SEBI’s Consultation Paper On Settlement And The Blind Spot

Settlement framework is meant to offer predictability and finality, and SEBI's Consultation Paper¹ reflects a genuine, welcome effort to strengthen exactly that.

This piece raises a few questions in that same spirit.

Could an entity that has settled a default with SEBI still remain exposed to a fine by a stock exchange, exercising power that SEBI itself has delegated, for the very same default?

If so, was this envisaged, and if it was not, could such exposure be brought within the fold of a single, comprehensive settlement framework?

These are the questions this piece explores, prompted by the Securities Appellate Tribunal's recent decision in Hindustan Foods Limited v. BSE & SEBI², in the hope that they may be of some use as SEBI continues to refine the Settlement Framework.

On 13 August 2026, the Securities Appellate Tribunal (“SAT”) put down, in a handful of tight paragraphs, an issue most listed entities would rather not have tested. The next day, on 14 August 2026, SEBI released a 79 Page Consultation Paper proposing to fix nearly everything about how settlement works, except, as it turns out, that.

The facts of Hindustan Foods Limited v. BSE & SEBI (“Hindustan Foods”) are simple enough to state in two sentences. A board-composition lapse under Regulation 17(1)(b) of the LODR Regulations was settled with Securities Exchange Board of India (“SEBI”) for ₹24.32 lakh; BSE then fined the company ₹52.21 lakh for the identical default under SEBI’s Standard Operating Procedure (“SOP”) circular(s), and SAT reading the phrase “in addition to” under Regulation 98 of Listing Obligations And Disclosure Requirements, 2015³ (“LODR”), together with the settlement order’s own recital preserving exchange action, upheld BSE’s order, rejecting the plea of double jeopardy and res judicata.

Wait, before this reads as a case comment, it isn’t one. What follows is a policy choice question that the SAT’s decision in Hindustan Foods merely happens to expose. Call it a blind spot, because that is the most accurate word for it: not an error, not an omission anyone intended, simply a place the Consultation Paper’s gaze does not reach.

The goal the Consultation Paper reaches for is predictability: a simplified formula, rationalised base amounts, capped aggravating and mitigating factors, a reduced gap between settled and contested outcomes, an explicitly stated preference that “settlement is a rule and rejection is an exception”. Each of these changes is designed to make the settlement journey, its experience, more pragmatic and predictable. Fair enough and worth acknowledging as a genuine, considered effort.

But what would become of this Settlement Reform and the goals it seeks to achieve if an entity which settles an alleged or perceived default with SEBI; remits a settlement amount; and complies fully, but still remains exposed to an independently calculated stock exchange fine for the very same identical default; as Hindustan Foods now shows in black and white?

Whether the post-settlement stock exchange exposure is likely or occasional is a separate question; what becomes clear after Hindustan Foods is that the problem/the blind spot is real and needs redressal from SEBI.

Why does redressal of this blind spot matter?

Because it creates uncertainty and unpredictability by failing to achieve finality/closure, even within the securities law sphere. The resulting fallout can be understood from the following illustration:

Consider an entity that comes forward suo moto to settle an LODR violation; the settlement framework rewards this most generously, with the lowest possible multiplier. The entity settles early and pays the settlement amount. But even after that, if the stock exchange imposes its own SOP fine for the very same default, what would become of SEBI’s promise of settlement finality and predictability? The entity that just settled will still get involved in stock exchange proceedings, which might well become a protracted litigation, and the entity may end up paying and suffering more in total than the benefit the settlement was designed to provide.

Where the blind spot lurks:

Regulation 98 of the LODR and SEBI SOP Circulars, which delegate enforcement powers to Stock Exchanges, do not themselves create a gap in the finality of settlement. Regulation 98 permits stock-exchange action for a contravention in addition to SEBI action, while the SEBI SOP Circular merely preserves SEBI’s powers under securities laws; neither provides that exchange action must survive a settlement with SEBI.

The gap opens only on SEBI’s own side: as highlighted in Hindustan Foods, the settlement order itself carried a recital that it was “without prejudice” to action that may be initiated by the recognised stock exchanges.

The settlement framework needs to be fixed to promote the predictability SEBI seeks to achieve. If this blind spot (of leaving open the stock exchange fine exposure for identical defaults already settled with SEBI) is addressed in the ongoing consultative exercise, it will provide a great deal of clarity to entities that wish to settle, and counter the fear that may otherwise take root in the minds of those reading Hindustan Foods, which has become something of a buzzword on social media in the listed-company and securities-law space.

This blind spot, a conscious choice?

Hopefully, it is not. If it is instead a conscious choice, SEBI owes itself, and the market, an answer to: what purpose does this choice serve?

SEBI’s settlement framework is meant to achieve predictability and final closure at least in SEBI’s own domain of securities law. If that closure can still be undone by the Stock Exchanges, for identical defaults already settled with SEBI, while sitting entirely within SEBI’s own delegated powers, it is worth re-examining the choice.

What fixing this blind spot would actually cost – would it at all?

Fixing this blind spot would pose no real difficulty; if anything, it aligns squarely with the overhaul that SEBI has itself undertaken from the ground up.

Two suggestive fixes follow:

First: the same settlement order that disposes of a SEBI proceeding for a default could also be drafted to do away with any parallel exchange fine proceedings for the identical default, leaving no scope, and no possibility, of the kind that surfaced in Hindustan Foods.

Alternate: the exchange’s exposure for the same default could be factored into the settlement framework itself along with aggravating factors that shape the settlement amount.

Either way, both fixes converge on the same point, for SEBI and applicants alike: finality and predictability.

The very predictability the Consultation Paper sets out to deliver: a settlement amount that is not just calculated with precision, but final in what it actually costs the applicant. All that is being espoused here is finality. The Paper’s own expanded definition of “specified proceeding” now reaches beyond SEBI and SAT, all the way to appeals pending before the Supreme Court, yet stops short of the exchanges. Why leave the stock exchange outside the purview?

If, for a default, the consequences include a fine that the stock exchange can impose, within the securities laws and under SEBI’s own delegated power, why not cover it within the settlement framework? Why not factor it in? Why leave it open? Leaving it open would mean that, within SEBI’s own securities-law framework, for the same default, SEBI settles its part while leaving the entity to be penalised by the exchange, which would not achieve the very purpose of predictability envisaged in the consultation paper.

SEBI’s Officers already record their proceedings as disposed of once the settlement amount has been paid by an entity⁴. Further, SEBI has also treated disciplinary and penal actions taken by a company as sufficient reason not to impose an additional penalty for the same default, expressly in the interest of finality.⁵ If SEBI can withhold levying an additional penalty after a matter has reached closure at the corporate level, it can certainly bring finality and predictability to settlement proceedings.

Why SEBI should consider fixing this blind spot:

In today’s digital domain, the Consultation Paper has not travelled alone. Within days of the order, Hindustan Foods had moved well beyond the law reports, discussed on LinkedIn, in market chat, on compliance desks comparing notes on what a settlement actually buys.

The Consultation Paper is, at its core, a positive push, a genuine attempt to improve the efficacy of settlement as a mechanism entities actually want to use. Hindustan Foods, arriving the day before it, is a counterweight to that. And the two do not weigh equally in the minds of the people SEBI’s Consultative Paper is trying to reach.

At play would be the function of loss aversion: People are affected more by the prospect of a loss than by an equivalent gain, and respond to it more quickly and readily. Set against that tendency, a positive reform sits quietly in a 79-page document, while a negative outcome despite the settlement, as exposed by Hindustan Foods, travels on its own.

Before entities are deterred from seeking settlement, SEBI may swiftly act to address the blind spot, especially when it is exposed by Hindustan Foods.

This piece is offered in the spirit that a settlement mechanism people trust is a shared responsibility, not the regulator’s alone.

Footnotes

^{1 SEBI, Consultation Paper on Review of SEBI (Settlement Proceedings) Regulations, 2018 (Aug. 14, 2026), https://www.sebi.gov.in/reports-and-statistics/reports/}

^{2  Hindustan Foods Ltd. v. BSE Ltd., Appeal No. 178 of 2024 (Sec. Appellate Trib., Aug. 13, 2026)}

^{3  Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 98, Gazette of India, pt. III sec. 4 (Sept. 2, 2015)}

^{4 Settlement Order No. SO/SM/S./2022-23/6873 dated May 13, 2022 in the matter of Minda Industries Limited; Settlement Order Ref. No. Order/VV/GSS/2020-21/9395 dated October 13, 2020 in the matter of Titan Company Limited; Settlement Order No. SO/AK/2024-25/8014 dated March 04, 2025 in the matter of Shri Yashish Dahiya; Settlement Order No. SO/AN/SM/2025-26/8339 dated July 30, 2025 in the matter of AVG Logistics Limited; Settlement Order No. SO/SM/RG/2025-26/8259 dated December 17, 2025 in the matter of inspection of NSDL conducted during FY 2023-24}

^{5 Adjudication Order No. EAD-2/SS/SK/2018-19/1484 (Sec. & Exch. Bd. of India Oct. 31, 2018) in the matter of Marksans Pharma Ltd.; Adjudication Order No. EAD-2/SS/SK/2018-19/1485–1490 (Sec. & Exch. Bd. of India Oct. 31, 2018) in the matter of Marksans Pharma Ltd.; Adjudication Order No. Order/SV/GD/2023-24/30107–30130 (Sec. & Exch. Bd. of India Mar. 20, 2024) in the matter of Radico Khaitan Ltd.}

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