The Securities Markets Code Bill, 2025 currently under examination by the Standing Committee promises to decriminalise securities market misconduct while simultaneously empowering regulators to expand criminal liability. According to reports from Business Standard, Clause 93(g) authorises Sebi to determine additional conduct that constitutes market abuse through regulatory notifications. This provision extends beyond mere procedural details, as it allows the regulator to define what constitutes criminal market abuse, creating a striking paradox where Parliament reduces criminal scope while empowering the regulator to enlarge it. As experts note, regulators are expected to administer and enforce the law; they are not ordinarily authorised to determine what conduct shall expose citizens to imprisonment. The Code's own memorandum assures Parliament that regulation-making powers relate to procedural matters, but a power to define additional market abuse categories cannot plausibly be characterized as procedural.
Under the Code, market abuse attracts imprisonment of up to 10 years, a fine of up to ₹25 crore, or both. As reported by Business Standard, conduct brought within Clause 93(g) by regulation may trigger the full machinery of money-laundering enforcement, including property attachment, arrest, and stringent bail conditions. The provision raises constitutional concerns, as the Supreme Court in Vasu Dev Singh v. Union of India (2006) held that delegating essential legislative functions is impermissible. More recently, in Ashwini Kumar Upadhyay v. Union of India (April 29, 2026), the court reiterated that criminal offence creation lies within the legislative domain. The concern extends beyond the Code, as market abuse under the Code constitutes a scheduled offence under the Prevention of Money-Laundering Act, 2002, potentially creating a template for other regulatory statutes enabling regulators to define additional categories of criminal conduct through subordinate legislation.
The Code identifies six specific categories of market abuse as defined by Parliament, including insider trading, fraudulent schemes, and trading on material non-public information. According to Business Standard, the phrase 'adversely affects the integrity of the securities markets' provides little guidance and could potentially encompass aggressive short-selling strategies, algorithmic trading, or activist investor campaigns if regulations are framed broadly. As experts emphasize, the issue is who should decide what conduct constitutes a criminal offence. In a constitutional democracy, that responsibility belongs to Parliament. The difficulty lies in Clause 93(g), which extends market abuse to 'such other activities as may be specified by regulations which adversely affect the integrity of the securities markets'. Depending on future regulatory choices, a wide range of conduct could potentially be brought within its scope, from aggressive short-selling strategies to certain forms of algorithmic trading.
The Code already equips Sebi with extensive civil enforcement powers, including market ostracism and substantial monetary penalties. As reported by Business Standard, regulatory agility arguments are insufficient justification for criminal delegation, as securities laws have been frequently amended when new regulatory challenges emerge. Experts argue that waiting for Parliament to amend legislation may be impractical, but experience suggests otherwise. Securities laws have been amended frequently whenever new regulatory challenges have emerged. The concern extends beyond the Code, as market abuse under the Code constitutes a scheduled offence under the Prevention of Money-Laundering Act, 2002, potentially creating a template for other regulatory statutes enabling regulators to define additional categories of criminal conduct through subordinate legislation. Civil proceedings are often faster and more effective than criminal prosecutions, and if genuinely new forms of market abuse emerge, Parliament can amend the statute to include them expressly.
