The recommendations also seek to make investigations more practical without compromising accountability
The Parliamentary Standing Committee's recommendations on the proposed Securities Markets Code (SMC) are expected to make SEBI's enforcement framework more structured and legally sustainable by introducing stronger procedural safeguards while retaining the regulator's broad enforcement powers, legal experts said.Key changesThe committee has proposed several changes to the draft legislation, including deleting a provision that would have allowed SEBI to define new criminal offences through regulations, introducing functional separation between investigation and adjudication, extending the probe period to one year, strengthening investor grievance mechanisms and tightening procedural safeguards around enforcement."The recommendations recalibrate rather than curtail SEBI's powers,” said Rohit Jain, Managing Partner at Singhania & Co. "SEBI retains broad information-gathering, investigation, interim-relief and remedial authority, but its exercise becomes more structured through recorded reasons, periodic review of interim orders, hearing requirements and clearer appellate routes."Jain said the proposed functional separation of investigation and adjudication, safeguards around interim orders, objective limits on reopening cases beyond eight years, and clearer standards for quantifying unlawful gains and distinguishing civil fraud from criminal market abuse should improve decisional consistency and reduce avoidable litigationThe recommendations also seek to make investigations more practical without compromising accountability. Bharat Vasani, Senior Advisor – Corporate Laws at Cyril Amarchand Mangaldas, said extending the investigation period from 180 days to one year reflects the reality that most investigations require significantly longer to conclude. Coupled with the requirement to record reasons for extensions and safeguards around investigation notices, the changes create “a more structured, time-bound and constitutionally grounded enforcement architecture,” he said.Vasani, however, said that while deleting Clause 93(g), which would have allowed SEBI to prescribe new criminal offences through regulations, is constitutionally correct, it could leave enforcement gaps if new forms of market manipulation emerge. “Parliament will need to keep the market abuse provisions... up to date with the continuously evolving markets,” he said.The committee's recommendations would require SEBI to rely on stronger documentation, procedural discipline and clearly defined thresholds while exercising its enforcement powers, said Alay Razvi, Managing Partner at Accord Juris. "The regulator may not lose power, but it will have to use that power with greater discipline. Over time, that can improve both compliance culture and the legitimacy of SEBI's actions in court.”Keyur D. Gandhi, Managing Partner, Gandhi Law Associates, said the recommendations preserve SEBI's enforcement powers while strengthening transparency and institutional accountability. Although investigations may involve greater procedural scrutiny, "enforcement actions are expected to become more robust and legally sustainable.”A few areas could generate litigation. The recommendation that Clause 58(2), which makes depositories record conclusive proof of title, be qualified to allow challenges in cases of fraud or technical glitches will raise practical questions about how far a transferee relying on such records can be disturbed. The recommendation that SEBI be empowered to both enhance and reduce Adjudicating Officer penalties under Clause 21, could be challenged as creating a parallel appellate mechanism that competes with the Securities Appellate Tribunal's jurisdiction, requiring precise statutory demarcation to avoid conflict.Published on July 29, 2026
