In 2007, the Securities and Exchange Board of India (SEBI) through a circular introduced the guidelines (Guidelines) for passing of consent order(s) (Consent Order) and for considering requests for composition of offences.

What is a Consent Order? A Consent Order is an order settling administrative or civil proceedings between the SEBI and a person who may prima facie, according to SEBI, be found to have violated securities law and related provisions. A Consent Order may settle all issues or reserve an issue or claim besides stating precisely what issues or claims are being reserved. A Consent Order may or may not include a determination that a violation has occurred.

Objective of Consent Order: The objective of a Consent Order is to provide flexibility of a wider array of enforcement and remedial actions which will achieve the multiple goals of an appropriate sanction, remedy and deterrence without resorting to lengthy litigation proceedings and incurring unwarranted delays.


Since the enforcement of the Guidelines, SEBI has passed several Consent Orders in a wide array of securities law. These include several high profile cases, some of which have also been highly criticised.

SEBI through its circular dated 25 May 2012 (Circular), has now modified the Guidelines to provide more clarity and made certain amendments to limit the scope of Consent Orders. This Ergo examines the significant changes brought about by the Circular.

a)   Exclusion:

To tighten the existing Guidelines, SEBI has introduced several exclusions from the operation of consent order mechanism. The following defaults are excluded :

–       Activities relating to insider trading;

–       Serious fraudulent and unfair trade practices;

–       Failure to make an open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;

–       Front Running, i.e. directly or indirectly dealing in securities upon holding of non-public information prior to a substantial order being placed or an impending deal in certain cases;

–       Defaults relating to manipulation of net asset value or other serious mutual fund defaults;

–       Failure to redress investor grievances;

–       Failure to make disclosures under the offer documents that would materially affect the rights of an investor;

–       Non-compliance of summons issued or order passed by SEBI.

The High Powered Advisory Committee (HPAC) of the SEBI and the panel of Whole Time Members (WTM), however, are empowered to settle any of the defaults listed above based on the specific facts and circumstances of the case.

b)   Revised Procedure:

Once an application for a Consent Order is made in the prescribed format containing all the necessary details / documents, the applicant will be required to appear before an internal committee comprising SEBI officials not associated with the case (Internal Committee). After the consent terms have been formulated in consultation with the Internal Committee and submitted by the applicant, they would have to be placed before the HPAC for their consideration and recommendation.

The recommendations made by the HPAC would then be placed before the panel of 2 (two) WTMs for their approval. The panel may increase or decrease the penalty or dismiss the application altogether. The manner in which benchmark amounts for each category of default would be calculated has been provided in the revised Guidelines. Factors that would be considered while arriving at the indicative amount (which is further calculated on the basis of the benchmark amounts) include stage of the proceeding, nature of the default / violation, gravity of the default / violation, volume traded, price impact, net worth, profits made, nature of disclosure not made, its impact, etc.

The consent terms finally approved by the panel of WTMs, i.e. the Settlement Amount (SA), would then be communicated to the applicant. The applicant is required to send its acceptance of the terms and remit the SA in lump sum, within 15 (fifteen) days from the date of receipt of the intimation. In case of non-acceptance of the SA and directives, if any or non-communication of acceptance within the stipulated time, the application shall be treated as rejected. Applicants cannot re-apply for a Consent Order once an application is rejected in relation to the same violation.

The application for a Consent Order shall be disposed of expeditiously, preferably within 6 (six) months of the application and the Circular will apply to all the new applications and the pending applications, except those which are already pending before the HPAC or cases pending at any stage thereafter.


It could be concluded that while the reforms will have the effect of streamlining the process and making the mechanism more transparent, the Circular substantially limits the scope of the Guidelines to minor offences. For all excluded categories of cases (listed above), a party may be unable to resort to these Guidelines unless the HPAC / WTM is satisfied otherwise, based on the facts and circumstances of the matter. Further, the eligibility to make an application under the Guidelines is being rationalised and more stringent conditions have been prescribed.