SEBI put out an interim order in one of the most comprehensive front-running cases in India's regulatory history in January 2025. The alleged scheme was led by Ketan Parekh, who was suspended for 14 years due to the 2001 stock market fraud scandal. The scheme had involved brokers based in Singapore and a large American fund house using complex trading structures through numerous layers of broker-dealers in many jurisdictions. This case is significant not just because of its complexity, but because of the amount of time that passed, i.e. of 30 months, between the alleged violations of securities regulations and SEBI's interim order. During this period, the regulator connected various pieces of information related to the violations, then followed it through the various jurisdictions involved, and built a case with respect to each violation before issuing an interim order.

The Securities Markets Code Bill 2025, which is now before the Standing Committee on Finance of Parliament and is expected to be concluded with a report next month for tabling during the first week of the Monsoon session of Parliament, would, depending on when the relevant events began to occur, either prevent the investigations from taking place or result in a very real possibility of the investigations being incomplete before SEBI has a chance to take corrective action.

The practical implication of two provisions in a generally commendable Bill is as follows. The Securities Markets Code, introduced in the Lok Sabha on December 18, 2025, consolidates the Securities Contracts (Regulation) Act (1956), the SEBI Act (1992) and the Depositories Act (1996) into one modernised piece of comprehensive legislation. This consolidation has been long overdue and, other than the two problematic provisions in question, most of the Bill is deserving of support. However, contrary to what probably no one asked, Clauses 16 and 13 together provide an answer to a question no one asked as to how can we make committing serious financial fraud safer to commit? - with chilling ease.

Clause 16 introduces for the first time a hard limitation period in the Indian securities law. Specifically, SEBI will be prohibited from commencing any inspection or investigation after 8 years from the date of commission of the alleged contravention (unless the contravention has had systemic impact on the market or has been referred by a law enforcement agency). In most cases of serious financial fraud (i.e. insider trading rings, layered related party transactions, circular trading schemes, appropriation of IPO money), the limitation period will run from the date of commission of an offence rather than from the date of discovery or complaint by the victim.

Clause 13 will add to the already existing problem. It requires SEBI to complete an investigation within 180 days, unless there is written justification for an extension. By itself, this requirement is reasonable, as delay in the conduct of investigations is a legitimate complaint. However, when the two rules are in place, a mandate to complete investigations within 180 days and an eight-year bar to initiation, will force the regulator to triage. It will pursue provable cases and relegate complex, layered and multi-jurisdictional cases that require years to build. These are, by definition, the largest frauds and the ones that will likely perish as a result of the two rules working together.

The government's rationale for imposing an eight-year bar is to provide legal certainty for market participants so they do not continue to have regulatory liability indefinitely. This rationale is valid. However, it misidentifies the remedy. The legitimate complaint is that SEBI takes too long to complete investigations after they have begun. Clause 13's 180-day requirement directly addresses this concern. The eight-year initiation bar addresses an entirely different concern, and, as a result, gives sophisticated wrongdoers the one thing that a regulator should never give: a reliable time frame in which they are not subject to enforcement action.

The Bill has a comparative experience that works against it. For a long time, the U.S. enforced a five-year statute of limitations for SEC actions. When the U.S. Supreme Court upheld this limitation on disgorgement in Kokesh v. SEC, Congress passed the National Defense Authorization Act of 2021, extending the statute to ten years for violations based on scienter (fraud, insider trading, and market manipulation). This was justified by the fact that scienter-based violations often have elements of concealment lasting for years and thus might be discovered long after their commissions. As a result, the U.S. went from a five-year statute of limitations to a ten-year statute of limitations. In the case of the Bill being proposed in India, it will impose an eight-year statute of limitations from the commission of the act and not the discovery of the act.

The provision's last detail represents its most serious failing. It is also an already well-established remedy, namely the “discovery rule” which operates by allowing a limitation period to begin from the date upon which the governing body had reasonable cause to believe a contravention may have occurred. This standard is typical in civil fraud cases throughout the common law world. However, the lack of this standard in Clause 16 was not an accident but was a conscious decision, one that was wrong. Additionally, the Systemic Impact Exception should be expanded to include contraventions caused by deceitful concealment and/or through overlapping entities, or internationally, which is the typical method for committing fraud. These changes are not radical and do not compromise the purpose of the Bill in terms of consolidating existing legislation. Both changes will assure that being patient in committing wrongful acts does not provide anyone with a statutory reward.

India has developed a robust securities regulatory framework over the last thirty years, which has made SEBI highly respected in many emerging markets because it has not permitted securities enforcement to be limited by the inconsistent convenience of wrongdoers. The SMC should extend this framework, not start a clock from the time of the fraudulent act and no longer be concerned at the end of eight years. The Standing Committee report will be out in the near future, and the vote on the floor of the parliament will follow. This window is open and will not stay open for long.

References and Sources:

1. SEBI. (2024, December). Order in the matter of extended front running by Rohit Salgaocar, Ketan Parekh and ors.

https://www.sebi.gov.in/sebi_data/attachdocs/dec-2024/Front_Running_Order_Big_Client.pdf

1. SEBI. (2007, November 12). Order against Shri Ketan V. Parekh and his associates. https://www.sebi.gov.in/enforcement/orders/nov-2007/order-against-shri-ketan-v-parekh-and-his-associates_9493.html
2. PRS Legislative Research. (2025, December 22). Bill Summary: The Securities Markets Code, 2025.

https://prsindia.org/files/bills_acts/bills_parliament/2025/Summary_Securities_Markets_Code_2025.pdf

1. PRS Legislative Research. (2025, December 18). The Securities Markets Code, 2025. PRS India.

https://prsindia.org/billtrack/the-securities-markets-code-2025

1. Sahyaja, M.S. (2025, December 18). Securities Markets Code, 2025: What is new in the government's proposed overhaul in capital markets law
   .

https://www.livelaw.in/corporate-law/securities-markets-code-2025-capital-markets-law-governments-proposal-513792

1. ANI. (2026, June 11). 'SEBI needs more power to preempt crisis': Parliamentary panel backs stronger regulator in Securities Markets Code 2025. ANI News.

https://aninews.in/news/business/sebi-needs-more-power-to-preempt-crisis-parliamentary-panel-backs-stronger-regulator-in-securities-market-code-202520260611174920/

1. Kokesh v. Securities and Exchange Commission, 581 U.S. 455 [2017]

https://supreme.justia.com/cases/federal/us/581/16-529/

Author is an interdisciplinary student of the liberal arts and law. Views are personal.