Markets regulator Sebi on Tuesday proposed to tighten the timeline of settlement mechanism, whereby it suggested fixing the total timeframe for filing the application at 60 days after receipt of the notice to show cause.
In addition, the regulator has proposed to revise the timelines with regard to remittance of the settlement amount and cumulative time period for submission of revised settlement terms.
The total timeframe for filing the application for settlement may be fixed at 60 days of the date of receipt of the show-cause notice or the supplementary notice, whichever is later, Sebi said in a consultation paper.
“This window would provide the applicant adequate time to apply for settlement and also align the regulations with the objective for which they were framed, i.e. as an effective alternative enforcement policy,” it added.
The regulator has recommended that the additional period of 120 days with payment of additional settlement amount may be done away with.
Currently, the entities are provided with a window of 180 days in total to apply for settlement after receipt of the notice to show cause.
On most occasions, the applicants apply for settlement towards the end of this timeframe. Such delays not only do not serve the purpose of the enforcement process but also impede the expeditious disposal of the enforcement proceedings, Sebi noted.
“On the basis of experience gained from dealing with settlement applications since the Settlement Regulations came into effect, it is felt that the settlement terms should be refined to be further harmonised with the specific nature and gravity of violations committed by the entities,” the regulator said.
Further, the constraints of the enforcement processes for all stakeholders may be overcome by providing for a more efficacious settlement mechanism that would enable Sebi to utilise its resources even more effectively, it added.
Accordingly, the regulator came out with a consultation paper on the settlement mechanism and sought comments from the public till October 14 on the same.
With regard to remittance of the settlement amount, Sebi said a period of 30 days from the time of issuance of the notice of demand is more than sufficient for remittance of the settlement amount.
The current norms provide 30 days for remittance of the settlement amount, after the receipt of the notice of demand. The period is extendable to another 60 days, subject to certain conditions.
The cumulative time period for submission of revised settlement terms should be amended to 15 days from the date of the meeting of the Internal Committee, as against the current 20 days.
To encourage the filing of settlement applications during the early stages of the proceedings and to deter forum shopping, Sebi has proposed to rationalise the proceeding conversion factor (PCF) values range as 0.40 to 1.50.
Currently, the PCF values range from 0.65 to 1.20 depending upon the stage at which an application for settlement is filed.
It has been proposed that the “increase/decrease in application of base value may be considered for each of the qualifying clauses, subject to a maximum limit in the accretion/ reduction in base value”.
The regulator has proposed to create a distinction between the peripheral and non-peripheral entities, with higher settlement terms being proposed for the latter category.
To provide for a rationalised approach in the treatment for similar defaults, it has been proposed that a distinction may be made based on the role attributable to the applicant in the alleged offence, related to false or misleading disclosure in offer documents among others, that have been initiated against the applicant.
It has been observed that peripheral entities — dummy directors, mule account holder(s), etc — are often persons from economically weaker sections of the society and are name lenders to the main perpetrators in a case, Sebi said.
Similarly, layering of funds is also done using bank accounts of such persons or entities without their active knowledge or involvement to spread the transactions across various accounts to hide the origin and destination of the funds or securities, it added.
Currently, the regulations provide for differential treatment in the determination of the settlement terms for the violations committed by individuals vis–vis a Body Corporate.
To rationalise the settlement terms, it has been proposed that the mitigating, aggravating, deliberate and reckless factors may be applied separately, based on the facts and circumstances of the case, subject to a maximum limit.
While determining the terms of settlement in cases arising out of the same investigation, inspection or inquiry and involving multiple entities, Sebi proposed that internal committee or high-powered advisory committee or panel of whole-time members may consider the terms in the order passed, by the Sebi, Securities Appellate Tribunal or the SC against any other entity.
