In a significant move to bring regulatory certainty, the proposed Securities Markets Code (SMC) Bill has introduced a strict eight-year statutory limitation period for inspections and investigations conducted by the Securities and Exchange Board of India (Sebi). This measure is designed to shield market participants from indefinite regulatory scrutiny over old transactions.
Key Provisions for Regulatory Certainty
The Bill, introduced in the Lok Sabha last week, clearly states that Sebi cannot order an inspection or investigation if the cause of action occurred more than eight years prior. According to a source close to the development, this provision aims to provide legal finality, ensuring entities are not "haunted indefinitely" by legacy cases. However, this limitation will not apply to matters that have a systemic impact on India's securities market.
Alongside the time bar, the legislation mandates a time-bound enforcement framework. Sebi must complete its investigations within 180 days. If delays occur, the regulator must document the reasons in writing and seek an extension from a whole-time member. The Bill also caps the validity of interim orders at 180 days, extendable to a maximum of two years if related adjudication or probes are still pending.
Strengthening Investor Protection and Sebi's Finances
A major reform introduced is the creation of an Ombudsperson-led grievance redressal system to bolster investor protection. The Bill empowers Sebi to designate officers as Ombudspersons, whose primary role will be to receive, examine, and resolve investor complaints.
The new framework establishes a clear escalation process. Investors must first approach the concerned service provider or issuer's internal mechanism. If the grievance is not resolved within 180 days, they can then escalate it to the Sebi Ombudsperson within the next 30 days. This is a shift from the current system where complaints are handled via SCORES and the Online Dispute Resolution platform.
The source indicated that this new role could lead to a surge in cases being escalated, potentially increasing the workload for both the Ombudsperson and the Securities Appellate Tribunal if appeals are allowed. This underscores the need for clarity on whether the Ombudsperson's decision will be final for SCORES-related complaints.
On the financial front, the Bill requires Sebi to establish a Reserve Fund. The regulator must transfer 25% of its annual surplus from the General Fund into this reserve, which will be used exclusively for Sebi's operational expenses. The remaining surplus must be transferred to the Consolidated Fund of India. Estimates suggest Sebi's General Fund currently holds between ₹3,000 to ₹4,000 crore.
Consolidation and Implementation Challenges
The SMC Bill seeks to consolidate and replace three existing laws: the Securities Contracts (Regulation) Act of 1956, the Sebi Act of 1992, and the Depositories Act of 1996. It has been referred to a Standing Committee for further consultation.
While the reforms promise greater efficiency and certainty, the source highlighted implementation challenges. The time-bound investigation mandate and the new Ombudsperson framework are expected to place additional manpower demands on Sebi. The regulator will need to focus on capacity building and deploying adequately trained resources to effectively manage the expanded responsibilities under the new code.
