SEBI introduced a settlement mechanism in 2007 to prevent clogging of the enforcement pipeline by minor violations and to allow the regulator to focus on serious market abuse. However, in the past two decades, the framework has drifted far from that purpose. What was meant to be a practical tool for swift enforcement resolution has hardened into a system that is rigid, opaque, and painfully slow.

Arithmetic over judgement

The turning point came when SEBI attempted to address complaints about inconsistent settlement outcomes. Instead of developing a principled framework grounded in reasoning, precedents, and transparency, the regulator took the easier bureaucratic route. With the Settlement Regulations of 2014 and 2018, settlement was reduced largely to mathematical formulae.

Violations were slotted into numerical categories. Multipliers were applied. Judgement was quietly replaced by arithmetic. This mechanisation reflects a deeper institutional instinct. SEBI’s enforcement culture and institutional DNA have increasingly hardened into a reflexive preference for the most adverse interpretation available.

The exercise of balanced discretion is often treated as a personal risk, while severity is worn as a personal badge. The unwritten rule is “stretch the allegation as far as possible, maximise the charge, and let the noticee struggle to get a remedy”. The present settlement framework is simply a natural product of that culture.

This could have been justified if the staff were facing excruciatingly unreasonable internal vigilance. The fact is, this insensitive culture is there despite a sporadic and grossly ineffective internal vigilance. Even with an “independent” Chief Vigilance Officer in........

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