Alerts & Updates 3rd Jun 2024

To Settle or Not to Settle: That is the question (made easier)

Authors

Ashishchandra Rao Partner | Mumbai
KC Jacob Counsel | Mumbai
Harshvardhan Nankani Senior Associate | Mumbai

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  • Litigation can be exasperating. It requires patience, pockets and a characteristic ability to navigate uncertainty. It may not be for the faint of heart or the risk averse. But, what if the long, expensive and acrimonious battle can be avoided?

  • Let bygones be bygones and move on

    “US Securities and Exchange Commission settles a substantial number (over 90%) of administrative/civil cases by consent orders. Consent orders may provide flexibility of wider array of enforcement actions which will achieve the twin goals of an appropriate sanction and deterrance without resorting to a long drawn litigation before SEBI/Tribunal/Courts. Passing of consent orders will also reduce regulatory costs and would save time and efforts taken in pursuing enforcement actions. This effort could more effectively be used for pursuing cases which require the full process of enforcement action and for policy work.”- SEBI Circular no. EFD/ED/Cir-1/2007 dated 20 April 2007

    With this in mind, SEBI, the market-regulator, devised a settlement procedure which has evolved from SEBI’s Circular with ‘Guidelines for Consent Orders and for considering requests for composition of offence’ in 2007[1] to the SEBI (Settlement Proceedings) Regulations, 2018, which currently holds the field. The idea was to save money and time on both sides. From a policy stand-point, it encourages the resolution of regulatory actions in a less adversarial way, improves ease-of-doing-business and also improves SEBI’s efficiency.

    However, a significant barrier to adoption has been the uncertainty surrounding the settlement amount when choosing to make an application for settlement. While the Regulations do prescribe a formula along with certain objective criteria, it was not uncommon for parties to step into the room with a figure in mind, only to be presented with an exorbitantly higher figure by SEBI.

  • Is automation the answer?

    SEBI’s new Settlement CalculatorBETA is an attempt to simplify the process through automation.[2] Automation introduces some predictability as well as accessibility to unsophisticated parties and is made possible by the fact that the Settlement Regulations of 2018 prescribes a formula for the calculation of the Indicative Amount (IA) for settlement, along with certain guidelines applicable thereto to arrive at the Settlement Amount (SA). Thus, the aim of automation is to decide like cases in a like manner.

    However, automation has its challenges. Even the Settlement Regulations recognize that one size cannot fit all. The Settlement Regulations envisage scenarios where the formula is inapplicable or cannot be adapted due to peculiarities in the case, opening the door to SEBI’s discretion.[3] Further, a mechanical approach without the application of mind is the very antithesis of justice.

    Perhaps that is why the Settlement CalculatorBETA is not envisaged to have the last word in deciding the Settlement Amount. The product of this calculator is an “indicative settlement amount” (which appears to be different from the IA), which by SEBI’s own caveat, “is subject to modifications as deemed fit by the Internal Committee, High Powered Advisory Committee and the Panel of Whole Time Members.”[4] Therefore, the amount is in no way final and may come with certain non-monetary settlement terms as well.

    While this move has significantly improved predictability while making the decision ‘to settle or not to settle’, it has not removed the need for legal services when exercising this judgment. It is merely a tool.

    We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com or write to our authors:

    Ashishchandra Rao, Partner, Email – ashishchandrarao@elp-in.com

    KC Jacob, Counsel, Email – kcjacob@elp-in.com

    Harshvardhan Nankani, Senior Associate – Email – harshvardhannankani@elp-in.com

  • References

    [1] SEBI Circular no. Circular No. EFD/ED/Cir-1/2007b dated 20 April 2007
    [2] SEBI Press Release 09/2024 dated 30 May 2024
    [3] SEBI (Settlement Proceedings) Regulations 2018, Schedule II, Chapter I, Guideline No. 11
    [4]Settlement Calculator (sebi.gov.in)