Securities Markets Code, 2025: What Is New In the Government's Proposed Overhaul of Capital Markets Law

The Central government on Thursday introduced the Securities Markets Code, 2025 in the Lok Sabha, proposing a single, consolidated law to govern India's securities markets. The proposed Code repeals the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, and the Depositories Act, 1996.

Beyond consolidation, the Code introduces several substantive changes by statutorily embedding regulatory mechanisms, definitions and safeguards that were earlier scattered across regulations, circulars and court rulings.

Expanded Definition of Securities

One of the key changes under the Code is the expansion of the statutory definition of “securities”. Under Clause 2(zi), the definition is widened to expressly include hybrid instruments, electronic gold receipts, zero coupon zero principal instruments, and onshore rupee bonds issued by multilateral institutions.

The Code also introduces the concept of an “other regulated instrument”, creating an enabling framework for coordination between SEBI and other sectoral regulators such as the RBI in relation to issuance, holding, listing and trading of such instruments.

Limitation Period For SEBI Investigations

For the first time, the Code introduces a statutory limitation period for regulatory action. Under Clause 16, SEBI cannot order inspection or investigation after eight years from the date of the alleged default or contravention. Exceptions are provided for cases involving systemic market impact or references from investigating agencies. Earlier securities laws did not prescribe any such time bar.

Separation Of Investigation and Adjudication

The Code mandates a strict separation between investigative and adjudicatory functions. Under Clause 17, no person can be appointed as an adjudicating officer if they were involved in authorising, conducting or assisting in the inspection or investigation of the same matter. The provision also bars such officers from handling interim or settlement applications in cases where they had prior involvement, elevating procedural safeguards to statutory status.

Time-Bound Investigations And Interim Orders

The Code introduces defined timelines for enforcement proceedings. Investigations as per Clause 13 of the Bill are required to be completed within 180 days, subject to extension by a whole-time member. Interim orders under Clause 27 are ordinarily valid for 180 days, with extensions permitted only through approval by a designated group of SEBI's leadership, and capped at a further period of two years.

Disgorgement and Investor Restitution Codified

While disgorgement has been ordered by SEBI in the past, the Code gives it explicit statutory backing. Under Clause 25, adjudicating officers may direct disgorgement equivalent to unlawful gains. The Board is also expressly empowered to use such amounts for restitution to affected investors, where losses are directly attributable to the violation and beneficiaries are identifiable.

Decriminalisation of Minor and Procedural Defaults

Another shift under the Code is the decriminalisation of several minor and procedural contraventions, which were earlier punishable as criminal offences under the securities laws. Under the earlier framework, failures such as non-furnishing of information, delay in filings, failure to redress investor grievances, or non-compliance with procedural directions of the regulator could, in certain cases, attract prosecution and imprisonment.

The Securities Markets Code reclassifies many such defaults as civil violations, making them punishable through monetary penalties (Clauses 97 to 102) rather than criminal prosecution. The focus is shifted away from imprisonment for technical or compliance-related lapses, and towards financial penalties that are proportionate to the impact of the violation.

However, the Code retains criminal liability for serious market misconduct, including fraud, market manipulation, insider trading, and other offences involving intent, deception or systemic market harm. These offences continue to attract stringent penalties, including higher monetary sanctions and prosecution before Special Courts.

In effect, the decriminalisation framework seeks to distinguish between technical non-compliance and wilful or fraudulent conduct, reducing criminal exposure for routine compliance failures while preserving deterrence for grave violations.

Expansion of SEBI Board

The Securities Markets Code also alters the composition of the Securities and Exchange Board of India. Under the SEBI Act, 1992, the Board comprised a Chairman and up to eight Members, including two ex officio government nominees and at least three whole-time Members. The proposed Code expands this structure.

Under Clause 4 of the Bill, the Board will now consist of a Chairperson and up to fifteen Members, with a statutory requirement that at least five Members be whole-time Members.

The Code further requires the Central Government to endeavour to appoint at least three Members with expertise in securities markets, a qualification that was not expressly mandated under the earlier law.

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