I. Introduction

On 18 December 2025, Finance Minister Nirmala Sitharaman introduced the Securities Markets Code, 2025 in the Lok Sabha. The Bill proposes to repeal and consolidate the Securities Contracts (Regulation) Act, 1956 (SCRA), the Securities and Exchange Board of India Act, 1992 (SEBI Act), and the Depositories Act, 1996 into a single legislative framework. The initiative was foreshadowed in the Union Budget 2021-22 but proceeded without a white paper or formal public consultation. The central question is whether the Code produces genuine simplification or merely relocates existing complexity into a body of subordinate legislation that will be no easier to navigate than the three statutes it replaces.

II. The Fragmented Regulatory Architecture

Each of the three statutes addressed a distinct regulatory problem at a distinct moment in time. The SCRA, 1956 governed securities contracts and stock exchanges in the post-independence period. The SEBI Act, 1992 established a statutory regulator following the 1992 securities scam.[1] The Depositories Act, 1996 provided the legal foundation for dematerialisation of securities.

In Sahara India Real Estate Corporation v SEBI, the Supreme Court was called upon to determine the jurisdictional boundaries between the SEBI Act and the Companies Act, 1956, in the context of hybrid securities. The Court held that SEBI's regulatory mandate extended to any instrument that bore the character of a security, regardless of its label. That interpretational exercise was made necessary, in part, by the absence of a unified definitional architecture across the applicable statutes. The Code addresses precisely this kind of jurisdictional uncertainty by establishing a single definitional framework.

Similarly, in Sterlite Industries (India) Ltd v SEBI, the Securities Appellate Tribunal was required to reconcile procedural obligations under the SEBI Act with the substantive requirements of the SCRA. The fragmentation between primary statutes had produced overlapping and, in some respects, inconsistent compliance obligations for listed issuers. This is the structural problem the Code seeks to resolve.

II-A. The Rationale Behind Legislative Consolidation

The move towards a unified Securities Markets Code reflects a broader legislative trend in India towards regulatory consolidation. Similar exercises have been undertaken in areas such as Labour law through the four Labour Codes and insolvency through the Insolvency and Bankruptcy Code, 2016, to replace fragmented legislative frameworks with a coherent and principles-based architecture.

The Indian securities market has evolved significantly since the enactment of the Securities Contracts (Regulation) Act, 1956. The transition from a predominantly physical trading environment to a technologically sophisticated market characterised by algorithmic trading, complex derivatives, foreign portfolio investment, and digital settlement mechanisms has exposed the limitations of a framework dispersed across multiple statutes.

Although SEBI has historically attempted to bridge these gaps through extensive subordinate legislation, the proliferation of regulations, circulars, master directions, and exchange bye-laws has created a layered compliance ecosystem. Market participants are often required to navigate not only the parent statutes but also an extensive body of delegated legislation that has developed incrementally over several decades. A consolidated code, therefore, offers the possibility of a more coherent legislative structure.

III. Key Features of the Securities Markets Code, 2025

The Code introduces the following principal changes.

Board Composition - SEBI's board is expanded from nine to fifteen members, with eleven appointed by the central government, of whom five must be whole-time.[2] Under the existing SEBI Act, 1992 (section 4), the board comprises nine members. The expansion is intended to bring greater regulatory expertise, though it raises questions about executive coherence and the degree of government influence over an ostensibly independent regulator.

Limitation Period - A statutory limitation of eight years is imposed on SEBI investigations.[3] Currently, the SEBI Act carries no such temporal bar. Carve-outs apply to matters with systemic market impact and those referred by investigating agencies.

Decriminalisation - Technical violations are converted from criminal offences to monetary penalties.[4] Criminal liability is retained for market abuse: insider trading, price manipulation, and defrauding investors. This follows the approach taken in the Companies (Amendment) Act, 2019 and the Insolvency and Bankruptcy Code, 2016, both of which decriminalised procedural defaults.

Ombudsperson Mechanism - A statutory Ombudsperson is established with an 180-day mandate for investor grievance resolution.[5]

MII Oversight - SEBI's oversight over Market Infrastructure Institutions is expanded, with authority to delegate registration to MIIs and Self-Regulatory Organisations.[6]Conflict-of-interest obligations are extended to cover family members of board members.

IV. The Case for Simplification

The primary gain is structural. A unified code with consistent definitions and a consolidated penalty framework reduces the compliance burden for intermediaries operating across market segments. Judicial decisions such as Sahara (2012) and Sterlite (2003) illustrate the interpretational friction generated by statutory fragmentation. A single code removes the need for courts and tribunals to harmonise competing definitional regimes. A single code removes the need for courts and tribunals to harmonise competing definitional regimes.

Indian securities jurisprudence has consistently adopted a purposive approach towards market regulation, recognising that the effectiveness of securities law depends upon the ability of the regulator to address evolving forms of market abuse. In SEBI v. Rakhi Trading Pvt. Ltd., the Supreme Court examined the practice of synchronised and reversal trades and held that transactions lacking genuine economic purpose could constitute a fraudulent and unfair trade practice, even where they complied with the formal mechanics of exchange trading. The judgment illustrates the judiciary's willingness to look beyond the technical structure of a transaction and evaluate its substantive impact on market integrity.

Similarly, in SEBI v. Shriram Mutual Fund, the Supreme Court held that the imposition of civil penalties under the securities regulatory framework does not necessarily require proof of mens rea. The objective of such penalties is not merely punitive but to ensure strict compliance and maintain investor confidence in the securities market. The Securities Markets Code's continued emphasis on monetary penalties for technical violations therefore aligns with the existing judicial understanding of securities regulation as a preventive and deterrent framework.

Decriminalisation of technical violations is a meaningful reform. In SEBI v Kishore Kanhaiyalal Bajaj, the Supreme Court affirmed SEBI's authority to impose monetary penalties for procedural defaults and emphasised that such penalties serve a deterrent rather than a punitive function. The Code extends this civil enforcement philosophy to a broader category of violations, which is consistent with the direction of that jurisprudence.

The principles-based regulatory approach also aligns India with the Markets in Financial Instruments Directive II and the Financial Services and Markets Act 2000 (UK), which both operate through broad statutory objectives supplemented by delegated regulation. The Securities Exchange Act 1934 (US) similarly established a unified regulator operating under a single statutory mandate.

V. New Compliance Challenges

The consolidation of primary legislation does not eliminate complexity. It transfers it to subordinate legislation. During the transition period, intermediaries will face uncertainty about which existing SEBI regulations, circulars, and MII bye-laws remain operative, which require revision, and which are superseded by the Code.

The parallel from Indian labour law is instructive. The Code on Wages, 2019 and the Industrial Relations Code, 2020 rationalised primary legislation but generated significant complexity at the level of state rules. The Securities Markets Code risks a comparable outcome in the form of an enlarged body of SEBI regulations and MII bye-laws.

The eight-year limitation period raises serious enforcement concerns. In SEBI v R K Agarwal, the Supreme Court recognised that market manipulation schemes are often structured to obscure their true character and that the discovery of the full extent of the contravention may occur years after the act is committed. A fixed temporal bar without a discovery-based trigger creates a structural advantage for sophisticated wrongdoers and weakens SEBI's investigatory reach in precisely those cases where it matters most.

The concentration of regulatory authority in SEBI also warrants attention. In SEBI v Shriram Mutual Fund, the Supreme Court held that SEBI's regulatory powers must be exercised in accordance with the principles of natural justice and within the bounds of the enabling statute. The Code expands those powers substantially. Without commensurate accountability mechanisms, the risk is that expanded authority is exercised without adequate procedural safeguards.

The role of the Securities Appellate Tribunal also merits scrutiny. In McLeod Russel India Ltd v SEBI, the SAT affirmed its jurisdiction to examine the procedural propriety of SEBI's investigatory orders. That appellate jurisdiction is retained under the Code. Whether SAT has the institutional capacity to serve as an effective check on a significantly expanded SEBI is an open question that the Code does not resolve.

The Code was also introduced without prior public consultation. Opposition members flagged this procedural deficit during Lok Sabha debate, arguing that the Code concentrates excessive regulatory authority without corresponding parliamentary oversight.

The greatest challenge for the Securities Markets Code may not lie in the text of the legislation itself but in the transition from the existing regulatory architecture to the new framework. The effectiveness of the Code will depend significantly on how existing SEBI regulations, circulars, notifications, and stock exchange by-laws are carried forward through savings provisions and whether inconsistencies between old and new regulatory instruments are adequately resolved.

Accordingly, the true measure of the Code’s success will not be the consolidation of three statutes into one, but whether it achieves a more accessible and predictable regulatory environment for issuers, intermediaries, and investors.

VI. A Comparative Perspective

The Financial Services and Markets Act 2000 (UK) consolidated multiple financial regulatory regimes into a single statute and established the Financial Services Authority as a unified regulator. That exercise succeeded because it was accompanied by detailed accountability mechanisms: a statutory duty to consult, a requirement to publish cost-benefit analyses of proposed rules, and an independent complaints commissioner. The Securities Markets Code introduces none of these mechanisms.

The Securities Exchange Act 1934 (US) similarly establishes a unified regulatory framework under the SEC, but subjects the Commission to congressional oversight and judicial review under the Administrative Procedure Act. SEBI's accountability to Parliament and to the courts is considerably more limited under the existing framework and is not meaningfully enhanced by the Code.

VII. Conclusion

The Securities Markets Code, 2025, is a significant structural reform. The consolidation of three statutes into a single framework, the decriminalisation of technical violations, the Ombudsperson mechanism, and the unified definitional architecture each address real problems in the existing law. The Code's production of simplification in practice depends on factors that remain unresolved: the quality and consistency of the subordinate legislation that follows, the accountability mechanisms that accompany SEBI's expanded powers, and the institutional capacity SEBI develops to exercise those powers effectively. Cases such as Sahara, Sterlite, and Shriram Mutual Fund demonstrate that Indian courts have not hesitated to scrutinise the boundaries and exercise of SEBI's authority. That judicial oversight will remain essential as the Code enters force. The standing committee examination is the appropriate forum to address the gaps identified in this article before the Code is enacted. The opportunity should be used.

*Authored by - Yash Bajpai, 4th year B.A.LL.B (Hons), student at National Law Institute University, Bhopal. Views expressed are personal.