Moneycontrol Pro Panorama | SEBI gets sharper teeth

SEBI’s powers of inspection, search, seizure, attachment of property, and evidence-gathering are explicitly codified, replacing the earlier patchwork

Dear Reader,

The introduction of the Securities Markets Code Bill, 2025, in Parliament marks a long-awaited attempt to modernise the legal architecture governing India’s securities markets. By proposing to consolidate three cornerstone legislations — the Securities Contracts (Regulation) Act of 1956, the SEBI Act of 1992, and the Depositories Act of 1996 — into a single, unified code, the government has ensured India’s capital markets have outgrown a fragmented, decades-old regulatory framework. The Bill seeks to strengthen investor protection, reduce compliance burdens, and improve regulatory governance, all while supporting the dynamism of technology-driven markets.

At its core, the Code aims to eliminate overlapping provisions and jurisdictional ambiguities that have historically delayed enforcement and invited litigation. Experts argue that this consolidation grants the SEBI a clearer statutory authority across the entire securities lifecycle — from issuance and trading to clearing and settlement — thereby ending a regime of fragmented oversight. While the move follows through on a promise made in the Union Budget of 2021, its timing could not have been better, given the recent episodes of alleged market manipulation and governance lapses.

The Bill significantly strengthens SEBI’s institutional powers. It expands the regulator’s board from nine to 15 members, introduces tighter conflict-of-interest norms that extend to family members, and grants the government the authority to remove board members for impropriety. SEBI’s powers of inspection, search, seizure, attachment of property, and evidence-gathering are explicitly codified, replacing the earlier patchwork of statutory provisions and regulations. The Code also formalises SEBI’s authority to order disgorgement of unlawful gains, transforming what was once largely driven by judicial interpretation into a clear statutory remedy, with provisions for restitution to affected investors.

At the same time, the Bill attempts to strike a balance between regulatory strength and ease of doing business. It introduces statutory timelines for inspections, investigations, and interim orders, addressing a long-standing complaint about prolonged regulatory uncertainty. Minor and technical violations, including certain fraudulent and unfair trade practices, are decriminalised and subjected only to civil penalties, while serious market abuse continues to attract criminal liability. This reclassification is intended to preserve deterrence without discouraging legitimate market activity through excessive criminalisation.

Investor protection receives formal statutory backing through the introduction of an Investor Charter and a dedicated Ombudsman mechanism for time-bound grievance redress, addressing a long-standing gap in retail participation in India’s markets. The Code also brings market infrastructure institutions — stock exchanges, clearing corporations, and depositories — under a common framework while enabling SEBI to delegate certain registration functions to these institutions and self-regulatory organisations to streamline oversight.

Overall, the Securities Markets Code Bill, 2025, represents a necessary and overdue reset of India’s securities law framework. Whether it succeeds will ultimately depend less on the breadth of its powers and more on the quality of its implementation, institutional capacity, and the regulatory restraint exercised in practice.

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