Regulating the regulators: Assessing regulation-making frameworks in India's financial sector

by Natasha Aggarwal and Renuka Sane.

Indian regulators, like the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), routinely wield quasi-legislative powers. For example, Section 30 of the Securities and Exchange Board of India Act, 1992 empowers the SEBI Board to make regulations. According to its 2024-25 annual report, SEBI issued 104 consultation papers, 61 amendments to its regulations, one new set of regulations, 14 master circulars, and 154 "policy measures." Such regulatory interventions can significantly influence markets and affect economic outcomes. Yet the processes by which regulators design, consult on, and review delegated legislation have been fragmented and, in large part, left to each regulator's discretion.

Traditional safeguards on delegated legislation in India, i.e., parent statutes requiring regulations to be laid before Parliament, prior publication requirements under the General Clauses Act, 1897, and judicial review, provide important accountability functions, but do not regulate the internal process by which a regulator formulates its regulations. They do not require a regulator to identify the problem warranting intervention, weigh alternatives, or assess costs and benefits.

In 2013, the Financial Sector Legislative Reforms Commission proposed provisions to govern regulation-making and, through the Financial Sector Development Council Resolution of 24 October 2013, financial sector regulators agreed to comply with these procedures. Since then, six financial sector regulators (the Insurance Regulatory and Development Authority of India (IRDAI), Insolvency and Bankruptcy Board of India (IBBI), International Financial Services Centres Authority (IFSCA), Pension Fund Regulatory and Development Authority (PFRDA), SEBI and RBI) have each adopted some form of instrument governing how they make regulations, ranging from non-binding concept notes to regulations. More recently, the Economic Survey (2024-25) recommended strengthening regulatory impact assessment; the Securities Markets Code, 2025 proposes statutorily mandating public consultation and periodic review at SEBI; and in March 2026 the Standing Committee on Finance recommended a mandatory regulatory impact assessment framework for the IBBI.

In this backdrop, our paper, 'Regulating the regulators: Assessing regulation-making frameworks in India's financial sector', evaluates the regulation-making frameworks adopted by these six regulators against three principles of good regulation-making - consultation, evidence-based regulation-making, and periodic review - and then assesses a randomly selected 2025 consultation paper issued by each regulator against indicators derived from these principles and from each regulator's own framework.

We find that while all six financial regulators have adopted some form of instrument, these instruments vary considerably in legal form, substantive scope, and analytical ambition. Regulators operating under more demanding frameworks are more likely to clearly identify the regulatory problem in their consultation documents. However, this relationship is not linear: stronger frameworks do not consistently produce stronger performance on more analytically demanding requirements. No regulator, including those whose frameworks expressly require it, included a cost-benefit analysis in its consultation paper, and no regulator assessed available alternatives to direct regulation. Every regulator failed to comply with at least one of its own procedural requirements.

Indian legal frameworks

From 2016 onwards, Indian regulators have progressively formalised how they make their own regulations: IRDAI led the way with a concept note in 2016, followed by IBBI in 2018, IFSCA in 2021, and PFRDA in 2024. In 2025, IFSCA issued an updated and expanded framework for making regulations and subsidiary instructions, SEBI adopted regulations for making, amending, and reviewing regulations, and RBI opted for a non-binding policy framework rather than enforceable regulations.

While all regulators now subject regulation-making to some framework, they diverge along two axes: legal form and substantive scope. On legal form, IBBI, PFRDA, IFSCA, and SEBI have adopted regulations, signalling a commitment to enforceable constraints; RBI and IRDAI, by contrast, have adopted non-binding approaches, suggesting either a desire to retain discretion or a reluctance to subject internal processes to enforceable standards. On scope, PFRDA's framework is narrowly confined to the making of regulations; IBBI, SEBI and IRDAI expand this to include amendments; IFSCA moves further by bringing "subsidiary instructions" within its fold; and RBI adopts the broadest scope, extending its framework to directions, guidelines, notifications, and other instruments. In this context, IFSCA stands out as the strongest: it uses binding regulations, rather than non-binding frameworks, to govern its regulation-making process, and their applicability extends beyond regulations and amendments to subsidiary instructions.

On consultation specifically, most regulators (IRDAI, IFSCA, SEBI, RBI and IBBI) make public consultation mandatory, typically for a minimum of 21 days; PFRDA alone makes it optional, albeit with a longer 30-day window. IRDAI, IFSCA, IBBI and PFRDA publish stakeholder comments and provide responses to them, while SEBI and RBI provide responses but do not publish comments, limiting external visibility into the range of views considered.

On evidence-based regulation-making, the picture is fragmented: IRDAI and IFSCA require both a problem statement and a statement of regulatory intent; SEBI requires only regulatory intent; PFRDA and IBBI require a problem statement but not regulatory intent. Only RBI's framework requires an impact assessment, and only PFRDA and IBBI mandate cost-benefit analysis.

On periodic review, IBBI has the most frequent cycle (three years), followed by IFSCA (five years) and RBI (five to seven years); SEBI and PFRDA require review but specify no timeline, and IRDAI's concept note is silent on review altogether.

Evaluation of consultation papers

We evaluated one randomly selected 2025 consultation paper (for IRDAI, an exposure draft) issued by each regulator, against indicators drawn from the principles of good regulation-making and from each regulator's own framework. Notably, the RBI did not issue a formal consultation paper in the relevant period; the document evaluated for RBI is a circular proposing amendments to its directions, reflecting a broader pattern of the RBI using directions and circulars to make substantive regulatory changes.

The IRDAI Exposure Draft states the objective of its proposal and describes the key features of the framework, but does not clearly explain the problem it seeks to address, does not consider alternative approaches to regulation, and does not include a cost-benefit or impact analysis.

The IBBI Discussion Paper, for each of its three proposals, includes a statement of the problem, a proposed solution, and the draft regulation, but does not identify and assess available alternatives to direct regulation, does not include a cost-benefit analysis, and does not comply with the IBBI Regulations' requirement of an economic analysis, guidance from international standard-setting bodies, or the statutory provision enabling the proposed regulations.

The IFSCA Consultation Paper does not comply with any of the principles of good regulation-making, other than relying on market data as evidence of growth; it refers to fund management entities facing unspecified "operational hassles" without elaborating on what these are, and does not specify the statutory provision enabling the amendments or include guidance from international standard-setting bodies, both required under its own regulations.

The PFRDA Consultation Paper performs comparatively better: it identifies the problem to be addressed, assesses how existing frameworks contribute to the problem, and relies on evidence. However, it does not identify and assess available alternatives to direct regulation or include a cost-benefit analysis, and does not comply with several of its own regulations; it does not specify the statutory provision enabling the proposed regulations, attach a draft of the proposed regulations, include the required economic analysis, include guidance from international standard-setting bodies, or specify the manner of implementation.

The SEBI Consultation Paper does not comply with any of the principles of good regulation-making other than identifying the problem to be addressed; it does not assess how existing regulations contribute to the problem, identify alternatives, or include a cost-benefit analysis, an outcome that closely mirrors the design of SEBI's own framework, which requires only a statement of regulatory intent.

The RBI Circular likewise does not comply with any of the principles other than a rather broad articulation of the problem, and does not comply with the RBI Policy because it does not specify the statutory provision enabling the proposed regulations, or include an impact analysis or guidance from international standard-setting bodies.

Analysis

The results reveal a gap between the formal existence of regulation-making frameworks and their actual operationalisation in consultation documents. There are failures at two levels: compliance with general principles of good regulation-making and compliance with each regulator's own procedural requirements.

More broadly, regulators operating under more developed procedural frameworks, particularly IBBI and PFRDA, which explicitly require problem identification, perform better on basic problem-definition indicators. Both clearly identify the regulatory problem, and PFRDA goes further by examining whether existing regulations contribute to it. In contrast, SEBI and RBI, whose frameworks impose minimal analytical obligations, produce consultation documents that are largely limited to statements of regulatory intent, with little substantive justification. Second, there is inconsistent articulation of the regulatory problem, even at a basic level. While some regulators - such as IBBI, PFRDA, SEBI, and RBI - identify a problem, others (notably IRDAI and IFSCA) fail to do so clearly. Even where a problem is identified, it is often thinly specified and not linked to evidence or to failures in the existing regulatory framework.

However, stronger frameworks do not necessarily translate into stronger performance on more analytically demanding requirements. Despite formal mandates, both IBBI and PFRDA fail to include the economic analysis required by their own regulations. IBBI omits cost benefit analysis, while PFRDA fails to provide economic analysis, draft regulations, international benchmarking, and implementation details. No regulator assesses alternatives to direct regulation or conducts a cost benefit analysis. The absence is uniform and not explained by framework design alone: even regulators whose own frameworks require economic analysis (IBBI, PFRDA, and RBI) fail to provide it. Their universal absence suggests that regulators do not treat regulation as one option among many, but as the default response. As a result, consultation processes are narrowed: stakeholders are invited to comment on how to regulate, but not whether regulation is justified in the first place. This significantly weakens accountability and the quality of regulation-making.

Moreover, every regulator, without exception, fails to comply with at least one of its own procedural requirements. The most consistent gap is the failure to specify the statutory provision enabling the proposed regulation - a basic transparency requirement met only by IRDAI. This omission raises concerns about the legal legitimacy of the proposed regulation, as stakeholders are not informed of the source of regulatory authority. IBBI omits the economic analysis mandated by its framework. PFRDA fails to include draft regulations, economic analysis, implementation guidance, and international benchmarks. IFSCA omits both the problem statement and international benchmarks required under its framework. RBI, similarly, does not provide the impact analysis or international benchmarking contemplated by its policy. These are not merely formal deficiencies. The absence of draft regulatory text, as in the case of PFRDA, prevents stakeholders from engaging with the legal substance of the proposal, limiting consultation to broad regulatory intent. The absence of economic or impact analysis means that the regulatory choice cannot be independently assessed.

Across all six regulators, consultation papers ostensibly function as instruments for presenting pre-determined regulatory proposals, rather than as vehicles for reasoned, evidence-based decision-making.

Reforms

We propose five reforms: (i) legislative amendments to parent statutes that clearly define the scope of regulators' quasi-legislative powers and the processes governing their exercise; (ii) regulatory impact assessment should be made mandatory and comprehensive; all consultation papers should be required to identify the problem or market failure to be addressed, assess whether existing regulations contribute to it, consider available alternatives including non-intervention, and include a cost-benefit analysis; (iii) constituting Regulations Advisory Committees of domain experts, legal scholars and market participants at all regulators; (iv) requiring periodic review of regulations at defined intervals with a clear methodology specifying which regulations are to be reviewed, against what criteria, and within what timeframe; and (v) leveraging technology (for instance, dashboards tracking active consultations and regulators' responses, and automated tools that flag missing elements in consultation papers before publication).

The authors are researchers at TrustBridge Rule of Law Foundation.

The curious case of definition and adjudication of front running in India

by Natasha Aggarwal, Amol Kulkarni and Bhavin Patel.

One of the core legislative mandates of the Securities and Exchange Board of India (SEBI) is to prohibit fraudulent and unfair trade practices (FUTP) relating to securities markets. A practice commonly classified as FUTP is front running. It is generally understood as a set of two trades or positions: first, a trade or position taken in advance of a large order, and second, a squaring off of the initial trade or position after the large order, to benefit from the price movement it causes.

SEBI issued the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (the PFUTP Regulations) to deter and sanction front running and other FUTPs.

Neither the SEBI Act nor the PFUTP Regulations define front running. SEBI has, however, defined it elsewhere: in guidelines, glossaries, master circulars and consultation papers, and in a number of adjudicatory orders.

In our working paper, Front running: The law and enforcement of an ill-defined violation, we set out the legal elements that a violation under the PFUTP Regulations requires: fraud, manipulation and unfair trade practice. These elements should inform any definition of front running. We find that the characteristics of front running laid down by SEBI in its other regulatory instruments and adjudicatory orders are inconsistent with these legal requirements.

Through an empirical study of 33 SEBI adjudicatory orders on front running between 2019 and 2024, we show that SEBI's enforcement practice is also disconnected from the codified law, and does not engage with its key requirements.

This proliferation of inconsistent definitions and interpretations causes a range of problems:

• It creates confusion, and weakens the certainty and predictability of the law.
• It gives the regulator untrammelled discretion in deciding whether a violation has taken place.
• It raises concerns about separation of powers: the boundary between the regulator's law-making and adjudicatory functions is erased and re-drawn erratically, at cost to the integrity of each function.

The result is a lack of doctrinal clarity about what front running means, and a set of conflicting articulations of the violation with no clear grounding in the codified law.

We suggest that the term be defined clearly, either in the parent statute or in the PFUTP Regulations. There is now a nearly three-decade history of enforcement, which should be enough to identify the ingredients of this violation.

The Securities Markets Code Bill, 2025 (the SMC) is an opportunity to write such a definition into the parent law. This would take the power to define the violation away from the regulator, restore the integrity of SEBI's separate functions, and meet the requirements of separation of powers. In its present form, though, the SMC may fall short: we show the gaps and confusions that remain in its treatment of fraud, and its failure to define fraudulent or unfair trade practice, or front running, explicitly.

Part of the problem may lie in the absence of separation of powers within SEBI. The regulator can write subordinate legislation, investigate alleged violations, and adjudicate and sanction them, all without a strict separation between its quasi-legislative, investigative and adjudicatory arms.

This may incentivise SEBI to write broad, all-encompassing regulations in its quasi-legislative capacity, and then to widen their scope further to suit its quasi-judicial needs.

The regulator might defend this by pointing to the constantly changing methods used by fraudsters. International experience suggests otherwise: methods change, but the key constituents of securities fraud stay broadly constant.

In India, a lasting solution may require Parliament, not SEBI acting under its delegated powers, to define terms such as front running in the parent legislation.

Front running is only one example of an inconsistently defined and adjudicated practice within the broader category of FUTP. There are likely others. This points to the need for a wider review of how fraud, manipulation and unfair trade practice are defined and adjudicated under Indian securities law, with the aim of achieving consistency and certainty in interpretation and enforcement.

References

Front running: The law and enforcement of an ill-defined violation, TrustBridge working paper.

SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, Securities and Exchange Board of India.

Securities Markets Code Bill, 2025, Bill No. 200 of 2025.

Natasha Aggarwal, Amol Kulkarni and Bhavin Patel are researchers at TrustBridge Rule of Law Foundation.

What happens when the CCI decides not to investigate?

by Natasha Aggarwal, Amol Kulkarni, Shruti Aji Murali, Bhavin Patel, and Vishnu Suresh.

The Competition Commission of India’s (the “CCI’s”) orders under Section 26(2) of the Competition Act, 2002 (the “Act”) are an important part of it’s preliminary screening function: they close proceedings at the threshold without directing an investigation, are appealable, and impact informants’ rights. They also utilise significant regulatory capacity. This is especially significant given the CCI’s capacity constraints: 42% of sanctioned posts are vacant, grants from the Ministry of Corporate Affairs were insufficient relative to expenditure, and 130 antitrust cases were pending at different stages (Reports of the 25th (2025) and 31st (2026) Standing Committee on Finance). Therefore, how the CCI decides which matters do not warrant investigation, and what resources it allocates to these decisions, becomes important.

In two new working papers, we examine the CCI’s Section 26(2) decision-making and ask what guardrails constrain its discretion, and how it allocates scarce regulatory resources.

In “Order writing and statutory discretion in the CCI's Section 26(2) determinations”, we use a customised set of indicators based on the Good Order Writing framework developed by Aggarwal et al. (2025) in “A guide to writing good regulatory orders”, to assess the completeness of a random sample of 111 Section 26(2) orders issued between 2014 and 2024 (the “Dataset”). We find that the orders are generally complete, with an average CCI-GOW score of 59.51%, and perform well in appeal, but that the statutory factors under Sections 19(3) and 19(4) are applied inconsistently. We recommend incremental improvements in order-writing alongside a dedicated framework for threshold-stage determinations under Section 26(2).

Our second paper, “The CCI's allocation of scarce resources in Section 26(2) matters”, examines how the CCI allocates limited regulatory capacity in such matters. We find that approximately 42% of the orders in the Dataset arise from “peripheral matters”, that is, complaints falling outside the scope of competition law or unsupported by evidence. These matters are processed through the same institutional procedures as substantive complaints, with a median disposal time of 30 days. We recommend a layered approach to improve screening, including clearer public guidance, guided filing mechanisms, AI-assisted review tools and statutory prioritisation frameworks, while preserving access to competition law enforcement.

We are pleased to invite you to a presentation of both papers on Friday, 21 August 2026 at 4:00 PM IST, followed by a discussion with competition law practitioners and academics. If you would like to join the discussion virtually, please register here.

References

Natasha Aggarwal, Bhavin Patel, and Karan Singh, “A Guide to Writing Good Regulatory Orders” [2025] Trustbridge Rule of Law Foundation Working Papers (https://trustbridge.in/publications/a-guide-to-writing-good-regulatory-orders/).

Standing Committee on Finance, Ministry of Corporate Affairs Demand for Grants (2026–27) (ThirtyFirst Report, Lok Sabha Secretariat 2026) (https://elibrary.sansad.in/server/api/core/bitstreams/418570d6-7f80-4a04-9eee-6d03ab9b9f03/view).

Standing Committee on Finance, Evolving Role of Competition Commission of India in the Economy, Particularly the Digital Landscape (Twenty Fifth Report, Lok Sabha Secretariat 2025) (https://elibrary.sansad.in/items/39840bff-3981-4e4d-9eda-28fba9cfc1a1).

Natasha Aggarwal, Amol Kulkarni, Bhavin Patel, and Vishnu Suresh are researchers at TrustBridge Rule of Law Foundation. Shruti Aji Murali is KM Counsel at Axiom5.

Author: Natasha Aggarwal

Natasha Aggarwal is a researcher at TrustBridge Rule of Law Foundation.

On this blog:

• Regulating the regulators: Assessing regulation-making frameworks in India's financial sector, 4 September 2026.
• The curious case of definition and adjudication of front running in India, 2 September 2026.
• What happens when the CCI decides not to investigate?, 16 August 2026.
• 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.
• 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.
• Mapping insider trading laws: A database for SEBI’s Prevention of Insider Trading Regulations, 14 February 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.

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).

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.

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.

Mapping insider trading laws: A database for SEBI’s Prevention of Insider Trading Regulations

by Natasha Aggarwal.

The Indian legal framework on insider trading is complex and has, over the years, been significantly updated and amended. The insider trading regulations were introduced in 1992 and amended four times between 2002 and 2011. This set of regulations was replaced by the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations), which has been amended 12 times between 2018 and 2024. Many of these amendments aimed to address regulatory gaps, such as those concerning the scope of terms like "connected persons" and "unpublished price sensitive information" (UPSI). However, frequent changes in the PIT Regulations have created challenges in understanding the correct position in law and in analysing past events and developments.

To help solve this problem, we have prepared a relational database by identifying the constituent elements of the violation of "insider trading" in the PIT Regulations. The database does not map changes to the disclosure requirements in the PIT Regulations.

The prohibitions under the PIT Regulations may appear straightforward but are often complex in practice and implementation. For example, understanding insider trading requires understanding (i) what constitutes UPSI, which in turn requires understanding what constitutes generally available information, and (ii) who is an insider, which in turn requires understanding the scope of terms such as "connected person", "deemed to be connected person", and "immediate relative". Moreover, certain regulated entities are required to adopt a code of conduct - a requirement that initially applied only to listed companies but now applies to entities such as mutual funds and intermediaries.

Based on the above, we have identified the following key definitions that require clarity for better compliance with, and understanding of, the PIT Regulations:

• Connected person;
• Deemed to be connected person;
• Insider;
• Immediate relative / relative;
• Trading;
• Unpublished price-sensitive information (UPSI); and
• Generally available information.

We have also identified the following violations of the PIT Regulations:

• Communication of UPSI
• Trading when in possession of UPSI; and
• Failure to implement or comply with the code of conduct.

These issues are referred to as 'Indicators' in our database.

We expect that this will be helpful for researchers and market participants to analyse the evolution of these indicators and the legal framework for insider trading. Our indicators are linked to: (i) related regulatory instruments, such as amendments (along with the date on which the amendment takes effect), SEBI's board meetings, consultation papers, and circulars, and (ii) provisions of the earlier insider trading regulations (i.e., the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (1992 Regulations)).

For example, the definition of UPSI is mapped to an amendment in 2018, two consultation papers, two board meetings, and the provision of the 1992 Regulations that defined UPSI. This allows a user to map all documents in which an indicator has been discussed, and then understand and analyse: (i) the current legal position, (ii) the evolution of a definition or a violation, and (iii) the SEBI's reasoning in introducing certain amendments and the impact of specific documents, such as consultation papers, on regulatory provisions.

The database is available here. We encourage you to read the tab titled "Read me" to understand how to navigate this database.

We will update this to reflect any further changes to the PIT Regulations. If you notice any errors or inconsistencies, please reach out to us at info@trustbridge.in, and we will make the necessary corrections.

Natasha is a Senior Research Fellow at TrustBridge.

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.