New Delhi: India’s capital markets are set for a sweeping regulatory overhaul with the introduction of the Securities Markets Code (SMC) Bill, 2025, a landmark piece of legislation that seeks to tighten oversight, restore trust and enforce accountability across the securities ecosystem. The proposed law not only sharpens penalties for market manipulation and fraud but, for the first time, also places clear legal responsibility on officials of the Securities and Exchange Board of India (SEBI).
Under the new framework, serious market offences could attract up to 10 years of imprisonment and fines of as much as ₹25 crore. Government sources say the bill has been drafted in response to recurring concerns around conflicts of interest, regulatory opacity and enforcement gaps. The legislation has been referred to a Parliamentary Select Committee for detailed examination.
Direct Impact of the Madhabi Puri Buch Episode
One of the most significant elements of the Uniform Securities Code is the set of provisions aimed squarely at SEBI’s internal governance and ethical standards. These clauses are widely seen as a direct outcome of the controversy that arose during the Adani–Hindenburg episode, when questions were raised over alleged conflicts of interest involving then SEBI Chairperson Madhabi Puri Buch.
At the time, critics and opposition leaders questioned whether regulators with financial or indirect links to entities under investigation should have recused themselves from decision-making. The absence of explicit statutory guidance on disclosure and recusal exposed a regulatory grey area that the new code now seeks to eliminate.
Mandatory Disclosure and Recusal Made Law
The SMC Bill, 2025 introduces unambiguous rules on disclosure and recusal. Any SEBI official — from investigating officers to senior executives and board members — who has a direct or indirect interest in a matter under examination will be legally required to disclose the same in writing.
More importantly, disclosure alone will not suffice. The concerned official must recuse themselves from the investigation or decision-making process. The SEBI board will be mandated to formally record the disclosure and recusal, ensuring institutional transparency and leaving a verifiable audit trail.
Officials say the objective is to protect the integrity and credibility of the regulator, which plays a central role in safeguarding investor interests.
Clear Separation Between Civil and Criminal Offences
A major structural reform introduced by the new code is the clear classification of market violations into civil and criminal categories. This distinction addresses long-standing criticism that India’s securities laws treated minor infractions and serious crimes under the same punitive umbrella.
Under the revised framework, offences such as fraud and unfair trade practices will generally fall under the civil category, attracting monetary penalties rather than imprisonment. In contrast, actions that undermine the fundamental integrity of the market will be treated as criminal offences.
Insider Trading and Front Running Face Harsh Penalties
Crimes classified as market abuse, including insider trading and front running, have been placed firmly in the criminal category. Conviction in such cases could result in up to 10 years in prison and fines of up to ₹25 crore.
Insider trading involves dealing in securities using unpublished price-sensitive information, while front running refers to brokers or fund managers trading ahead of large client orders for personal gain. Regulators believe these practices erode market fairness and investor confidence, warranting stringent punishment.
Penalties for Non-Cooperation in Investigations
The code also clarifies consequences for non-cooperation with regulatory investigations. Individuals who fail to provide documents, evade questioning or otherwise obstruct SEBI’s probe may face up to one year of imprisonment, a fine of up to ₹1 crore, or both.
The government has clarified that this provision is not entirely new but is carried forward from the SEBI Act, 1992, with greater clarity and procedural structure.
End of the Omnibus Clause, Push for Decriminalisation
Another key reform is the removal of the so-called “omnibus clause”, which previously allowed criminal liability even for technical or procedural lapses. The new code adopts a decriminalisation approach for minor violations, reserving jail terms strictly for grave and intentional misconduct.
A Step Towards a More Trustworthy Market
Market experts believe the Uniform Securities Code, 2025 could mark a turning point in India’s capital market regulation. By holding regulators to the same standards as market participants and clearly distinguishing between civil and criminal wrongdoing, the law aims to balance market discipline with ease of doing business.
If enacted in its present form, the legislation is expected to strengthen investor confidence and reinforce India’s commitment to transparent, fair and well-governed financial markets.
