, the operational framework for calculating recovery, disgorgement and shareholder restitution is yet to be detailed, with the regulator indicating that the specifics will be laid out through a subsequent circular.
Published on September 28, 2026
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