Finance Minister Nirmala Sitharaman on Thursday introduced the Securities Markets Code Bill 2025 in the Lok Sabha to consolidate and simplify India’s numerous securities rules, strengthen accountability of regulatory officials and improve grievance redressal.
The proposed code merges the Securities and Exchange of India (Sebi) Act, 1992, the Depository Act, 1996 and the Securities Contracts (Regulation) Act, 1956 into a single law. According to the legislation, the government is trying to modernize regulation, strengthen investor protection and enable the mobilization of capital to the extent corresponding to the needs of a rapidly growing economy.
The bill was referred to the parliamentary standing committee on finance headed by BJP lawyer Bhartruhari Mahtab.
At present, several provisions relating to the securities market are spread over various laws and circulars. “There were too many laws and circulars. Now it is consolidated. It was time to make the laws simpler and clearer,” said Akshaya Bhansali, managing partner at Mindspright Legal.
Conflict of interest
The bill introduces provisions to increase the accountability of regulatory officials with new information on conflicts of interest.
Directors of Sebi will be required to disclose any direct or indirect interest in matters discussed at Board meetings. These communications will be recorded during the meeting and the official will have to recuse himself from such a meeting according to the bill. The Code also empowers the Center to remove a Sebi official if, in its opinion, the person has acquired financial or other interests that could jeopardize the performance of their functions.
Sebi had set up a high-level committee in March to tighten disclosure and denial norms for all Sebi officials, especially senior members.
This comes after allegations of conflict of interest involving Madhabi Puri Buch, who served as Sebi chairman until February. In August 2024, American short seller Hindenburg Research alleged, among other things, that Buch and her husband had undisclosed interests in entities registered in Bermuda and Mauritius that were allegedly linked to the Adani Group. Buchs and the Adani Group have denied the allegations.
Legal experts said these rules are the need of the hour.
“Conflict of interest provisions have been made explicit. It increases the accountability of board members. There is more scope for transparency in disclosure by members,” said Sidharth Kumar, senior associate, BTG Advaya.
Limiting probe delay
The bill also addresses longstanding industry concerns about delayed enforcement by introducing a clear statute of limitations. Restricts Sebi from initiating inspections or investigations after eight years from the date of default, except in specific circumstances.
“We have seen that show cause notices have been issued five years after the violation has occurred. That does not apply before the SAT (Securities Appellate Tribunal),” Bhansali said. “The code provides a strict timeline for investigations.
Investor protection
The proposed code also provides statutory support for an investor ombudsman system and empowers Sebi to appoint one or more officers to receive and redress investor complaints. Under the proposed system, investors must first attempt a resolution through existing grievance redressal mechanisms for a period of 180 days.
If this does not help, they can turn to the ombudsman within the specified period. The Ombudsman will have certain powers of a civil court, although no order passed will prevent Sebi from acting independently under the Code.
“The ombudsman provisions introduced in the SMC will strengthen the SCORES mechanism. It will streamline the investor grievance redressal process,” Kumar said.
More suggestions
The Code also provides formal legislative support to Sebi’s regulatory sandbox, which enables the regulator to create a controlled environment for testing new products, contracts and services in the securities markets. While sandbox frameworks existed earlier through circulars and policy papers, the new law empowers Sebi to grant exemptions or modifications through regulations subject to safeguards.
The revised framework also supports cross-regulatory measures by allowing instruments regulated by other authorities to be issued, held and listed through depositories and stock exchanges that are subject to regulatory approval. Sebi may permit such listings in consultation with other regulators, subject to the Code and prescribed terms and conditions for trading, clearing and settlement. Such inter-regulatory steps, especially in enforcement, were prevalent in practice but were never spelled out in law.
There are several provisions in the code that codify practices already followed by Sebi and give them a firmer legal footing. The bill prohibits the same officer from acting as both an investigator and a judge in a case, maintaining an independent distance between investigation and decision-making. It also sets out time limits for investigations and preliminary injunctions aimed at ensuring the timely completion of enforcement proceedings.
The enforcement framework is further strengthened through a principles-based sanctions regime. Officers will be required to ensure that any order is proportionate to the failure or breach committed, taking into account factors such as the nature and seriousness of the breach, its duration and frequency, past behaviour, unlawful gains and losses caused to investors.
While the code decriminalizes minor, technical and procedural violations by moving them into the realm of civil penalties, it maintains severe penalties for serious market abuses such as fraud and manipulation.
“The adjudication provisions have been simplified and made more logical. The gray areas related to SEBI’s procedure and powers raised by the SAT and the Supreme Court have been addressed,” Kumar said.
