New Delhi | India is set to witness the most far-reaching reform in capital market regulations in decades with the proposed Securities Markets Code (SMC) Bill, 2025, tabled in the Lok Sabha last Thursday by Finance Minister Nirmala Sitharaman. The Bill seeks to redraw the regulatory architecture of the securities market by clearly defining the enforcement reach of the market regulator and placing a statutory time limit on inspections and investigations.
At the heart of the reform is an attempt to reduce prolonged regulatory uncertainty for market participants, while simultaneously strengthening investor protection through a time-bound and structured enforcement framework.
The Bill applies to the capital market regulator, Securities and Exchange Board of India, and proposes to consolidate three existing laws into a single, unified code.
Eight-Year Statutory Limit on Investigations
One of the most consequential provisions of the SMC Bill is the introduction of an eight-year limitation period for initiating inspections or investigations. Under the proposed framework, SEBI will be barred from ordering probes if the cause of action arose more than eight years prior to the date of such order.
However, this limitation will not apply to cases that have a systemic impact on the securities market, ensuring that large-scale or market-wide misconduct can still be acted upon beyond the time cap.
According to officials familiar with the drafting of the Bill, this provision aims to bring legal certainty to past transactions and prevent entities from facing indefinite regulatory exposure.
180-Day Deadline for Completing Investigations
Beyond setting time limits on initiation, the Bill introduces a time-bound enforcement framework. SEBI will be required to complete investigations within 180 days of commencement.
If delays occur, the regulator must:
- Record the reasons for delay in writing, and
- Obtain approval for extension from a whole-time member.
Interim orders issued during investigations will remain valid for 180 days, though they may be extended up to two years if judicial proceedings or investigations remain pending.
Ombudsman-Led Grievance Redressal Mechanism
To strengthen investor protection, the Bill provides for an ombudsman-led grievance redressal system. SEBI will be empowered to appoint one or more of its officers as Ombudsmen, tasked with:
- Receiving investor complaints,
- Examining grievances, and
- Facilitating resolution.
At present, investor complaints are handled through SEBI’s SCORES system and the Online Dispute Resolution (ODR) platform. The expanded role of Ombudsmen is expected to create a more structured dispute resolution hierarchy, though it may also require additional manpower.
Relief for Institutions in Legacy Cases
Market participants are expected to benefit significantly from the statutory limitation period. Legal experts note that the eight-year cap will prevent old transactions from being reopened indefinitely, reducing compliance uncertainty and litigation risk for institutions.
This provision, according to officials, is particularly relevant for intermediaries and listed entities facing long-pending regulatory scrutiny.
SEBI’s Financial Framework to Change
The SMC Bill also mandates changes to SEBI’s financial structure. Under the proposed law:
- 25% of SEBI’s annual surplus must be transferred to a dedicated Reserve Fund for meeting its expenses.
- The remaining surplus must be transferred to the Consolidated Fund of India.
- Estimates suggest SEBI’s general fund currently stands at ₹3,000–4,000 crore.
Will SEBI’s Powers Actually Be Reduced?
While critics argue that statutory limits may dilute SEBI’s authority, supporters contend that the Bill merely introduces predictability and proportionality, without compromising regulatory effectiveness.
By clearly defining timelines, limiting prolonged enforcement, and strengthening grievance redressal, the Bill seeks to strike a balance between regulatory oversight and ease of doing business.
What Happens Next
The SMC Bill has been referred to a Parliamentary Standing Committee for further examination. Once enacted, it will repeal and replace:
- Securities Contracts (Regulation) Act, 1956
- SEBI Act, 1992
- Depositories Act, 1996
If implemented in its current form, the legislation could mark a structural shift in India’s securities regulation, with long-term implications for investors, intermediaries, and market confidence.
