A show-cause notice from the Securities and Exchange Board of India opens a 60-day settlement window and, if penalty follows, a 45-day appeal

A show-cause notice from the Securities and Exchange Board of India (SEBI) can end in an adjudication order under section 15-I of the Securities and Exchange Board of India Act, 1992 (SEBI Act) or in a settlement. The notice allows at least fourteen days for a reply under the 1995 inquiry rules, and the penalty is then fixed within sections 15A to 15HB, having regard to section 15J. An application to settle is considered only if made within sixty days of service of the notice (regulation 4 of the Settlement Proceedings Regulations, 2018), with the amount worked out under Schedule II. An order is appealed to the Securities Appellate Tribunal (SAT) within forty-five days under section 15T, and a SAT order to the Supreme Court within sixty days under section 15Z.

What does a show-cause notice start?

SEBI acts through directions and through penalty. Under section 11(4) the Board may, for reasons recorded in writing, suspend trading in a security, restrain a person from the securities market, impound proceeds, attach bank accounts or other property for up to ninety days (the Board to obtain confirmation from the Special Court within that time) or direct that an asset not be disposed of. Section 11B(1) allows directions after an enquiry, and its Explanation includes a direction to disgorge the wrongful gain made or loss averted.

Penalty is imposed by an adjudicating officer appointed under section 15-I (not below the rank of Division Chief) or by the Board itself under section 11(4A) or section 11B(2). The show-cause notice opens that inquiry and starts the settlement clock.

What are the steps of the inquiry?

Rule 4 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 requires a notice that states the offence alleged and allows not less than fourteen days from service to show cause why an inquiry should not be held. If the reply does not end the matter, a second notice fixes a date for appearance in person or through a representative. The person may produce documents and evidence, and the officer is not bound by the Indian Evidence Act, 1872 named in rule 4(5), now replaced by the Bharatiya Sakshya Adhiniyam, 2023. The second notice and hearing may be waived at the person's request.

Under rule 5 an error apparent on the face of the record, may be rectified on the officer's own motion, or where the affected person brings it to notice within fifteen days from the date of the order. Section 15J requires due regard to disproportionate gain, investor loss and repetition. Section 15-I(3) lets the Board enhance a penalty it finds erroneous to the extent it is not in the interests of the securities market, after a hearing, but not after three months from the officer's order or the disposal of an appeal, whichever is earlier.

What do sections 15A to 15HB provide?

15A to 15E, 15EB, 15F(b)   not less than INR 1 lakh; up to INR 1 lakh
                           for each day of failure, to a maximum of
                           INR 1 crore
15EA (funds and trusts)    the same, or three times the gains,
                           whichever is higher
15F(a) and (c)             not less than INR 1 lakh; up to INR 1 crore
                           (contract notes), five times the excess
                           brokerage (15F(c))
15G insider trading and    not less than INR 10 lakh; up to INR 25 crore
15H takeover disclosures   or three times the profits, whichever is higher
and open offers
15HA unfair trade          not less than INR 5 lakh; up to INR 25 crore
practices                  or three times the profits, whichever is higher
15HAA records and          not less than INR 1 lakh; up to INR 10 crore
database                   or three times the profits, whichever is higher
15HB residuary             not less than INR 1 lakh; up to INR 1 crore

Section 15HAA is not among the sections named in sections 15-I(1), 11(4A) and 11B(2). Section 15A(b) covers a failure to file a return or furnish information within the time the regulations fix, and section 15HB any contravention for which no separate penalty is provided.

When can the matter be settled?

Section 15JB lets a person against whom proceedings under section 11, 11B, 11D, 12(3) or 15-I have been or may be initiated apply for settlement, and bars an appeal under section 15T against the settlement order. The Settlement Proceedings Regulations, 2018, as amended up to 28 November 2024, supply the procedure.

The time limit is in regulation 4(1): an application for a proceeding pending before the Board is not considered if made after sixty days from service of the notice to show cause or a supplementary notice, whichever is later. Under regulation 4(3) the limit does not apply to proceedings before the Tribunal or a court. The power to condone delay was omitted with effect from 14 January 2022. Regulation 5 also bars an application while an audit, investigation or inquiry is incomplete (save where confidentiality is sought).

The Schedule I form carries a non-refundable fee (INR 25,000 for a body corporate) and the Part C waivers. The final order waits for the application (regulation 8). An Internal Committee, which includes an officer not below the rank of Chief General Manager, examines it, the High Powered Advisory Committee, with a former Supreme Court or High Court Judge and three external experts, recommends terms, and the Panel of Whole Time Members decides. A notice of demand follows within seven working days, and payment falls due within thirty calendar days of receipt, with none accepted later.

How is the indicative amount worked out?

Schedule II sets the Indicative Amount (IA) as A multiplied by B, plus legal costs at some stages. A is the proceeding conversion factor (PCF) plus a regulatory action factor (RAF) for earlier orders. B is the base value (BV) multiplied by the base amount (BA) for the default. BV is 1 plus the applicable values: minus 0.2 for each mitigating factor, plus 0.2 for each aggravating factor, 0.25 for each sign of a deliberate default, each of these three kinds counted up to three times, and 0.3 for recklessness. The Table IV values applicable in all cases add 0.25 for reputation risk in any settlement without an admission. Table V adds minus 0.5 for a non-disclosure by a body corporate with paid-up equity capital, including reserves, below INR 10 crore, or one that made a related disclosure under another regulation. The PCF in Table I depends on the stage reached.

Voluntary, or seeking settlement with confidentiality     0.40
Before a notice to show cause, or summary settlement      0.50
After the first notice to show cause                      0.65
After a final order imposing penalty or directions        1.20
After an order of the Tribunal or a court                 1.50

The IA is not less than INR 3 lakh for a first time applicant or INR 7 lakh for others, and not more than the maximum penalty for each count multiplied by the counts.

What does the arithmetic look like?

An illustration. The company, notice and figures are hypothetical; the category of the lapse is assumed.

Meridian Components Limited (hypothetical), listed, equity capital
with reserves INR 40 crore, no earlier order or settlement
Notice served 12 January 2027: a disclosure under the Securities and
Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015 made five months late; sections 15A(b)
and 15HB alleged, treated as one count

Adjudication path
  Shortest reply period the notice may allow,
    rule 4(1), ends                             26 January 2027
  Section 15HB            INR 1 lakh to INR 1 crore
  Section 15A(b)          INR 1 lakh a day; about 150 days would reach
                          INR 1.5 crore, so the INR 1 crore maximum applies

Settlement path (Table IX residuary line, PCF 0.65, RAF 0)
  Last day to apply, 60 days from service (a Saturday)  13 March 2027
  BA: INR 5 lakh + 2 x INR 10,000 for delay             INR 5,20,000
  Case 1: findings admitted (Part C, paragraph 10), so no 0.25 for
    reputation risk; no aggravating factor
    BV = 1 - 0.2 for corrective measures = 0.8
    A x B = 0.65 x 0.8 x 5,20,000 = INR 2,70,400, so the
    INR 3,00,000 floor for a first time applicant fixes the IA
  Case 2: no admission, +0.25; delay over 30 days, +0.2
    BV = 1 - 0.2 + 0.25 + 0.2 = 1.25
    A x B = 0.65 x 1.25 x 5,20,000 = INR 4,22,500 (the IA)

If an order of 15 July 2027 is received on 20 July 2027
  Rectification request, 15 days from the order         30 July 2027
  Appeal to SAT, 45 days from receipt                   3 September 2027
If SAT's order is communicated on 10 February 2028
  Appeal to the Supreme Court, 60 days                  10 April 2028
  With sufficient cause, a further 60 days              9 June 2028

The floor binds only in Case 1. Dates exclude the day of service or receipt.

What follows an order, and what does settlement not cover?

Section 15T allows an appeal to SAT within forty-five days from receipt of a copy of the order and SAT may entertain a late appeal for sufficient cause. Section 15Z allows an appeal to the Supreme Court on a question of law within sixty days from communication of SAT's order, with at most sixty days more for sufficient cause.

A settlement order is outside that route: section 15JB(4) bars the appeal, and paragraph 12 of the Part C waivers gives up appeal or review. The applicant also undertakes not to deny the findings publicly or seek reimbursement by indemnity or insurance. Under regulation 28 the order is revoked if the applicant does not comply, did not disclose fully or violated an undertaking or waiver, the proceedings are restored, and nothing paid is refunded.

What remains unsettled?

Four points.

Which entry of Schedule II governs a lapse under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The tables name the insider trading and takeover regulations, then a residuary disclosure line in Table IX (INR 5 lakh plus INR 10,000 for every three months of delay) and a residuary line in Table X (INR 10 lakh for a body corporate), with the higher taken where more than one applies; paragraphs 8 and 11 leave categorisation to the committees.

Regulation 4(1) measures from the later of the notice and any supplementary notice, and does not say what a supplementary notice must add.

The reach of rule 4(1). Its printed text names sections 15G, 15HA and 15HB but not 15H, while section 15-I(1) names 15H.

The outer limit for delay at SAT. Section 15T states no ceiling for a late appeal, whereas section 15Z caps the further period at sixty days.