SMC Bill 2025 Explained: Regulatory Reset for SEBI or a Boost to Investor Trust?

The Union government has unveiled a major overhaul of India’s capital market regulatory framework with the introduction of the Securities Markets Code (SMC) Bill, 2025 in the Lok Sabha. Tabled by Finance Minister Nirmala Sitharaman, the proposed law seeks to streamline securities regulation, define clearer enforcement boundaries for the Securities and Exchange Board of India (SEBI), and reduce prolonged uncertainty for companies and investors.

The Bill, which will consolidate three existing laws into a single code, has been referred to a parliamentary standing committee for detailed examination. If enacted, it could mark one of the most significant regulatory reforms in India’s financial markets in decades.

One law to replace three

The SMC Bill aims to subsume the Securities Contracts (Regulation) Act, 1956, the SEBI Act, 1992, and the Depositories Act, 1996 into a unified legal framework. According to the government, this consolidation is intended to remove overlaps, improve regulatory clarity, and align India’s capital markets with global best practices.

Eight-year limit on inspections and investigations

One of the most debated provisions of the Bill is the introduction of a statutory time limit on SEBI’s enforcement actions. Under the proposed framework, SEBI will not be permitted to initiate inspections or investigations if the underlying cause of action is more than eight years old at the time of issuing the order.

An exception has been carved out for cases with systemic or widespread market impact, where the regulator may still step in. Market participants say this change could bring long-awaited certainty to legacy transactions that have remained under scrutiny for years.

Time-bound investigations and interim orders

The Bill introduces a structured enforcement timeline aimed at improving efficiency and accountability. Key features include:

• A mandatory 180-day period for SEBI to complete investigations
• Written justification required for any delay
• Extensions subject to approval by a whole-time member of SEBI

Interim orders issued by the regulator will also have a defined lifespan of 180 days. In exceptional circumstances—such as ongoing court proceedings—these orders may be extended, but only up to a maximum of two years.

Relief for long-pending cases

Officials and legal experts suggest that the eight-year cap could provide significant relief to institutions and intermediaries facing prolonged regulatory uncertainty over older matters. By preventing open-ended scrutiny, the provision is expected to improve ease of doing business and enhance confidence in India’s regulatory environment.

Reshaping SEBI’s financial structure

The SMC Bill also proposes changes to how SEBI manages its finances. Under the new framework:

• SEBI must allocate 25% of its annual surplus to a dedicated reserve fund
• The reserve will be used exclusively for the regulator’s operational expenses
• The remaining surplus will be transferred to the Consolidated Fund of India

SEBI’s current general fund is estimated to be in the range of ₹3,000–4,000 crore, making this a significant shift in financial governance.

Ombudsman-led investor grievance redressal

To strengthen investor protection, the Bill introduces an Ombudsman-based grievance redressal mechanism. SEBI will be authorised to appoint one or more of its officers as Ombudsman to handle investor complaints, examine disputes, and facilitate resolution.

This mechanism will operate alongside existing platforms such as SCORES and the Online Dispute Resolution (ODR) system, potentially adding another layer to the grievance-handling process.

Concerns over tribunal workload

Under the proposed structure, investors must first approach the internal grievance redressal system of the concerned entity and wait for 180 days. If unresolved, complaints can be escalated to the Ombudsman within 30 days.

Stakeholders have cautioned that a backlog of unresolved complaints at the SCORES and ODR levels could eventually funnel into the Ombudsman system. If Ombudsman decisions are subsequently challenged before the Securities Appellate Tribunal (SAT), it may significantly increase the tribunal’s caseload.

Does the Bill weaken SEBI?

A central question surrounding the SMC Bill is whether it curtails SEBI’s authority. Regulatory experts largely argue that the Bill does not dilute the regulator’s powers but places them within clearer statutory boundaries. By introducing timelines, defined limits, and structured oversight, the law aims to improve transparency and predictability without compromising SEBI’s ability to act in cases of serious or systemic misconduct.

If passed, the SMC Bill 2025 could reshape India’s capital market regulation by balancing stronger investor protection with greater regulatory certainty—an outcome policymakers hope will deepen trust in the country’s financial markets.