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TMI BlogSETTLEMENT PROCEEDINGS UNDER SEBIX X X X Extracts X X X X X X X X Extracts X X X X ..... SETTLEMENT PROCEEDINGS UNDER SEBI - By: - Mr. M. GOVINDARAJAN - Corporate Laws / IBC / SEBI - Dated:- 19-3-2019 - - Regulations Securities and Exchange Board of India ( SEBI for short) made a regulation called as Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 vide notification No. SEBI/LAD-NRO/GN/2018/48, dated 30.11.2018 . These regulations came into effect from 01.01.2019. The Settlement Regulations, effective from 1 January 2019, will replace the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (2014 Regulations). Specified proceedings Regulation 2(1)(f) defines the expression specified proceedings as the proceedings that may be initiated by the Board or have been initiated and are pending before the Board or any other forum, for the violation of securities laws under- Section 11 , Section 11B , Section 11D , Section 12(3) or Section 15-I of the Act; or Section 12A or Section 23-I of the Securities Contracts (Regulation) Act, 1956; or Section 19 or Section 19H of the Depositories Act, 1996. High Powered Advisory Committee The Board shall constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te a High Powered Advisory Committee for consideration and recommendation of the terms of settlement. This Committee shall consist of a judicial member who has been the Judge of the Supreme Court or a High Court and three external experts having expertise in securities market or in matters connected therewith or incidental thereto. The term of the members of the Committee shall be 3 years which may be extended for a further period of 2 years. Meeting of the Committee The High Powered Advisory Committee shall conduct its meetings in the manner specified by the Board in this regard. The quorum for a meeting of the High Powered Advisory Committee shall be of three members. The meeting includes meeting through audio-video electronic means or through the medium of electronic video linkage. where any member of theHigh Powered Advisory Committee seeks recusal, the remaining two or more members may submit their recommendation on the terms of settlement where no consensus or majority may be reached, the recommendation made by the Judicial member shall be considered to be the recommendation of the High Powered Advisory Committee and in case of recusal of the Judicial mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, the recommendations of the remaining two or more members shall be submitted for consideration to the Panel of Whole Time Members; and where all or all but one of the members of the High Powered Advisory Committee recuse themselves in respect of an application, the Board may constitute another High Powered Advisory Committee. Internal Committee The Internal Committee(s) shall be constituted by the Board. The Internal Committee(s) shall comprise of an officer of the Board not below the rank of Chief General Manager and such other officers as may be specified by the Board. Application for settlement A person, against whom any specified proceedings have been initiated and are pending or may be initiated, may make an application to the Board in Part A of the Form. The application made shall be accompanied by a non-refundable application of ₹ 15,000/- The application shall be accompanied by the undertakings and waivers in Part-C of the form. The applicant shall make full and true disclosures in the application in respect of the alleged default(s). The applicant shall make one application for settlement of all the proceedings that have been i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiated or may be initiated in respect of the same cause of action. An application that is not complete in all respects or does not conform to the requirements of these regulations shall be returned to the applicant. The applicant whose application has been returned may, within 15 days from the date of communication from the Board, submit the complete and revised application that conforms to the requirements of these regulations. Where the applicant is an association or a firm or a body corporate or a limited liability partnership, the application and undertakings and waivers shall be executed by the person in charge of, and responsible for the conduct of the business of such firm or association or body corporate and the same shall bind the firm or association, the body corporate and any officer who is in default. An application for settlement of defaults related to disclosures, shall to the extent possible, be made after making the required disclosure. Limitation An application in respect of any specified proceeding pending before the Board shall not be considered if it is made after 60 days from the date of service of the notice to show cause or supplem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entary notice(s) to show cause, whichever is later. The Board may consider the application, if satisfied that there was sufficient cause for not filing it within the specified period and it is accompanied with non-refundable fees. Where the application is filed after 60 calendar days from the expiry of the period, the settlement amount determined shall be increased by 20%. No such delayed application shall be considered if the application is filed after 120 calendar days from the expiry of the limitation period orafter the first hearing, whichever is earlier. Non consideration of application No application for settlement of any specified proceedings shall be considered, if- an earlier application with regard to the same alleged default had been rejected; the audit or investigation or inspection or inquiry, if any, in respect of any cause of action, is not complete, except in case of applications involving confidentiality; or monies due under an order issued under securities laws are liable for recovery under securities laws. Factors to be considered for settlement The Board may inter alia take into account the following factors, wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the applicant has refunded or disgorged the monies due, to the satisfaction of the Board; whether the applicant has provided an exit or purchase option to investors in compliance with securities laws, to the satisfaction of the Board; whether the applicant is in compliance with securities laws or any order or direction passed under securities laws, to the satisfaction of the Board; any other factor as may be deemed appropriate by the Board. Non settlement The Board may not settle any specified proceeding, if it is of the opinion that the alleged default, has market wide impact, caused losses to a large number of investors, or affected the integrity of the market. The Board may not settle the specified proceedings where the applicant is a willful defaulter, a fugitive economic offender or has defaulted in payment of any fees due or penalty imposed under securities laws. Withdrawal of application An application may be withdrawn at any time prior to the communication of the decision of the Panel of Whole Time Members. An applicant who withdraws an application shall not be permitted to make another application in respect of the same de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fault. Such an application may be considered subject to an increase of at least 50% over the settlement amount as may be recommended by the High Powered Advisory Committee, Rejection of Application The application may be rejected for the following grounds- where the applicant refuses to receive or respond to the communications sent by the Board; where the applicant does not submit or delays the submission of information, document, etc., as called for by the Board; where the applicant who is required to appear, does not appear before the Internal Committee on more than one occasion; where the applicant violates in any manner the undertaking and waivers as provided in Part-C of the application form; where the applicant does not remit the settlement amount within the period specified in clause (a) of sub-regulation (2) of regulation 15 and/or does not abide by the undertaking and waivers; The rejection shall be communicated to the applicant. The applicant shall continue to be bound by the waivers given in respect of limitation or laches in respect of the initiation or continuation or restoration of any legal proceeding. Effect of pending applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions The filing of an application for settlement of any specified proceedings shall not affect the continuance of the proceedings save that the passing of the final order shall be kept in abeyance till the application is disposed of. Where the application is filed in case of proceedings that may be initiated against the applicant, such proceedings shall not be initiated till the application is rejected or withdrawn. The filing of an application shall not prohibit the initiation of any proceedings, in so far as may be deemed necessary for the purpose of issuance of interim civil and administrative directions to protect the interests of investors and to maintain the integrity of the securities markets. Settlement terms The settlement terms may include a settlement amount and/or non-monetary terms, in accordance with the guidelines specified in Schedule-II. The non-monetary terms may include the following- suspension or cessation of business activities for a specified period; exit from Management; disgorgement on account of the action or inaction of the applicant; refraining from acting as a partner or officer or director of an intermediary or as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an officer or director of a company that has a class of securities regulated by the Board, for specified periods; cancel securities and reduce holdings where the securities are issued fraudulently, including bonus shares received on such securities, if any, and reimburse any dividends received, etc.; lock-in of securities; implementation of enhanced policies and procedures to prevent future securities laws violations as well as agreeing to appoint or engage an independent consultant to review internal policies, processes and procedures; provide enhanced training and education to employees of intermediaries and securities market infrastructure institutions; submit to enhanced internal audit and reporting requirements. The settlement amount, excluding the legal costs and disgorged amount, shall be credited to the Consolidated Fund of India. The application fee referred to in sub-regulation (2) of regulation 3 and the legal costs, if any, forming part of the settlement amount shall be credited to the Securities and Exchange Board of India General Fund. The amount of profits made or losses avoided by the applicant that may be disgorged as part of the sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement terms, shall be credited to the Investor Protection and Education Fund. Factors to be considered for the settlement terms While arriving at the settlement terms, the factors indicated in Schedule-II may be considered, including but not limited, to the following: conduct of the applicant during the specified proceeding, investigation, inspection or audit; the role played by the applicant in case the alleged default is committed by a group of persons nature, gravity and impact of alleged defaults; whether any other proceeding against the applicant for non-compliance of securities laws is pending or concluded; the extent of harm and/or loss to the investors and/or gains made by the applicant; processes that have been introduced since the alleged default to minimize future defaults or lapses; compliance schedule proposed by the applicant; economic benefits accruing to any person from the non-compliance or delayed compliance; conditions which are necessary to deter future non-compliance by the same or another person; satisfaction of claim of investors regarding payment of money due to them or delivery of securities to them; any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er enforcement action that has been taken against the applicant for the same violation; any other factors necessary in the facts and circumstances of the case. Procedure of settlement The procedure of settlement involves the following steps- proceedings before the internal committee; proceedings before the High Powered Advisory Committee; proceedings before the whole time members. Proceedings before the Internal Committee An application shall be referred to an Internal Committee to examine whether the proceedings may be settled and if so to determine the settlement terms in accordance with these regulations. The Internal Committee may- call for relevant information, documents, etc., pertaining to the alleged default(s) in possession of the applicant or obtainable by the applicant; call for the personal appearance of the applicant before it; permit the applicant to submit revised settlement terms within a period not exceeding 10 working days from the date of the Internal Committee meeting. The proposed settlement terms, if any, shall be placed before the High Powered Advisory Committee. Proceedings before the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Powered Advisory Committee The High Powered Advisory Committee shall consider the proposed settlement terms placed before it along with the following- the application, undertaking and waivers of the applicant; factors that are to be considered; settlement terms or revised settlement terms proposed by the applicant; any other relevant material available on record. The High Powered Advisory Committee may seek revision of the settlement terms and refer the application back to the Internal Committee. The recommendations of the High Powered Advisory Committee shall be placed before the Panel of Whole Time Members. Proceedings before the Panel of Whole Time Members The Panel of Whole Time Members shall consider the recommendations of the High Powered Advisory Committee and may accept or reject the same. The panel of Whole Time Members shall record reasons for rejection of the recommendations. Such decision of the panel of Whole Time Members shall be communicated to the applicant. If the panel accepts the recommendations it shall issue a settlement notice of demand to the applicant within 7 days of its decision. The applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, on receipt of such notice, shall remit the settlement amount forming part of the settlement terms, not later than 15 calendar days from the date of receipt of the notice of demand, which may be extended by the Panel of Whole Time Members for reasons to be recorded, by 15 calendar days. If the settlement amount is paid beyond 30 days but within 90 days of the receipt of the notice, the applicant is to pay along with the settlement amount, interest @ 6% per annum from the date of notice to the date of payment on the settlement amount. The applicant shall fulfill/undertake in writing to abide by, the other settlement terms, if any, within the time provided to the applicant. Where the Panel of Whole Time Members does not accept the recommendation the panel may return the application for re-examination of the settlement terms and thereafter the procedure as applicable in the case of an original application shall be followed by the Internal Committee and the High Powered Advisory Committee. Settlement with confidentiality An applicant seeking the benefit of confidentiality in return for admitting for the limited purpose of settlement of specified proceedings to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiated and agreeing to provide substantial assistance in the investigation, inspection, inquiry or audit, to be initiated or ongoing, against any other person in respect of a violation of securities laws, shall fulfill the conditions of this Chapter, including- cease to participate in the violation of securities laws from the time of the disclosure of information, unless otherwise directed by the Board; provide and continue to provide complete and true disclosure of information, documents and evidence, which is in his possession or he is able to obtain, to the satisfaction of the Board in respect of the alleged contravention of the provisions of securities laws; co-operate fully, continuously and expeditiously throughout the investigation, inspection, inquiry or audit and related proceedings before the Board; and not conceal, destroy, manipulate or remove the relevant documents in any manner that may contribute to the establishment of the alleged violation. where an applicant fails to comply with the conditions mentioned in this regulation, the Board may rely upon the information and evidence submitted by the applicant in any proceedings The Board may s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject the applicant to further restrictions or conditions, as deemed fit, after considering the facts and circumstances of the case. Upon being satisfied the Board may assure the benefit of confidentiality and shall thereupon mark the status of the application depending upon its priority and convey the same to the applicant in writing The Board may, for reasons to be recorded in writing, at any stage, reject the application if the information, documents or evidence is found to be incomplete or false to the knowledge of the applicant and the rejection of the application is to be communicated to the applicant. The following shall not be treated as confidential- the identity of the applicant seeking confidentiality; and the information, documents and evidence furnished by the applicant; The identity of the applicant or such information or documents or evidence may not be treated as confidential if, - the disclosure is required by law; the applicant has agreed to such disclosure in writing; or there has been a public disclosure by the applicant. Settlement order The Adjudicating Officer shall by an appropriate order dispose of the procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding pending before him on the basis of the approved settlement terms. Explanation. -In case of concurrent proceedings, a comprehensive order may be passed by the Panel of Whole Time Members and thereafter the concerned Adjudicating officer may pass an order, disposing of the relevant proceedings before him, in view of the settlement. The Panel of the Whole Time Members shall by an appropriate order dispose of proceedings initiated or proposed to be initiated other than the proceedings. The settlement order passed under these regulations shall, contain the details of the alleged default(s), relevant provisions of the securities laws, brief facts and circumstances relevant to the alleged default, the admissions made by the applicant, if any and the settlement terms. The settlement orders shall be served on the applicant and shall also be published on the website of the Board. The settlement orders in matters relating to the confidentiality shall not, directly or indirectly, disclose the identity of the applicant, but shall indicate the provisions of securities laws which the applicant is alleged to have violated. Settlement before Court or Tribunal The pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions with regard to settlement of specified proceedings shall mutatis mutandis apply to an application for settlement of any proceeding pending before the Tribunal or any court. The proposal of settlement along with the settlement terms or rejection thereof shall be placed before such Tribunal or court for appropriate orders. Settlement scheme The Board may specify the procedure and terms of settlement of specified proceedings under a settlement scheme for any class of persons involved in respect of any similar specified defaults. A settlement order issued under a Settlement scheme shall be deemed to be a settlement order under these regulations. Effect of settlement order A settlement order shall not be admissible as evidence in any other proceeding relating to an alleged default not covered under the settlement order nor affect the right of third parties arising out of the alleged default. Where any applicant who obtains a settlement order is also noticee along with any other person in any civil and administrative proceeding, the Adjudicating Officer or the Board while disposing proceedings against such other person may make necessary observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in respect of the applicant in so far as is necessary to prove the act of another. Unless the settlement order is revoked, such observations shall qua the applicant be subject to the settlement order obtained by the applicant. Where any person has obtained a settlement order, which contains observations in respect of any other person for the commission of an alleged default, such an order shall not in itself be admissible as evidence against such other person. Revocation of settlement order If the applicant fails to comply with the settlement order or at any time after the settlement order is passed, it comes to the notice of the Board that- the applicant has not made full and true disclosure; or has violated the undertakings or waivers, settlement order shall stand revoked and withdrawn. The Board shall restore or initiate the proceedings, with respect to which the settlement order was passed. Whenever any settlement order is revoked, no amount paid under these regulations shall be refunded. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... india.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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