Capital markets regulator Sebi is planning to make its settlement rules more attractive to help fast-track cases including by offering confidentiality and lenient terms for approvers but would not settle cases of wilful defaulters and fugitive economic offenders.
Besides, the settlement payment would need to be paid by top executives or directors responsible for default in case of companies seeking to settle a matter, as penalising the company may amount to making its shareholders suffer twice, officials said.
The changes as per suggestions of a high-powered committee and the subsequent public comments to the settlement mechanism would be discussed by Sebi's board at a meeting scheduled tomorrow.
A key amendment includes introduction of confidentiality clause and lesser settlement amount for those offering information about an ongoing or possible violation. Besides, Sebi may 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 Sebi's end and the matter is pending before a court or a tribunal.
Also, the settlement fees and charges have been proposed to be increased as per a "transparent and predictable method of calculation", while the amount would be even higher in cases of delayed filing of application, officials said.
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, officials said.
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 proposed changes, an applicant would 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 would 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 per cent more settlement amount.
Besides, Sebi would 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, Sebi (Securities and Exchange Board of India) would not settle cases involving wilful defaulters, fugitive economic offenders and those having defaulted in payment of fees or penalty imposed under securities laws.
Also, a settlement application would 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 per cent.
The proposed changes 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 would 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 be able to rely upon the information and evidence submitted to it in any proceeding. Besides, the confidentiality would not apply if a disclosure is required by law or if the applicant has made a public disclosure or agreed for disclosure in writing.
Sebi has proposed that the new confidentiality clause should be made applicable from next year, while other changes can apply to existing cases as well.
The regulator expects that these clauses will help it get information about other co-accused in major cases.
With the proposed changes including about fees and settlement amounts, the regulator hopes those seeking to settle the cases would not indulge in 'forum shopping' -- including by approaching courts or tribunal and to try settling the cases at various stages -- to unnecessary delay the proceedings.
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