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SEBI overhauls settlement rules; introduces confidentiality clause

Markets regulator SEBI has made the settlement rules more attractive to help fast-track cases, by including confidentiality and lenient terms for approvers, but not to settle cases of defaulters and fugitive economic offenders.

The regulator said it will not settle proceeding in case the alleged default has market wide impact, caused losses to a large number of investors, or affected integrity of the market.

The new norms will become effective from January 1, 2019, the Securities and Exchange Board of India (SEBI) said in a notification.

The guidelines are based on suggestions made by a panel headed by retired judge A R Dave.

Under the new settlement rules, the regulator has introduced a confidentiality clause and lesser settlement amount for those offering information about an ongoing or possible violation.

Besides, the SEBI will give an opportunity to an entity facing possible charges and enforcement actions in certain cases to file a settlement application within 15 days of such a notice.

If an entity fails to file a plea after SEBI’s settlement notice, any further settlement attempt will be permitted only after the proceedings are completed at the regulator’s end and the matter is pending before a court or a tribunal.

Also, the settlement fees and charges have been increased, while the amount will be even higher in cases of delayed filing of application.

There has been an increase in the number of cases being settled over the past few years and the regulator is keen to further encourage this route to close cases that are not very serious in nature.

As many as 200 cases were settled for a total amount of over Rs 30 crore in 2017-18, up from 103 cases for Rs 13.5 crore in 2016-17 and 34 cases in 2015-16 for Rs 4.42 crore.

Under the rules, an applicant will need to make one application for settlement of all proceedings that have been initiated or may be initiated and make full and true disclosures about the alleged defaults.

A settlement plea will not be considered if an earlier application for the same alleged default has been rejected or in cases involving outstanding funds for recovery under securities laws.

In case of withdrawal of a settlement plea, a second chance would be given only if the applicant agrees to pay at least 50 percent more settlement amount.

Besides, the SEBI will not entertain settlement pleas for alleged defaults having market-wide impact, loss to a large number of investors and those impacting integrity of the market.

Also, the regulator will not settle cases involving wilful defaulters, fugitive economic offenders and those having defaulted in payment of fees or penalty imposed under securities laws.

A settlement application will need to be filed within 60 days of a show-cause notice and within 120 days in exceptional cases having sufficient cause for delay, in which case the amount would increase by 25 percent.

It also provide for non-monetary settlement terms, besides a settlement amount and these would include suspension of business activities, exit from management, disgorgement of losses incurred by investors, restraint from being an officer or director, cancellation, reduction or lock-in of shareholding, enhanced audit and procedures etc.

An applicant can seek benefits of confidentiality and lenient terms (in form of lower settlement amount) by agreeing to help in investigation, provided he or she ceases to participate in violation of securities laws, provides continued and true disclosure of information and evidence and doesn’t conceal, destroy, manipulate or remove relevant documents required to prove the alleged violation.

This will be applicable if the information provided relates to a securities law violation that has occurred, is ongoing or is about to occur.

In case such an applicant fails to comply with necessary conditions, SEBI will be able to rely upon the information and evidence submitted to it in any proceeding.

Besides, the confidentiality will not apply if a disclosure is required by law or if the applicant has made a public disclosure or agreed for disclosure in writing.

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