Comments on the Securities Market Code Bill, 2025

by Natasha Aggarwal, Pratik Datta, K. P. Krishnan, Bhavin Patel, M. S. Sahoo, Renuka Sane, Ajay Shah and Bhargavi Zaveri-Shah.

Finance is the brain of the economy. It dictates allocative efficiency. The financial system chooses which industries and firms receive capital. This efficiency determines the extent to which investment translates into GDP growth. Getting finance right is critical. The prioritisation of financial reform must be absolute.

The Securities Market Code Bill, 2025 (SMC) marks a substantial advance over the existing Securities and Exchange Board of India Act, 1992, particularly in strengthening governance arrangements and formalising the processes of regulation-making. Importantly, it makes a serious attempt to end the ''circular raj'' by confining the issuance of subsidiary instruments to the Chairperson or senior members of the Board, rather than dispersed internal authorities. Further, it has introduced timelines for investigations and attempted to separate the investigation function from the adjudication function, making the first effort towards a clearer separation of powers. That said, the SMC can make further strides if it focuses on the issues described below.

We now address the issues in relation to specific provisions drafted within the current SMC.

Separation of powers

The SMC raises three related concerns, which demonstrate a concentration of powers at SEBI.

Issue 1: Excessive delegation of essential legislative functions

Clause 96 prescribes imprisonment, a fine, or both as penalties for market abuse (an offence defined under Clause 93). However, Clause 93 also grants the regulatory authority to define new offences within the 'market abuse' category, which would carry the same criminal sanctions. This raises concerns around excessive delegation: the identification of criminal offences is a core legislative function and cannot be delegated. Moreover, such excessive delegation is subject to being struck down in judicial review.

Issue 2: Regulation-making on adjudication

Clause 146(2)(j), read with Clause 17(4), permits SEBI to make regulations on the manner of conducting adjudication proceedings. This should not be done by SEBI itself. SEBI is the agent, and the Parliament is the principal. The Parliament must define the checks and balances on the coercive power of the agent. Otherwise, the agent always has incentives to appropriate more arbitrary power.

Issue 3: Ineffective separation of investigative and adjudicatory functions

Clauses 17 and 27 introduce limited separation of investigative and adjudicatory functions for specific matters. Investigation is an executive function, and adjudication is a quasi-judicial function. A conflation of these two functions in the same individual raises concerns about the separation of powers.

In summary, there is no clear separation of power between the three functions of the regulator. The same regulator is empowered to define the scope of violations and offences, investigate them, enforce them, adjudicate upon them, and impose sanctions for their violations, all under regulations of its own design. This combination blurs the distinction between legislative, executive, and adjudicatory functions and concentrates powers in the same persons.

Proposal:

Remove Clauses 17(4), 92(f), 93(g), and 146(2)(j) from the SMC. Implement strong structural separation between the investigative and adjudicatory functions. One way to do this is to create a distinct career track for adjudicatory officers as Administrative Law Officers (ALO). One SEBI board member should also be designated as an Administrative Law Member, who oversees the functions of ALOs. These officers should be solely responsible for adjudication and must have no involvement in investigative or quasi-legislative functions. Introduce extraordinary safeguards to mandate arm's length operation between investigation and adjudication.

Timelines for investigation and adjudication

Issue: Clauses 13, 16, and 27 introduce timelines for investigation and interim orders. However, provisos allow these timelines to be extended (Clause 27(4), proviso to Clause 13(2)). Additionally, the SMC specifies no timelines for the completion of adjudication proceedings. This allows investigations and adjudications to continue indefinitely, rendering the statutory limits ineffective.

Proposal: Remove the power to extend timelines for investigation. If extensions are retained, mandate the publication of written reasons, subject to mandatory review by the SEBI governing board. Introduce a strict statutory timeline for the conclusion of adjudicatory proceedings. These timelines should be part of the Parliament-specified regulations on the manner of conducting adjudication proceedings that we recommend in our preceding suggestions.

Methodology for calculating unlawful gains

Issue: The SMC requires the determination of unlawful gains by an investigating officer under Clause 13(3), but provides no calculation methodology. This virtually guarantees arbitrary and inconsistent determinations. It defeats the rule of law.

Proposal: Codify standard methods or guidelines for calculating unlawful gains within the SMC. Operationalise these through detailed regulations. Reference the Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024, as a baseline.

Sanction determination factors

Issue: The SMC lists factors for adjudicating officers to consider while imposing sanctions. Some mirror Section 15J of the SEBI Act, which are unimplementable in practice. Terms like 'impact of the default or contravention on the integrity of the securities markets' (Clause 19(b)(v)) lack precision and invite arbitrariness.

Proposal: Base sanctions strictly on the quantifiable extent of harm caused to specific persons. Codify this methodology. Alternatively, publish binding guidelines detailing specific aggravating and mitigating factors, expanding upon the approach in the SEBI (Settlement Proceedings) Regulations 2018.

Criminal enforcement

Issue: The SMC retains criminal liability, including imprisonment, for some offences. Establishing guilt in Indian criminal law requires proof beyond a reasonable doubt, typically coupled with the requirement to establish intention. This is an inefficient tool for complex financial markets. The boundary between aggressive trading and market manipulation is thin. The threat of criminal sanctions deters contrarian strategies. This reduces market liquidity and harms price discovery. Traditional fraud is adequately covered by the Bharatiya Nyaya Sanhita.

Proposal: Remove all criminal liabilities. Structure sanctions as punitive civil penalties or restorative remedies, scaling to a multiple of the illicit gains. Retain debarment for systemic misconduct.

Power to issue directions

Issue: Clause 23 vests SEBI with open-ended direction-making powers. Moreover, the requirement to record reasons in writing (currently included in Section 11(4) of the SEBI Act) has not been included in Clause 23.

Proposal: Delete Clause 23. Confine non-penal measures to specific, narrowly defined statutory triggers (e.g., immediate asset freezing powers under strict procedural safeguards). All adjudicatory actions must be justified by reasons in writing.

Nominee directors on the SEBI board

Issue: The SMC retains government nominee directors on the SEBI board. Nominee directors prioritise the perspective of their parent departments over market efficiency. They exercise disproportionate influence. Inter-agency coordination should not occur via board representation.

Proposal: Appoint mid-career professionals for fixed terms until a mandatory retirement age. Bind them statutorily to SEBI's specific objectives. Address inter-agency concerns externally through the Financial Stability and Development Council (FSDC).

Commodities markets

Issue: Clause 49 empowers the government to determine commodities eligible for trading. The market must decide which commodities warrant hedging instruments. State determination of eligible commodities is equivalent to the government deciding which firm is permitted to issue equity.

Proposal: Delete Clause 49. Empower SEBI to draft regulations defining objective eligibility criteria for commodity derivatives, identical to the framework for eligible scrips.

Ombudsperson

Issue: Clause 73 empowers SEBI to designate an Ombudsperson. This creates a conflict of interest. The SMC lacks an appeals mechanism for decisions made by the Ombudsperson.

Proposal: Mandate statutory independence for the Ombudsperson. Ensure job security separate from SEBI management. Define a clear appellate process.

Exemptions for PSUs

Issue: Clause 65(2) empowers the Central Government to exempt listed public sector companies from listing and disclosure requirements. This violates Article 14 of the Constitution. State-owned enterprises must face the identical market discipline applied to private enterprises.

Proposal: Delete Clause 65(2). Mandate equal treatment for all market participants.

References

Natasha Aggarwal and others, "'Balancing Power and Accountability: An Evaluation of SEBI's Adjudication of Insider Trading'" (Working Papers, TrustBridge Rule of Law Foundation, 2025).

In Re: The Delhi Laws Act, 1912 (AIR 1951 SC 332).

M S Sahoo and V Anantha Nageswaran, 'Regulatory architecture 2.0: Securities Markets Code marks a decisive shift' (Business Standard, 25 December 2025).

M.S. Sahoo and Sumit Agrawal, "Reimagining SEBI's Consent Settlement Framework" (Chartered Secretary, January 2026).

C.K. Takwani, Lectures on Administrative Law (7th edition, 2023) at page 100.

Bhargavi Zaveri-Shah, 'SEBI does not need unlimited powers – here's what's wrong with the Securities Markets Code' (ThePrint, 5 January 2026).

Bhargavi Zaveri-Shah and Harsh Vardhan, 'Ghost of the Commodities Controller—why India's new financial law feels like the 1970s' (ThePrint, 19 January 2026).

Are all regulators equal? The Supreme Court doesn't think so

by Chitrakshi Jain and Bhavin Patel.

Introduction

The judiciary has played a very important role in the development of the regulatory state in India. Thiruvengadam and Joshi (2013) argue that this is dissimilar to the evolution of the regulatory state in the global North, where courts have been marginal actors. In contrast, the Indian Supreme Court, they reveal, has on multiple occasions mediated conflicts that arose during the reform of telecom regulation and in this process imparted institutional credibility to the sectoral regulator. Consequently, the Supreme Court's role in designing the regulatory state should be studied more closely. In this article, we examine the implications of select Supreme Court decisions which shape the characterisation of regulators' functions and their appellatory rights.

It bears repeating that regulators in India accumulate executive, legislative, and quasi-judicial functions. This accumulation of functions combined with ambiguous laws that outline the powers of regulators has led to a scenario where the courts have been asked to clarify the character and nature of functions and the corresponding appellate remedies.

Regulators in India are not similarly situated vis-a-vis the powers that they have been bestowed with. This complicates matters even further. In the case of utilities, regulators are tasked with the crucial function of determining tariffs (amongst others). The allocation of this function to regulators was critical in ensuring that these sectors are depoliticised, for state governments perceivably manipulate rational determination of tariff to advance their political interests. Regulators are instead expected to rely on their expert knowledge and make tariff determination a rational and efficient exercise which protects consumer interest.

In three decisions, PTC v CERC (2010), GRIDCO v Western Electricity Supply Company of Orissa Ltd and Ors. (2023), and AERA v Delhi International Airport Ltd. (2024), the Supreme Court has been asked to rule on the nature of tariff determination in regulators, especially the various Electricity Regulatory Commissions (ERCs). In this article, we examine how these decisions have shaped regulatory practices and study whether the interventions by the Supreme Court have:

1. been consistent in identifying the nature of tariff determination across regulators;
2. led to inconsistency in the substantive appellate rights of regulated entities in sectors governed by different regulators.

We first outline the reasoning from the recent decisions of the Supreme Court on tariff determination. We proceed to identify the challenges they create for the development of regulatory theory in India generally. Lastly, we conclude with the suggestion to legislate based on principles that should apply uniformly across regulators.

Judicial decisions

The PTC, GRIDCO, and AERA decisions have a bearing on the following issues:

1. What is the nature of tariff determination? Is it a quasi-judicial function?
2. Can a regulator prefer an appeal against an adverse appellate order which modified or overruled the regulator's tariff order?

In PTC, the Supreme Court was asked to clarify whether APTEL has the power of judicial review and the authority to decide on the validity of regulations made by the Central Electricity Regulatory Commission (CERC). In the course of its reasoning, the Court observed that tariff determination, while being legislative in character, is made quasi-judicial in the context of the CERC because the Electricity Act, 2003 (Electricity Act) has made tariff orders appealable to APTEL. The judgment was rendered by a constitution bench (5 judge) of the Court and limited the scope of its application to the statutory scheme in the Electricity Act. This has not stopped parties from invoking the reasoning given in PTC in matters where other regulators are involved. For example, counsels for Delhi International Airport Ltd., in AERA placed reliance on PTC to argue that tariff determination is a quasi-judicial function.

In GRIDCO, a division bench of the Supreme Court developed upon the reasoning in PTC (that tariff determination is a quasi-judicial function) and extended it to argue that it would be improper for regulators to prefer appeals against orders of the APTEL to the Supreme Court. While the Court did not sufficiently explain its reasoning, it implies that regulators cannot be parties to appeals against orders which are passed while discharging a quasi-judicial function.

Finally, in AERA, a full bench of the Court clarified the law on impleadment of regulators as parties in appeals. It held that while an authority discharging a quasi-judicial function should not be impleaded as a party to an appeal, such an authority must be impleaded as a respondent in an appeal against its order if it was issued in exercise of its regulatory role or if its participation can further effective adjudication. The Court said that the PTC judgment should be treated as authoritative only to argue that classifying tariff determination as legislative or an adjudicatory function should depend on the statute which distributes the powers to the relevant authority. To hold that AERA is allowed to appeal, the Court after reading the statute argues that tariff determination for aeronautical services is a 'regulatory' function.

Collectively read, these judgments fall short of clearly articulating an objective criteria for demarcating the different functions exercised by regulators. Consequently, these determinations have to be located in the laws that create each individual regulator, and post facto by judicial interpretation. The lack of a well-defined objective criteria for identification of different functions has serious implications for Indian regulatory theory.

Problems for regulatory theory

These cases raise three major problems for Indian regulatory theory:

SRAs are treated differently

While PTC and GRIDCO hold that tariff determination by ERCs is a quasi-judicial function, AERA holds that a similar exercise by the regulator would be a 'regulatory' function. All three cases rely on interpretations of the SRAs' parent statutes to arrive at this conclusion. The judicial discussion hinges on points such as whether the statute provides an appellate mechanism against tariff determination orders. But this does not answer the question of what the core characteristics of quasi-judicial or regulatory functions are. This is ad hoc and intricate statutory interpretation which does not illuminate any underlying principles of Indian regulatory jurisprudence.

While GRIDCO casts doubts on an ERC's ability to file an appeal against an adverse APTEL order on an appeal from its quasi-judicial orders (which, as we have noted above, include tariff determination orders), AERA can file appeals against TDSAT orders arising out of its tariff determination orders. This creates an arbitrary distinction between these two SRAs. The court decisions turn on intricate statutory interpretation, but do not tell us anything about the distinguishing features of the underlying nature of tariff determination at these two SRAs.

No ex ante certainty on nature and appealability of orders

Since no clear rules emerge from these decisions regarding how to distinguish between quasi-judicial and regulatory orders, or whether SRAs can file appeals against adverse appellate tribunal decisions in appeals against their quasi-judicial orders, there is no clarity on these points as regards other SRAs. Whether a particular order passed by an SRA is quasi-judicial or regulatory, or whether it can file an appeal to defend such orders, has to be decided on a case-by-case basis. The answers to these questions can only obtain certainty when the Court pronounces on them.

This means that there is no ex ante conclusive answer to these questions in Indian regulatory jurisprudence. SRAs, regulated entities, and other concerned parties have a tough enough job navigating the maze of Indian regulatory case law as matters stand - they do not need the added uncertainty created by these decisions to make things worse. It is also deeply concerning that fundamental questions about character of functions and right to appeal are being decided decades after these laws were enacted.

The lack of ex ante clarity on these matters also complicates the job of the appellate tribunals, who have to justify choosing between precedents that are not consistent with each other. For example, very recently APTEL had to carefully navigate its way through PTC, GRIDCO and AERA to justify placing reliance on AERA and argue that tariff orders are also legislative and regulatory in character and that regulators should be allowed to defend their orders.

APTEL becomes the final authority on tariff determination

Tariff determination is delegated to ERCs via legislative mandate. The reasons traditionally offered for this include sectoral expertise and independence from the political executive. In addition, we may note that ERCs are much closer to the ground, as it were, and have (or should have) access to much more information about factors for tariff determination. As such it is ERCs, and nobody else, who should determine tariffs.

But if an ERC passes a tariff determination order, and APTEL sets it aside or modifies it, then the ERC cannot file a second appeal before the Supreme Court, even when they are the only contesting parties. This effectively means that APTEL's decision on tariff determination automatically trumps the decision of the expert body specifically identified by Parliament to take such decisions. Additionally, if APTEL makes an erroneous decision, the possibility of it being corrected is diluted unless regulated entities challenge it before the Supreme Court.

This amounts to an egregious violation of the principle of separation of powers across Parliament and the judiciary.

Conclusion

The problems identified above all point to the need for a better theory of institutional design for Indian regulators. One can take the view that this is still a relatively new area of Indian jurisprudence, since regulators are (other than the RBI) a fairly modern addition to the structure of the Indian government. That said, the ERCs were created in 1998, and it has been 28 years since. Similarly, it has now been well over three decades that SEBI was established, and over a quarter of a century since TRAI was set up. Surely enough jurisprudential mileage has been accumulated now to warrant some stock-taking:

1. We need a clear articulation of the different types of functions that regulators may discharge, and a categorisation of these functions into the three broad heads of executive, quasi-legislative, and quasi-judicial. Such a theoretical categorisation is necessary because judicial interpretation has led to varying, ad hoc categorisation across SRAs. Without a strong justification - which cannot be based on statutory hair-splitting - this is arbitrary, since it means that regulated entities in different sectors are treated differently. Calling a function 'quasi-judicial' means something: appellate rights exist, and certain judicial procedures have to be followed in discharging them; calling it 'executive' means limited grounds of judicial review are available through writ proceedings, and fewer procedural safeguards apply.
2. The Tinbergen Rule may help here - for each policy target a regulator is expected to influence (tariffs, enforcing regulation, contractual disputes, etc.), they must use a distinct instrument. This way each policy target stands a better chance of being achieved, and no conflicts arise from attempts to use the same instrument to achieve multiple targets. Law makers will have to think harder about the specific targets they want regulators to achieve, and for each, describe the instrument they must use. This legislative prophylaxis eliminates the risk of contradictory judicial interpretations later.
3. Pertinently, in its 31st report, the Parliamentary Standing Committee on Energy reviewed the Electricity Bill 2002 and acknowledged that assigning all the three functions to the same institution can create challenges and had asked for a reconsideration of the clauses assigning functions to the regulators. It is unclear whether a careful examination of the relevant provisions has since been undertaken; however, the implications of not delineating the functions in the statute itself can be seen in the repeated litigations before the courts.
4. Tariff rationalisation is listed as an objective in the long title of the Act. Regulators have expertise and independence from the executive, hence they are entrusted with such functions in infrastructure industries like electricity. Regulators are also obliged to ensure costs are efficiently allocated and consumer interest is protected at the same time. If we expect regulators to be accountable, they should also have the right to defend their decisions on tariff determination in a second appeal; not allowing this prevents them from discharging their function effectively.
5. Given the need for a uniform theory across regulators, and the need to avoid ex post determination through the judicial machinery, the categorisation of functions we propose should be done through a statutory instrument. The American Administrative Procedure Act is one example of how this can be done. It is possible that new functions emerge with changing circumstances; these can be addressed through amendment, rather than judicial review.

These measures will help achieve the goals of uniformity across regulators, non-arbitrariness in classification of functions, and greater certainty and predictability for regulated entities. The current proliferation of judicially-determined, ad hoc rules is undesirable, and helps with none of these objectives.

References

Judiciaries as Crucial Actors in Regulatory Systems of the Global South: The Indian Judiciary and Telecom Regulation (1991-2012) by Arun K Thiruvengadam and Piyush Joshi [2013] Oxford University Press.

Electricity Tariffs by Javier Reneses, María Pía Rodríguez and Ignacio J.P. Arriaga [2013] Springer.

Chitrakshi Jain and Bhavin Patel are researchers at the TrustBridge Rule of Law Foundation and would like to thank Renuka Sane and Ajay Shah for useful feedback.

Can technology augment order writing capacity at regulators?

by Natasha Aggarwal, Satyavrat Bondre, Amrutha Desikan, Bhavin Patel and Dipyaman Sanyal.

Indian regulators have extensive quasi-judicial powers that they express through adjudicatory orders. It is critical that these powers are exercised in a proportionate, legitimate, and well-reasoned manner, as they not only impact the persons directly involved, but also the wider ecosystem in which they operate. Arbitrary actions, unsubstantiated by clearly articulated reasoning, can raise serious concerns around the legitimacy of regulatory actions and lead to a loss of confidence in the regulator. Such actions may also be set aside by appellate and review fora. Clearly written, well-researched, and reasoned orders help provide clarity, predictability, and knowability of the law, which are key indicators of a rule of law system (Aggarwal, Patel and Singh, 2025). Our study of the state of Indian regulatory order writing shows there is room for improvement in this regard.

We notice a growing interest in the use of Generative Artificial Intelligence (Gen AI) to resolve procedural inefficiencies at quasi-judicial and judicial authorities in India (Supreme Court Committee on AI, 2025; Kerala High Court, 2025), coupled with concerns around the potential dangers of using such technologies without adequate safeguards. Against this background, in a new working paper titled, 'Can technology augment order writing capacity at regulators?' we critically examine the opportunities and challenges of using technology, in particular Large Language Models (LLMs), to assist regulatory order writing in quasi-judicial settings.

The paper proposes augmenting rather than replacing human decision-makers, aiming to improve regulatory order writing practice through responsible use of LLMs. It identifies the core principles of administrative law that must be upheld in these settings - such as application of mind, reasoned orders, non-arbitrariness, rules against bias, and transparency - and analyses how inherent limitations of LLMs, including their probabilistic reasoning, opacity, potential for bias, confabulation, and lack of metacognition, may undermine these principles.

While the available Indian literature on the topic focuses largely on these limitations, and on critiquing proposals based on an over-reliance on technocratic means to improve state capacity, this paper's contribution lies in its integrative work: we draw upon the design principles articulated in frameworks developed in other jurisdictions and relate them to the applicable principles of Indian administrative law. We use this synthesis to develop a Problem-Solution-Evaluation (PSE) framework that is attentive to international practice, the legal principles underpinning quasi-judicial decision-making in India, and problems and limitations inherent to GenAI and LLMs.

The PSE framework proposed in the paper maps specific technical, design, and systemic solutions to each identified risk, and outlines evaluation strategies - end-to-end, component-wise, human-in-the-loop, and automated - to ensure ongoing alignment with legal standards. An overview of the framework is set out in the table below:

Table 1: Applying the Problem-Solution-Evaluation framework. This table illustrates how the PSE framework can be operationalised to align the design, development and use of LLMs for order writing assistance with the requirements of Applicable Law.

Problem	Applicable law	Solution	Evaluation
Non-application of mind	Non-application of mind; Failure to provide reasons; Arbitrariness	Interface Checkpoints; Confidence Score Display; Dual-Prompt Pipelines; Functionality Limitation; Constraint Enforcement; Workflow Design for; Review Role-Based Access	Edit Rate; Turnaround Time (TAT); Prompt Divergence Rate; Coherence Score
Black-box problem	Failure to provide reasons; Transparency	Chain-of-thought prompting; Input Token Influence Identification Symbolic Reasoning Systems Traceability tools; Visualisation; Simplified model explanations	Clarity rating; Audit Trail Incidence Document Traceability Rate
Potential for bias	Rules against bias; Arbitrariness	Data Preprocessing; Bias penalisation; Domain-specific content filters; Automated Bias Flagging Tools; Establishment of Legal Fairness Criteria; Mandatory Periodic Benchmarking	Bias Flag Rate Override Percentage; Fairness Benchmark Scores
Confabulation problem	Non-application of mind; Failure to provide reasons; Arbitrariness	Retrieval Augmented Generation; Post-Generation Verification; Legal Knowledge Graph Integration; Mandatory reviewer verification; Watermarking for traceability; Communicate technical limitations	Secondary LLM ''Judge'' for Fact-Checking; End-to-End Evaluation Tools Hallucination Rate; Retrieval Precision@k/ MRR NLI Coherence Checks; Self-Consistency Rate
Lack of metacognition	Non-application of mind; Arbitrariness	Prompt engineering; LLM as a judge; Iterative improvement from feedback	Closeness Metric; Human evaluation on overconfidence in output
Training corpus	NA	Adaptive Scraping Frameworks; Sector-specific pre-training; Structured Entity; Extraction and Legal Knowledge Graphs; Isolated Model Containers; Source inclusion; Perplexity tracking; Legal Retrieval Benchmarking; Curate sector-specific legal databases	Crawl coverage; OCR Error Reduction; Validation perplexity; Retrieval lift
Data security and privacy	NA	Stringent access control; Synthetic supervision-based PII detectors; NLP filters for information masking; Isolated Model Containers; On-premise infrastructure	Unauthorised access attempts; Mean Time To Remediation (MTTR); Penetration Test Pass Rate; PII Detection Accuracy

By itself the framework may be insufficient. It must be supplemented with systemic measures taken at the regulatory level. We offer stage-wise recommendations on how LLM-based order review tools can be built for and used in regulatory adjudication.

References

Natasha Aggarwal, Bhavin Patel, and Karan Singh, "A Guide to Writing Good Regulatory Orders" [2025] Trustbridge Rule of Law Foundation Working Papers.

Anurag Bhaskar and others, "White Paper on Artificial Intelligence and Judiciary" Centre for Research and Planning, Supreme Court of India, 2025.

High Court of Kerala, "Policy Regarding the Use of Artificial Intelligence (AI) Tools in District Judiciary" Official Memorandum HCKL/7490/2025-DI-3-HC Kerala, 2025.

Natasha Aggarwal, Amrutha Desikan and Bhavin Patel are researchers at the TrustBridge Rule of Law Foundation. Satyavrat Bondre and Dipyaman Sanyal work on AI and technology at dōnō consulting.

Return to sender: The misuse of remand orders by appellate tribunals

by Natasha Aggarwal and Bhavin Patel.

Appellate tribunals were established to ensure speedy and expert adjudication of appeals from regulators' orders. A defining feature of their institutional design is the inclusion of both judicial and technical members. Judicial members possess legal training and skills and can ensure the application of, and compliance with, judicial principles, such as the principles of natural justice. Technical members are expected to bring sector-specific knowledge relevant to the domain of the tribunal's work. As such, tribunals are 'expert' bodies that are well-equipped to provide speedy and efficient resolution and it would be incorrect to assume that they lack the technical expertise necessary to decide a matter on merits.

However, tribunals in India frequently remand matters to regulators. Our analysis of 764 cases disposed of by the Securities Appellate Tribunal (SAT) from 2009 - 23 reveals that 76 cases (10%) resulted in a remand (Aggarwal and others, 2025). Further, our analysis of 919 cases disposed of by the the Appellate Tribunal for Electricity (APTEL) from 2013 - 22 reveals that 200 cases (21.7%) resulted in a remand (Jain, Patel and Sane, 2025). The fact that one in ten instances before the SAT and a staggering one in five instances before the APTEL are remanded is a matter of concern. Remands result in additional time and resources being spent on resolving a matter, since the dispute is first heard by the regulator, then in challenge by the tribunal, and then, once again by the regulator. Therefore, it is important to study the reasons provided by the tribunal when it remands a matter.

In a recent paper, titled "Return to sender: The misuse of remand orders by appellate tribunals", we study orders issued by the SAT and the APTEL in 2024, evaluate the instances in which the SAT and the APTEL remanded matters, and examine whether these remands are consistent with recognised legal principles regarding when a remand may be ordered. The paper was also included in Daksh's "The State of Tribunals Report", which was released on 25 September 2025.

Our paper addresses three questions:

• What costs do remands impose on the parties and the adjudicatory infrastructure of regulators?

  Our examination of two matters, one originating at SEBI and the other originating at the Kerala Electricity Regulatory Commission, shows that remands cause delays that span up to 14 years. This defeats one of the primary reasons for establishing tribunals, that is, to ensure speedy justice.

• What reasons does the law recognise as valid for remands by tribunals?

  Our earlier studies demonstrate frequent remands by SAT and APTEL. Indian law circumscribes the instances in which courts may order remands. These boundaries are set in the Code of Civil Procedure, 1908 (CPC) and in judicial decisions of superior courts. The CPC, parent statutes that establish tribunals, and rules of procedure framed by tribunals for themselves do not, however, clearly identify when tribunals may remand matters. There is limited guidance on this in superior court decisions. We argue that the reasons for which courts can order remands should also limit the discretion of tribunals in remanding matters. We call these reasons "Permissible Reasons" for remand, and classify any other reasons provided by tribunals when remanding matters as "Other Reasons".

• How many matters were remanded by SAT and APTEL in 2024? What reasons were provided? Are the reasons permissible under law?

  We study the orders of SAT and APTEL for 2024, in which there are 13/228 (5.7%) remands ordered by SAT and 28/171 (16.4%) remands ordered by APTEL. We find that the SAT ordered a remand for Permissible Reasons in 21 appeals and for Other Reasons in four appeals. The APTEL remanded the matter for Permissible Reasons in 26 appeals and for Other Reasons in 37 appeals.

We find that remands are often ordered for reasons that are not included in the CPC and applicable common law. Unnecessary remands add time and cost to regulatory proceedings. They undermine investor confidence in regulated sectors, since it is difficult to take business decisions in the face of uncertainty about whether a regulator's orders will have to be reconsidered and modified. This also adversely affects the rule of law requirements of predicability and certainty in regulatory proceedings.

There may be several ways to reduce this problem, including, possibly, by improving order writing practices at the regulators whose orders are challenged in appeal before tribunals. We suggest that it is also useful to consider how this problem can be addressed at tribunals, and therefore recommend that:

• Clear rules determining the scope of the power of ordering a remand should be made applicable to all tribunals. These rules should apply in a consistent manner across tribunals, rather than being framed by each tribunal for itself. This will help ensure consistency and predictability, and limit the discretion of tribunals in this matter.
• These rules should be incorporated in the parent statutes of tribunals.
• In the absence of any reason to deviate from the rules on remand provided in the CPC and applicable common law, the scope of remanding power for tribunals should be the same as that available to courts.

Providing this clarity would help avoid unnecessary and unreasonable orders of remand, and help ensure that the core rule of law principles of consistency, predictability, and clarity are satisfied in the procedural aspects of the functioning of tribunals.

References

Natasha Aggarwal, Amol Kulkarni, Bhavin Patel, Sonam Patel, and Renuka Sane, "Balancing Power and Accountability: An Evaluation of SEBI's Adjudication of Insider Trading" [2025] (13) Trustbridge Rule of Law Foundation Working Papers.

Chitrakshi Jain, Bhavin Patel, and Renuka Sane, "Examining the performance of ERCs at APTEL" [2025] The Leap Blog.

The authors are researchers at the TrustBridge Rule of Law Foundation.

Examining the performance of ERCs at APTEL

by Chitrakshi Jain, Bhavin Patel, and Renuka Sane.

Introduction

The efficiency of the State Electricity Regulatory Commissions (SERC)s, the Central Electricity Regulatory Commission (CERC) and the Joint Electricity Regulatory Commission (JERC) influence investability and growth of the electricity sector. For example, it costs regulated entities time and resources to petition the relevant ERC for decisions and potentially, to challenge decisions taken by the ERC at the appellate tribunal (APTEL), which exercises supervisory control over the ERCs and reviews their decision-making.

This article studies how ERC decisions perform at APTEL. We collect information about aspects of the ERCs' functioning from the text of orders passed by APTEL. This helps us (a) identify the most-litigious areas across ERCs and (b) examine how the ERCs' decisions perform in appeal. We use sub-national comparative analysis to understand the variation in the functioning of the different ERCs and the litigiousness of issues in different states.

We ask the following questions:

1. Which ERCs contribute the most appeals at APTEL?
2. What are the most litigious issues at APTEL?
3. In how many appeals was the ERC's decision:
   1. Upheld, i.e. appeal was dismissed by APTEL?
   2. Partially upheld, i.e. appeal was partly allowed at APTEL?
   3. Overturned, i.e. appeal was fully allowed at APTEL?
4. How often were the ERCs ordered to reconsider their decisions, i.e. the matter was remanded?

Our results suggest that issues related to tariff determination and restructuring are the most litigated issues at APTEL across ERCs, with the exception of Maharashtra. ERCs are differently situated in their ability to defend their decisions at APTEL and in the quality and clarity of their orders. We argue that such assessments, if regularised, can assist ERCs in improving the quality and form of their decision-making by creating a feedback loop, and can also assist in identifying areas for policy reform at the sub-national level.

Methods: Data

We obtained the orders passed by APTEL between the years 2013-2022 where the ERCs are a party to the challenge before APTEL. We excluded interim orders given that they do not include the outcome of the case. We focused on ten states, including Andhra Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, and West Bengal. These were selected keeping in mind geographical coverage, size of the state, and installed renewable energy (RE) capacity in the state.

We collected information on 26 indicators from the orders, related to the following categories:

1. Time-related: e.g., date of orders, date of impugned order
2. Party-related: names of appellants, respondents
3. Bench-related: e.g., quorum, members' names
4. Subject-matter related: e.g., prayers, issues
5. Outcome-related: e.g., disposition and remand

We processed the text of the orders through LLMs, which we prompted to collect the information by placing reliance on explicit language in the text. After collecting the information for the relevant indicators, we ran verifications based on rules of legal consistency and logic to ensure that the collected information is accurate and reliable. For indicators related to outcome, we have made subjective inferences when the explicit information regarding its outcome was not articulated in the order. We have relied on individual appeals as the unit of analysis, given that outcomes are typically uniform for all parties in an order. We have integrated human verification at every stage of data collection to ensure reliability. Our final dataset consists of 513 orders and 919 appeals. The data is available here.

Methods: Issue categorisation

In order to study the issues that were being agitated before APTEL, we identified themes from the statement of issues in appeals which explicitly articulated them. There were 318 appeals (out of 919) that did not include a statement of issues. After classifying the issues thematically, we decided upon the final categories presented in Table 1 in consultation with practitioners. We ran keyword searches to sort the statement of issues into identified categories and verified the classification by reading the statements when they yielded unclear results for accuracy and reliability.

Table 1: Categorisation of Issues

Issue Category	Coverage
Tariff determination and restructuring	Challenges to tariff determination and adoption under Sections 62 and 63; inadequate attention to principles in arriving at tariff; revision of tariff and truing up.
Contractual disputes	Liquidated damages, outstanding payments, renegotiation or termination of contracts, excluding change in law and force majeure.
Change in law and force majeure	Subset of contractual disputes, relating to change in law and force majeure clauses in the contracts.
Procedural and jurisdictional	Procedural lapses, violation of principles of natural justice, challenges to ERC's jurisdiction.
Open access consumers	Wheeling and banking charges, and issues relevant to open access consumers.
Transmission and grid-related	Connectivity, ISTS and grid-related issues, including compliance with grid code.
Specific compliance with regulations	Mandatory non-tariff-related requirements for obligated entities, such as RPOs and RECs.
Captive status	Captive status of power plants or group captive power plants.
Others	Issues not falling under previous categories, e.g., distribution licensing.

Methods: Limitations

For the categorisation of issues we have relied on the statement of issues as determined by APTEL, in the instances it was explicitly identified in the order. Understandably, analysing the full text of the order will give deeper insights on the litigated questions. The outcomes, such as appeal allowed or dismissed, also do not provide information about outcomes on specific issues. This would entail reading the full orders and making subjective inferences. While the outcomes at APTEL have been used to assess the performance of ERCs, they do not measure the functioning of ERCs holistically, especially because studying the performance of APTEL is beyond the scope of this research.

Results

1. Distribution of litigation

Between the ERCs under study, Maharashtra followed by Karnataka, contribute to the most litigation at APTEL, as represented in Figure 1. These results indicate that the two states have a relatively larger private industry. However our analysis excludes writ proceedings, which are also used as a way to challenge ERC decisions. The total number of orders passed by ERCs is also not available uniformly across the ERCs to accurately calculate the rate of appeal.

Figure 1: Distribution of litigation at APTEL

2. Most litigious issues

ERCs are empowered to decide a wide range of issues. As a consequence, the issues dealt with by the APTEL in appeals are also varied. An appeal may involve more than one issue, and hence the number of issues involved is more than the number of appeals. As represented in Table 2, tariff determination and restructuring are the most litigated upon issues at APTEL across ERCs with the exception of Maharashtra. In Maharashtra, procedural and jurisdictional issues emerge as the most litigious. While the high incidence of such issues is concerning, issues of the procedural and jurisdictional variety can be resolved easily if ERCs invest in capacity building and follow the procedure under the law faithfully.

Our results corroborate the findings of an earlier study (Prayas 2018) which had found that a third of the issues being litigated before APTEL were concerned with tariff. Pertinently, the ERCs have enacted specific regulations related to tariff determination and made the calculation of tariff an exercise which is assisted by detailed delegated legislation. In this context, it is worrying that tariff continues to be the predominant category with regard to appellate litigation.

Table 2: Issue portfolio at different ERCs (Values in percentages)

State	Total Issues	Tariff related	Procedural & Jurisdictional	Contractual disputes	Specific Compliance	Change in law & force majeure	Open access	Trans-mission & grid	Captive status	Other
Maharashtra	248	26.61	32.66	2.82	3.63	3.63	6.85	4.44	16.53	2.82
Karnataka	171	30.41	26.90	22.81	1.75	2.34	6.43	6.43	0.00	2.92
Tamil Nadu	138	28.99	12.32	7.25	20.29	0.72	5.80	7.25	10.87	6.52
Punjab	96	33.33	11.46	15.62	14.58	8.33	7.29	4.17	1.04	4.17
Rajasthan	76	25.00	11.84	19.74	10.53	13.16	5.26	7.89	1.32	5.26
Madhya Pradesh	75	41.33	17.33	13.33	0.00	1.33	9.33	4.00	9.33	4.00
Andhra Pradesh	65	47.69	26.15	9.23	3.08	1.54	1.54	7.69	0.00	3.08
Uttar Pradesh	59	33.90	16.95	20.34	8.47	5.08	1.69	13.56	0.00	0.00
Odisha	49	34.69	16.33	6.12	16.33	0.00	8.16	10.20	6.12	2.04
West Bengal	29	62.07	13.79	3.45	13.79	3.45	0.00	3.45	0.00	0.00

In addition to the most litigated issues, we could also identify the states which contributed most to the litigation of a particular issue at APTEL. Maharashtra contributes the most to issues related to tariff, and procedure and jurisdiction. This outcome is also a function of Maharashtra being involved in the highest number of appeals in our dataset. The findings are presented in Table 3 below.

Table 3: Distribution of Issues

ERC which contributes most to the litigation of a particular issue at APTEL and the percentage share of their contribution

ERC	Issue	Contribution (%)
Maharashtra	Tariff related	20.1
Maharashtra	Procedural and jurisdictional	37.5
Karnataka	Contractual disputes	33
Tamil Nadu	Specific compliance with regulations	34.5

3. Outcomes

We focus on indicators related to the 'disposition' of the appeal from the information we had collected. We scored the performance of the ERCs relative to each other by making the number of decisions that were upheld, overturned or modified by APTEL as the basis of comparison. The results have been compiled in Table 4.

At an outcome level, if an ERC succeeds in defending its decisions, then it would indicate that the orders are well-reasoned, and the ERC follows the procedure under the law. A high overturn rate would indicate weak decision-making capacity.

Table 4: Dispositions at APTEL across ERCs

ERC	Allowed	Dismissed	Partly Allowed	Other	Remanded	Total
Andhra Pradesh	27	32	7	4	11	70
Karnataka	103	49	14	5	67	171
Maharashtra	92	61	31	62	35	246
Madhya Pradesh	22	17	11	8	13	58
Odisha	17	15	17	2	6	51
Punjab	18	28	22	6	13	74
Rajasthan	32	45	7	3	20	87
Tamil Nadu	22	33	19	9	20	83
Uttar Pradesh	15	26	11	5	10	57
West Bengal	4	8	6	4	5	22
Total	352	314	145	108	200	919

_{The categories "allowed", "dismissed", "partly allowed", and "other" are mutually exclusive. That is, if an appeal is allowed, it cannot be dismissed. However, the appeals that are remanded form a subset of either allowed or partly allowed.}

We find that ERCs are differently situated in their ability to defend their decisions at APTEL and the quality and clarity of their orders. Rajasthan found the most success at APTEL, Maharashtra had the least.

Typically, matters are remanded when APTEL is of the opinion that the relevant ERC did not, amongst other things, follow the procedure or frame the issues or determine question of facts sufficiently well. A high remand rate is worrying since it implies that either the ERCs in question are ill-equipped to resolve disputes in the first instance or that APTEL, unless it has insufficient evidence to make the decision, is abdicating its mandate.

Remands lengthen the resolution of disputes and burden regulated entities with legal and compliance costs. This can stymie the growth of the electricity sector, especially in states like Karnataka, for KERC has been asked to reconsider most number of its decisions when compared to other ERCs.

Recommendations

Both APTEL and ERCs are empowered to implement these recommendations.

1. Regularise assessments through use of emerging technologies

We recommend that such comparative assessment exercises be regularised through the use of emerging technologies. The composition of ERCs is constantly changing, and members would benefit from information about the performance of their decisions at APTEL closer to the date of the decisions. This can be made possible by creating a customised tool that leverages LLMs and the competence of researchers and practitioners familiar with the sector.

2. Publish granular statistics

APTEL can improve upon the collection and publication of litigation statistics and include the subject matter of litigation and the relevant laws that are under litigation, amongst other categories, in this exercise. Similarly, while some ERCs publish the number of orders they hear and decide annually, they can include more relevant details in this publication and also publish these at shorter intervals. Collecting this data at source would make the identification of litigious issues, which are often proxies for policy problems, easier.

3. Identify areas for policy reform

ERCs should study the precise reasons for disputes that correspond with the litigious issue categories in their states and respond by changing and adapting their regulations to minimise them. The persistence of tariff as the most litigious category is concerning, given that detailed regulations on calculation and imposition of tariff have been enacted by the regulators.

Conclusion

In summary, we find that:

• Between the ERCs under study, Maharashtra, followed by Karnataka, together contribute to the most litigation at APTEL.
• Issues related to tariff determination and restructuring are the most litigated issues at APTEL across ERCs. This is worrisome given the detailed subordinate legislation that govern the regulation of retail and other categories of tariff.
• ERCs are differently situated in their ability to defend their decisions at APTEL and the quality and clarity of their orders. We find that Rajasthan found the most success at APTEL, while Maharashtra had the least.
• Remands lengthen the resolution of disputes and burden regulated entities with legal and compliance costs. This can stymie the growth of the electricity sector, especially in states like Karnataka, since KERC has been asked to reconsider the most number of its decisions when compared to other ERCs.

References

Amicus Populi? A public interest review of the Appellate Tribunal for Electricity , by Vaishnava S, Chitnis A and Dixit S, 2018, Prayas Energy Group

The authors are researchers at TrustBridge Rule of Law Foundation. They would like to acknowledge and thank Natasha Aggarwal, Madhav Goel, Abhinav Hansaraman, Amol Kulkarni, Praduta Singh, Aparna Jha, Varun Soni, Gaurav Aswani, Tarang Rathi and Sumedh Gadham for compiling, collecting, and verifying the data used in our analysis. We would also like to thank Upasa Borah for helping with verifying, cleaning, and consolidating the dataset.

Author: Bhavin Patel

Bhavin Patel is a Researcher at TrustBridge Rule of Law Foundation, New Delhi.

On this blog:

• Comments on the Securities Market Code Bill, 2025, 1 April 2026.
• Can technology augment order writing capacity at regulators?, 14 December 2025.
• Return to sender: The misuse of remand orders by appellate tribunals, 2 October 2025.
• Examining the performance of ERCs at APTEL, 27 July 2025.
• Balancing Power and Accountability: An Evaluation of SEBI's Adjudication of Insider Trading, 2 April 2025.
• A guide to writing good regulatory orders, 13 March 2025.
• Judicial overreach: Bypassing expert tribunals in the electricity sector, 9 December 2024.
• The exercise of discretionary powers: The case of debarment and restraint from capital markets, 20 July 2024.
• Concerns about recent developments on SEBI's regulation-making on market rumours and insider trading, 6 May 2024.
• Assessing regulatory capability in Tamil Nadu electricity regulation: Evidence from appeals, 26 April 2024.

Balancing Power and Accountability: An Evaluation of SEBI's Adjudication of Insider Trading

by Natasha Aggarwal, Amol Kulkarni, Bhavin Patel, Sonam Patel, and Renuka Sane.

Insider trading is considered to undermine the fairness of the market and erode investor confidence. The Securities and Exchange Board of India (SEBI) has, in recent years, increased its focus on, and intensified its enforcement of, insider trading cases. Expanding enforcement actions should prompt a deeper examination of how effectively SEBI is performing this function vis-a-vis the "rule of law". Adherence to the rule of law by the regulator promotes transparency, creates a stable and predictable environment for businesses and individuals and builds public trust in the regulatory system. Regulatory actions need to be evaluated on benchmarks grounded in legal theory and the extant legal framework.

In a new working paper, Balancing Power and Accountability: An Evaluation of SEBI's adjudication of Insider Trading, we evaluate SEBI's orders on insider trading cases over a 15-year period (2009 - 23) as well as the performance on these orders in appeal before the Securities Appellate Tribunal (SAT). We develop an evaluation framework based on elements of the rule of law applicable to regulatory adjudication, with 56 indicators for SEBI orders, and 82 indicators for orders of the Securities Appellate Tribunal (SAT).

This paper addresses three critical questions:

• What do SEBI's enforcement actions look like, and how have they evolved over the years?

  SEBI's annual reports provide some broad data about the total number of enforcement actions undertaken in a year, but do not provide details of the type of enforcement actions taken for each type of violation, the particular legal or regulatory provision alleged to have been violated, or the impact of successful enforcement actions in reducing instances of insider trading.

  Our dataset comprises 320 SEBI orders - 255 orders are by Adjudicating Officers (AOs) and 65 are by Whole-Time Members (WTMs). Each order can contain cases against multiple entities - we call them alleged violators. The 320 orders contain a total of 912 alleged violators. SEBI officers have imposed sanctions on 565 of the 912 alleged violators (62% of the alleged violators). AOs and WTMs have imposed penalties in 336 cases and 82 cases respectively. The median penalty amount for AOs is about Rs. 7.8 lakh, and for WTMs is about Rs. 15 lakh. Only WTMs, and not AOs, have the power to impose debarment and disgorgement. We observed that they have imposed disgorgement in 144 cases, and debarment in 192 cases. The average disgorgement amount is Rs. 46 crore, while the median is only Rs. 1 crore. The average period of debarment is 3 years, and a median of 1 year.

  Our paper illustrates the number of insider trading orders issued between 2010 and 2022. This shows that a spike in orders on insider trading from 2017, and then again in 2019. There has been a slight drop in the number of WTM orders in 2022. This is consistent with statements in the SEBI annual reports, which suggest that insider trading has been high on the regulator's agenda.

• Are SEBI's orders consistent with the requirements of procedural and substantive rule of law requirements?

  The procedural rule of law measures are based on administrative law and natural justice principles, and deal with how SEBI has been performing in terms of procedural fairness while adjudicating insider trading matters. One aspect of procedural fairness is that the orders should include certain basic information. We find several shortcomings in providing factual information on basic rule-of-law indicators. First, several orders do not mention basic facts about the case such as the date of show cause notice (7%), period of investigation (17%), period of UPSI (27%), and a description of UPSI (20%). Second, orders do not cite precedent. We find that about 87% of orders do not cite any previous AO or WTM order. Finally, the orders do not specify the full details of the sanctions imposed. In 12% of cases where disgorgement was ordered, the time period for payment was not specified. Similarly, for both penalties and disgorgement, interest rate was not specified in a large number of cases.

  The substantive rule of law measures are based on the law relating to insider trading. These dive a bit deeper than the procedural requirements, and examine whether the orders satisfy the requirements of applicable law and regulation. For example, a key component of a good order on insider trading should be that SEBI has been able to clearly demonstrate that the violator is an insider. We find that SEBI has identified a clear insider relationship in only 335 (60%) of its orders. In the remaining 230 orders, it has described a connection in 152 (66%) orders. Describing a connection is not as clear as specifying the connection. If we were to give SEBI the benefit of the doubt and consider it as an acceptable description, even then, in 14% of the cases SEBI has failed to provide any explanation on how a person is an insider

• How do SEBI's insider trading orders stand up to challenge before the Securities Appellate Tribunal (SAT)?

  Our analysis resulted in a set of 119 cases in the SEBI and SAT datasets. These cases result in 183 appeals (32%) out of the total 565 cases with sanction. Out of these, 97 (53%) were allowed, partly allowed, or remanded, while 86 (47%) were dismissed. This suggests that once appealed there is a 50% chance that the SEBI order will not hold in appeal.

  We find that the higher the sanction, the higher the proportion of appeals. 38% of AO cases and 17% of WTM cases with a penalty amount higher than Rs. 10 lakhs resulted in an appeal, relative to 22% of AO cases and 5% of WTM cases below Rs. 10 lakh. This is more pronounced in the case of debarment and disgorgement, where appeals are present for more than half the cases with higher sanctions. We also find that it is less likely that an AO or WTM case with penalty above Rs. 10 lakh or debarment for more than one year will be modified in appeal. 79% of WTM cases involving higher disgorgement amounts and all WTM cases involving a penalty below Rs. 10 lakh were modified in appeal.

Regulatory enforcement actions are necessary to ensure that those who violate the law face consequences, and may also have a deterrent effect on others. However, there are adverse consequences if these actions emerge from a flawed process, or if the actions taken are arbitrary or disproportionate. SEBI is ahead of other Indian regulators such as the Reserve Bank of India in at least publishing its orders. An appeal rate of between 30-38%, and a win rate of 50% at the SAT could be further improved by investments in order writing, and by re-evaluating the regulations on insider trading.

The authors are researchers at the TrustBridge Rule of Law Foundation.

A guide to writing good regulatory orders

by Natasha Aggarwal, Bhavin Patel and Karan Singh.

India has several regulators that are vested with quasi-judicial powers and that play a pivotal role in economic governance. In exercising their quasi-judicial functions, regulatory orders must: (i) demonstrate compliance with the principles of natural justice, (ii) establish legitimacy by showing how they are taken strictly in accordance with, and to the extent authorised by the governing law, and (iii) be accountable, by ensuring that all the information an appellate authority may require for its evaluation of the regulatory action is clearly documented.

Regulatory orders significantly impact market participants and public trust. In particular, four sets of stakeholders are impacted by regulatory orders: (i) parties involved in the enforcement proceedings, (ii) the regulator itself, (iii) appellate and review fora, and (iv) the market and the general public. However, deficiencies in reasoning, structure, and clarity in quasi-judicial orders often undermine regulatory legitimacy and efficiency, leading to diminished stakeholder confidence. Moreover, arbitrary orders that do not demonstrate application of mind can be challenged or overturned or remanded in appeal. Such challenges, overturns, and remands lengthen the enforcement process and increase costs for all those involved. They also take away from the certainty of regulatory orders and affect the predictability of the law. Regulatory certainty and predictability are important requirements of the rule of law and are critical for the smooth functioning of markets.

The need for regulatory orders to be well-reasoned is recognised in Indian law. In a recent paper, titled "A guide to writing good regulatory orders", we propose a method of structuring regulatory orders that would aid readability, strengthen the logical flow of arguments, and enhance the accessibility and transparency of regulatory orders. In particular, we identify four sets of requirements for better order writing: informational, structural, substantive, and stylistic. Broadly, the information requirements relate to identificatory and citatory information that should appear in orders, and to information that helps establish that procedural requirements have been complied with, such as dates of Show Cause Notices. Structural requirements relate to the logical arrangement of the contents of orders in a manner that aids reading and comprehension, and which strengthens regulatory arguments. The substantive requirements help establish that all the requirements of the substantive law applicable to the matter discussed in the order have been addressed. Finally, our suggestions on stylistic requirements include the use of plain language and writing styles that are accessible and comprehensible to all affected persons.

We propose to conduct further studies on how the suggestions in this paper may be implemented through tools and technologies that could augment regulatory capacity for order writing.

The authors are researchers at the TrustBridge Rule of Law Foundation.

Judicial overreach: Bypassing expert tribunals in the electricity sector

by Natasha Aggarwal and Bhavin Patel.

A 2023 decision of the Supreme Court (The Southern Power Distribution Company of Telangana State v. Agarwal Foundaries Private Limited and Another, SLP (C) No. 14047-14066/2019) underscored the importance of judicial deference to expert bodies, stating that the High Court should have remanded a technical matter to the Appellate Tribunal for Electricity (APTEL) instead of adjudicating it itself.

The Electricity Act, 2003 establishes a framework under which appeals from orders of the Central Electricity Regulatory Commission and State Electricity Regulatory Commission (SERCs) may be filed before the APTEL. In 2021-22, only 12 appeals from the Telangana State Electricity Regulatory Commission (TSERC) were filed before the Appellate Tribunal for Electricity (APTEL), while 85 appeals were filed before the Telangana High Court (that is, more than seven times the number of appeals before the APTEL). Therefore, a large number of challenges to the TSERC's orders were filed before the High Court, and not the APTEL, a sector-specific expert body. Notably, this problem is not unique to Telangana and exists in other states from time to time. For example, in 2019-20, 21 appeals from the Odisha Electricity Regulatory Commission were filed before the APTEL while 34 writ petitions were filed before the High Court.

The trajectory of the TSERC's orders, from the TSERC to the Telangana High Court, raises questions on the grounds and scope of judicial review of these orders and their adherence to well-established principles of administrative law. These principles caution against judicial overreach in reviewing regulatory decisions. Over time, the Supreme Court of India has established the circumstances in which judicial review is permitted as well as the considerations that may be relevant in deciding to exercise judicial review.

In a recent paper, Bypassing expert tribunals through writs: Judicial overreach in review of the Telangana State Electricity Regulatory Commission's orders, we study 179 writ petitions and 181 writ appeals involving the TSERC before the Telangana High Court between 2014-2022 and examine whether judicial review of the TSERC's orders by the High Court is within the permitted limits in administrative law.

Our study reveals that 52.5% of the writ petitions in our subset and 58% of the writ appeals in our subset fall squarely within the scope of the matters for which the Electricity Act provides an appellate mechanism through the APTEL. Therefore, the largest number of writ petitions and writ appeals relate to 'substantive matters', which we identify as those that the Electricity Act contemplates as falling within the scope of TSERC's quasi-judicial powers and APTEL's appellate jurisdiction.

The existence of an efficacious alternative remedy, such as an appeal before the APTEL is not a complete bar on judicial review. However, well-established principles of administrative law limit the situations in which courts should entertain matters when such an alternative remedy exists, particularly because specialised tribunals and appellate authorities have the technical expertise to examine the facts and merits of a case. Moreover, the rationale for providing such an appellate mechanism is the requirement of technical expertise, and the APTEL has such expertise while the High Courts may not, and therefore the exercise of judicial review in such situations undermines the objectives of the Electricity Act.

The authors are researchers at TrustBridge Rule of Law Foundation.

The exercise of discretionary powers: The case of debarment and restraint from capital markets

by Natasha Aggarwal, Bhavin Patel, and Renuka Sane.

Introduction

Financial market regulators, such as the Securities and Exchange Board of India (SEBI), can impose monetary penalties and other sanctions, including debarment from capital markets and restraint from dealing in particular securities. Enforcement action by the state, such as a market regulator, is a double-edged sword. On the one hand, empowering the state to impose sanctions ensures that violators face consequences. Enforcement actions potentially serve as a deterrent against future violations and restore society's (and the market's) trust in the system's fairness. However, if the procedure established by law is not followed while imposing sanctions or if the sanctions are unpredictable or disproportionate to the offence, the process can be seen as unjust and lose its legitimacy. Such actions would damage markets instead of protecting them. Research suggests little clarity exists about the basis for determining penalty amounts in insider trading cases ( Asthana, Sane, and Vivek, 2021) and that there is no discernible pattern on how SEBI applies debarment provisions (Damle and Zaveri, 2022).

Debarment and restraint have enormous business, reputational, and career consequences on whom they are imposed. Section 11(4) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) requires that SEBI provide written reasons when ordering debarment or restraint in final and interim orders. Such reasons must explain why a sanction is necessary in the interests of investors or the market. SEBI has ordered debarment in 575 instances and debarment with disgorgement in 111 instances (SEBI Annual Report (2022-23)) across all violations. This article investigates SEBI's process for applying debarment and restraint sanctions. It focuses on the following questions:

1. Whether SEBI specifies reasons for ordering debarment and/or restraint?
2. What reasons are specified?
3. Are these reasons special to the instances where debarment or restraint is ordered?
4. Is there a correlation between the amount of quantified gain or advantage and the period of debarment or restraint ordered?
5. If the answers to the above questions are negative, are there constitutional grounds of arbitrariness and non-application of mind on which such orders can be challenged?

Our analysis suggests that SEBI often does not provide reasons for imposing debarment and/ or restraint. When it does give some reasons, it does not indicate why debarment and/ or restraint are imposed rather than other sanctions, such as penalties. In such instances, SEBI uses near-identical language in its orders when imposing debarment and/ or restraint as it does when imposing penalties. We also find little correlation between the quantified gain or advantage resulting from the violation and the period of debarment or restraint. Our reading of the law suggests that SEBI's processes expose its orders to challenge on constitutional grounds of non-application of mind and arbitrariness.

Data and methods

Our data consists of SEBI orders on insider trading, which has become an important issue for SEBI in recent years. During 2022-23, SEBI took up 85 insider trading investigations and imposed penalties worth Rs. 3 crore (SEBI Annual Report (2022-23)). There has also been a rise in the percentage of appeals in insider trading cases allowed at the Securities Appellate Tribunal (SAT), from 9% in 2021-2022 to 44% in 2022-2023. The increasing numbers of insider trading matters investigated, penalties, debarment and restraint imposed, and appeals allowed by SAT raise questions about whether SEBI has exercised its administrative discretion in consistently, rationally, and predictably determining sanctions.

We collected a set of insider trading orders passed by SEBI between September 2009 and July 2023. We then created a dataset of orders which matched the following set of keyword searches relating to insider trading: a single instance of 'insider' AND a single instance of 'UPSI' OR 'unpublished' OR 'prevention' OR 'insider trading' (case-insensitive). This gave us 913 observations (599 by Adjudication Officers (AOs) and 314 by Whole-Time Members (WTMs)). AOs do not have the power to impose debarment and restraint as sanctions. We, therefore, focus on the subset of observations related to WTMs. Table 1 presents the summary of our dataset.

Table 1: Summary of our data

Total number of observations	913
Number of observations from WTMs	314
Debarment	188
Restraint from capital markets	71
Both	57
Average period of debarment (in years)	2.9
Average period of restraint (in years)	1.8

There are 188 instances where WTMs have ordered debarment from capital markets and 71 instances of restraint from dealing in securities of the relevant company. In 57 cases, debarment and restraint have both been ordered. We observed no qualitative difference between these 57 cases and the remaining cases where only debarment or restraint was ordered. The average debarment period is about three years, and the average period of restraint is two years.

As described earlier, the SEBI Act requires SEBI to give reasons for imposing debarment or restraint. We use this as the basis of our analysis. From each order, we extracted information on whether SEBI explicitly provided reasons for imposing debarment or restraint, what the reasons were, and whether the order noted the amount gained or loss avoided by the violator. We then used the 'Free online text compare tool' from GoTranscript to compare SEBI's reasons for imposing penalties with reasons for ordering debarment and restraint. This helps us understand if the reasons provided by SEBI are generic or specific. We also studied whether the number of years of debarment or restraint was correlated with the amount gained or loss avoided. This provides one measure of determining proportionality in such orders.

Results

Has SEBI specified reasons?

Table 2: How often does SEBI provide reasons for its actions?

Sanction	Number of instances	Reasons provided	Reasons not provided
Debarment	188	153 (81.4%)	35 (18.6%)
Restraint	71	20 (28.2%)	51 (71.8%)

Table 2 shows SEBI orders do not provide a rationale in ~19% of cases where debarment has been sanctioned and ~72% of cases where restraint has been ordered.

What reasons has it specified?

Where SEBI does provide reasons, they are similar to non-statutory factors it provides when imposing penalties higher than the minimum prescribed under the SEBI Act. The reasons include:

1. Ensuring a level playing field and minimising information asymmetry.
2. Protecting the investors' interests.
3. Regulating and developing the market.
4. Upholding standards of transparency, good governance and ethical behaviour.
5. Upholding the integrity, orderly development and fairness of the market.
6. The seriousness of the violation.
7. Insider trading is behaviour that undermines confidence in the securities market.
8. Discouraging and curbing future instances of insider trading.
9. The role and extent of involvement of an alleged violator.

Are these reasons special to the instances where debarment or restraint is ordered?

The reasons are broad and do not indicate anything special that justifies the imposition of debarment and/or restraint rather than another sanction, such as a penalty. The reasons also do not clarify how the period of debarment or restraint was determined in these instances.

Our analysis from the GoTranscript tool indicates a 99% similarity between the reasons for imposing penalties and ordering debarment and an 86% similarity between the reasons for imposing penalties and ordering restraint. This indicates that the reasons for imposing debarment or restraint are the same as those for imposing penalties. Moreover, the language used to describe these reasons is nearly identical. Application of mind in the exercise of administrative discretion implies that the regulator provides reasons for imposing a sanction and clarifies why it has decided to impose one type of sanction (such as debarment or restraint) rather than another (such as penalty). The fact that SEBI uses near-identical language suggests that SEBI does not consider the proportionality of the sanction to the specific nature and extent of the violation in recording its reasons for imposing certain sanctions or calculating the quantum of penalty or the periods of debarment and restraint. This also suggests that its orders in such instances suffer from procedural lapses and a lack of application of mind and are open to challenge.

Is there any correlation between the amount of quantified gain and the period of debarment or restraint ordered?

Table 3 provides the number of instances in which SEBI established the amount gained or loss avoided before imposing a sanction and the average period of debarment and restraint.

Table 3: Amount loss/gained and the average period of debarment

	Number of instances	Average period (years)	Cases with "Till further orders"
Debarment: Amount gain/loss established
Yes	120/188	3.51	2
No	68/188	1.76	4
Restraint: Amount gain/loss established
Yes	40/71	2.05	2
No	31/71	1.47	12

The table points to three observations.

• First, in 36% of cases where debarment was imposed, SEBI did not identify the amount gained or loss avoided. This is higher in the case of restraint at 40%.
• Second, the average sanction period is higher when the amount of gain/loss avoided is established.
• Third, SEBI imposes debarment and restraint without an end date more often in cases where it has not established the amount gained or loss avoided.

Figure 1 shows the correlation between the amount gained/loss avoided and the years of debarment and sanction in more detail.

Figure 1: Amount loss/gained and the periods of debarment and restraint

Figure 1 does not include two instances in which SEBI quantified the amount of gain and ordered both debarment and restraint 'Till further orders'. The amounts gained in these two instances were Rs. 2,79,51,000 and Rs. 26,82,000.

There is no correlation between the period of debarment ordered and the quantified gain or advantage. There appears to be an inverse relation between the period of restraint ordered and the quantified gain or advantage. We, therefore, infer that the quantified gains or advantages have not been a consistent factor in determining the debarment or restraint period. Moreover, of the 188 instances where SEBI has imposed debarment, it could not quantify the gain in 158 instances (i.e., approximately 84%).

Constitutional safeguards on administrative discretion

One reason for SEBI's non-application of mind when imposing debarment and restraint may be that the SEBI Act provides no guidelines. However, the Indian Constitution and case law in the Supreme Court suggest that this is not a valid excuse.

The Constitution of India imposes restrictions against the exercise of arbitrary power by the State against its citizens. Such arbitrary exercise of power violates Article 14 of the Constitution. This principle has been reiterated by the Supreme Court (Bachan Singh v. State of Punjab, (1982) 3 SCC 24; East Coast Railway v. Mahadev Appa Rao, (2010) 7 SCC 678; Trustees of H.C. Dhanda Trust v. State of Madhya Pradesh, (2020) 9 SCC 510) where it has said:

Whenever a statute transfers discretion to an authority, the discretion is to be exercised in furtherance of the objects of the enactment. The discretion is to be exercised not on whims or fancies rather, the discretion is to be exercised on a rational basis in a fair manner.

Further, the Court has also said:

Every order should demonstrate "due and proper application of mind by the person making the order" and clearly set out the reasons for the order. --East Coast Railway v. Mahadev Appa Rao, (2010) 7 SCC 678.

The Court has also held that there must be consistency in decision-making involving the exercise of administrative discretion.

[I]t is important to emphasize that the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based. In a system governed by the rule of law, discretion must be confined within clearly defined limits when conferred upon executive authorities. The rule of law, from this point of view, means that decisions should be made by the application of known principles and rules and, in general, such decisions should be predictable and the citizen should know where he is. If a decision is taken without any principle or without any rule it is unpredictable and such a decision is the antithesis of a decision taken in accordance with the rule of law. -- S.G. Jaisinghani v. Union of India, AIR 1967 SC 1427.

One can expect the constitutional guardrails to apply to SEBI actions, whether for penalties or debarment. Consequently, SEBI must provide clear reasons for imposing debarment or restraint, the period of such debarment and restraint, and what is special in the instances where such debarment or restraint is ordered, making it different from instances where it is not.

Conclusion

The absence of justifiable exercise of its discretionary power by SEBI when imposing debarment and restraint in a reasonable number of cases is demonstrated by the fact that there are many instances where no reasons are provided when imposing such sanctions. Where reasons are provided, they do not indicate anything special in these particular instances that distinguishes it from instances where such sanctions are not ordered and are largely the same as those provided for imposing penalties. Finally, little correlation exists between the quantified gain or advantage and the debarment or restraint imposed.

It is particularly important to examine whether SEBI provides reasons when imposing debarment or restraint, how it determines the duration of such sanctions, and what these reasons and methods are because the SEBI Act does not specify what these factors should be, unlike in the case of penalties. These reasons and methods must be described in its orders so that they are available to the persons directly affected and the general public. This is required by the rule of law principles of reasoned decisions and knowability and predictability of the law. It is not sufficient to describe such reasons and methods in internal, unpublished documents or decisions, such as those determining whether an Adjudicating Officer or a Whole-Time Member should adjudicate a matter. If SEBI fails to provide good reasons or does not clarify its methods, its orders are open to challenge on constitutional grounds of arbitrariness.

We recommend developing more precise, appropriate, and usable guidelines in the legal framework to guide and constrain SEBI's discretion in imposing sanctions. The amount gained or loss avoided in insider trading cases may be difficult to quantify. Given this, the 15J factors must be modified to indicate how the debarment period can be calculated in such instances. The Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024 may be a good reference point for designing such guidelines. Having a clear set of guidelines that SEBI follows in its orders will help satisfy the requirements of consistency, non-arbitrariness, and predictability. This will also help address the high (44%) overturn rate at the SAT, which SEBI self-reports for its insider trading cases. This is perhaps attributable to the frequency with which the SAT modifies sanctions imposed by SEBI.

The Report of the High-Level Committee under the Chairmanship of Justice Anil R. Dave on the Measures for Strengthening the Enforcement Mechanism of the Board and Incidental Issues stated that debarment may serve as an ineffective deterrent mechanism. This, coupled with the lack of specific reasons in SEBI's orders, suggests a need to review the use of debarment and restraint as sanctions in SEBI's enforcement proceedings and to develop more implementable guidelines to guardrail the regulator's actions in imposing such sanctions.

References

Asthana, Sane, and Vivek, An analysis of the SEBI WhatsApp Orders: Some observations on regulation-making and adjudication, Leap Blog, 27 May 2021.

Damle, Devendra and Zaveri, Bhargavi, Enforcement of Securities Laws in India: An Empirical Overview, 24 August 2022.

Securities and Exchange Board of India, Report of the High-Level Committee under the Chairmanship of Justice Anil R. Dave on the Measures for Strengthening the Enforcement Mechanism of the Board and Incidental Issues, 2020.

Securities and Exchange Board of India, Annual Report, 2022-2023

The authors are researchers at TrustBridge. The data cited here was collected by a team at TrustBridge comprising Madhav Goel, Karan Gulati, Amol Kulkarni, Sonam Patel, Praduta Singh, and the authors. We thank Sonam Patel for her assistance in data analysis and creating graphs and tables. We also thank the three anonymous referees who read an earlier draft and provided their comments and suggestions.