By Sandeep Parekh & Rishabh Jain, respectively Managing Partner and Associate, Finsec Law Advisors
On December 18, 2025, the finance minister tabled the Securities Market Code (SMC) Bill in the Lok Sabha, proposing to consolidate and reform India’s securities legislation, presently contained in three separate statutes. In a step that significantly enhances the jurisdiction and role of the Securities and Exchange Board of India (Sebi), the SMC contains a provision for the ombudsperson—officers designated by Sebi to resolve investor grievances linked to deficiency in services of a securities markets service provider (SMSP) (an intermediary, a market infrastructure institution, or a self-regulatory organisation) or any act or omission of an issuer.
According to the architecture envisioned in the SMC, the investor would first approach a Sebi-prescribed redress mechanism. If the grievance is not redressed within 180 days, the investor may approach the ombudsperson within 30 days. However, a complaint would not be maintainable before the ombudsperson if the investor has initiated a proceeding before any court, tribunal, or authority directly or substantially in issue of such complaint.
The deficiency in services that may be adjudicated by the ombudsperson has been defined broadly to mean any fault, imperfection, shortcoming, or inadequacy in the quality, nature, and manner of performance required to be maintained by or under the SMC, or any rules and regulations made thereunder or undertaken to be performed by an SMSP in pursuance of a contract or otherwise in relation to any service in the securities markets. It includes any act of negligence or omission or commission that causes loss or injury to the investor, as well as deliberately withholding relevant information.
If satisfied that the allegations in the complaint are true, the ombudsperson would redress the complaint and may, by a written order, direct the respondent to comply with its obligations; return the fees, charges, or such other amount to the complainant, jointly or severally; or pay damages to the complainant as may be specified by regulations. The ombudsperson order would be binding on both the complainant and the respondent.
Further, if the ombudsperson is of the opinion that the respondent has contravened securities laws, they may inform Sebi. An ombudsperson order would not bar Sebi from taking action under the SMC. Such orders could be directly appealed before the Securities Appellate Tribunal.
If an SMSP or an issuer/agent fails to comply with an ombudsperson order, they would be liable to a penalty of at least Rs 10 lakh and up to three times the unlawful gain made or unlawful loss caused, or up to `100 crore if there is no quantifiable gain/loss or if the gain/loss is less than that but Sebi finds sufficient cause to increase the penalty.
Thus, the ombudsperson, though an officer of Sebi, is envisioned as an independent office exercising judicial powers. This must be appreciated in light of Sebi’s previous experience with the concept—the Sebi (Ombudsman) Regulations, 2003. But these could not be operationalised for various reasons.
First, Sebi did not have the power to decide a dispute or a lis. Second, since Sebi was not clearly empowered under the SEBI Act, 1992, to grant compensation, it could not empower the ombudsperson to do so. Thirdly, the regulations did not require the ombudsperson to be a judicial authority, and it was doubtful that a non-judicial authority would be entitled to award compensation. Finally, the regulations did not provide for an enforcement mechanism to execute the orders of the ombudsperson. Thus, the regulations were repealed in 2023.
Against this backdrop, the reintroduction of the ombudsperson in the SMC is an attempt to operationalise an idea recommended by a parliamentary committee over two decades ago but which could not be implemented due to lack of statutory backing. However, certain steps may be taken to further strengthen the mechanism.
First, the SMC does not specify the qualifications of the ombudsperson. Given that the ombudsperson is envisioned to act in a judicial capacity, it may be recommended to require in the SMC itself rather than leave to regulations that the ombudsperson have appropriate legal training and experience.
Second, the actions or omissions of the issuer or agent subject to the ombudsperson’s jurisdiction have not been specified. It is recommended that the categories of issuer/agent-investor disputes submitted to the ombudsperson be clearly defined to avoid conflict of jurisdiction with the company law tribunals.
Third, while the SMC contains only three remedies that the ombudsperson may grant, a note uses the term “etc.” in relation to such remedies. It is recommended that the ombudsperson be empowered to grant non-monetary remedies including directions to put the aggrieved in the same place as
if the wrong had not happened, or to put in place checks to prevent further wrongs.
Fourth, it is envisioned that ombudsperson orders bind only the parties to a dispute. However, in certain cases, third-party rights may be affected by the findings in such orders. For instance, if the ombudsperson finds that a certain pledge on an investor’s shares was created invalidly by a broker, it would affect the rights of the pawnee. Thus, the ombudsperson may be permitted to join all necessary and proper parties to the case, and orders may be made binding on all such parties.
Finally, the procedure applicable to ombudsperson proceedings has not been specified. It may lead to ambiguities surrounding the applicability of the Code of Civil Procedure. It would be advisable to explicitly specify that ombudsperson proceedings would be governed by rules of natural justice and orders would be made public.
The introduction of the ombudsperson system is a welcome step towards establishing a comprehensive system for resolving investor grievances in the securities market, an aspiration that Sebi has had for over two decades.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.