Summary: The Securities Markets Code Bill, 2025, introduced Clause 92 and Clause 93 as parallel provisions to govern fraudulent and unfair practices and market abuse, respectively. The Parliamentary Standing Committee, in its recently released report on the Bill, found that the distinction between the two clauses was unclear, and allowing the Securities and Exchange Board of India to expand the definition of criminal market abuse through delegated legislation raised serious constitutional concerns. The Committee has recommended a series of targeted amendments to Clause 93 to confine criminal liability to conduct that is grave, willful, and systemic in nature, to delete the residuary rule-making power under Clause 93(g), and to ensure that these changes are carried through into the Prevention of Money-Laundering Act, 2002, schedule. This blog examines each of these recommendations and their practical significance for market participants, intermediaries, and their advisors.
What the Bill has Proposed
When the Securities Markets Code, 2025 (“Bill”), was introduced in Parliament, Chapter XII carried two provisions that, on paper, represented a tidy division of labour. Clause 92 dealt with fraudulent or unfair practices, attracting monetary penalties. Clause 93 addressed market abuse, carrying the weight of criminal prosecution, including imprisonment of up to ten years under Clause 96 of the Bill. One was firmly in the civil space while the other was reserved for the most serious misconduct.
Clause 92 listed five specific fraudulent or unfair practices, ranging from the use of manipulative or deceptive devices in securities dealings to fraudulent record-keeping, with a residuary power under Clause 92(f), allowing the Securities and Exchange Board of India (“SEBI”) to specify “such other fraudulent or unfair practices” by regulation. Clause 93 took a parallel structure, listing insider trading, use of a device, scheme or artifice to defraud investors, dealing while in possession of material non-public information, publishing false or misleading information to move prices, using one’s position to manipulate prices, front-running an impending transaction, and finally, a residuary power under Clause 93(g) allowing SEBI to specify “such other activities” that would constitute market abuse. The government’s own framing, as explained by the Secretary, Department of Economic Affairs, was that Clause 92 was intended to house civil offences while Clause 93 was reserved for very serious and systemic offences, which have a significant and systemic impact.
Where the Overlap Showed Up
Stakeholders appearing before the Parliamentary Standing Committee (“Committee”) pointed to something that, once flagged, was fairly straightforward: the language of the two clauses was, in places, nearly identical. The phrase “device, scheme or artifice to defraud” appeared in both Clause 92(b) and Clause 93(b). Conduct amounting to price manipulation featured under Clause 92(c) as well as under Clauses 93(d) and 93(e). The open-ended rule-making power in Clause 92(f) was mirrored, in spirit, by the one in Clause 93(g).
The practical difficulty this creates is a real concern. Since the consequences attached to the two clauses are materially different, a monetary penalty under one and a prison term under the other, along with the added exposure of being a scheduled offence under the Prevention of Money-Laundering Act, 2002 (“PMLA”), an act could reasonably be interpreted as falling under either provision. This ambiguity leaves both the regulator and the investigated individual uncertain about which legal framework should govern the case. Stakeholders argued that this overlap invites inconsistent enforcement and raises the spectre of double jeopardy. They recommended that the clauses be made mutually exclusive, or that Clause 92 exclude conduct covered by Clause 93.
The Government’s Proposed Fix
In its written submissions, the Ministry of Finance accepted that Clause 92(b) and Clause 93(b) overlapped and proposed its own remedy. Under the Ministry’s proposal, Clause 92 would gain a new limb, addressing misappropriation or diversion of investor funds and an enabling provision allowing SEBI to prescribe how the section is to be administered. Clause 93(b) would be narrowed to only cover the use of a device, scheme or artifice to defraud where that conduct “adversely affects the integrity of the securities markets”.
The Committee endorsed the direction of travel, but pushed the redrafting further. It recommended that Clause 93(b) be confined specifically to conduct that demonstrates adverse impact on market integrity. Furthermore, the remaining limbs of Clause 93 be reviewed using the same criteria, ensuring that only conduct that is grave, willful, and systemic in nature remains within the reach of criminal liability under Clause 96. The Committee further recommended that Clause 93 headnote be rewritten to make this limiting principle explicit, so that the provision reads, in substance, as applying only to acts of market abuse involving serious, systemic misconduct affecting market integrity. A smaller but telling change is the recommendation to drop reference to “bye-laws” in Clause 93(c), on the basis that all conduct requiring criminal sanction is already captured across Clauses 93(a) to 93(f).
Creation of criminal offence under delegated legislation:
Another theme running through the Committee’s report concerns delegated legislation. Several stakeholders pointed out that the Bill, in its present form, decriminalises almost everything under the three existing securities laws it replaces, namely the Securities and Exchange Board of India Act, 1992 (“SEBI Act”), the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996, except for the conduct captured by Clause 93. Given that this is the sole surviving locus of criminal liability, allowing SEBI to expand the scope of market abuse through subordinate legislation, as permitted by Clause 93(g), was deemed constitutionally untenable. The argument drew on the Supreme Court’s ruling in In re: Delhi Laws Act, 1912, to support the idea that determining what constitutes a crime is an essential legislative function that Parliament cannot delegate to the executive or a regulatory body. A similar, if less severe, concern was raised about the residuary power in Clause 92(f) for analogous reasons.
The Ministry defended the delegation by pointing to Section 12A of the SEBI Act, which has for years allowed SEBI to elaborate categories of fraudulent and manipulative conduct through the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, and the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015. The Ministry argued that this model has functioned well and that economic legislation has traditionally attracted greater judicial latitude on the delegation question.
The Committee did not accept this position and recommended that Clause 93(g) should be deleted, since all conduct warranting criminal sanction is already covered by Clauses 93(a) to 93(f), and that the power to identify new categories of criminal conduct should not vest in the regulator. SEBI may still be given room to issue regulations clarifying and operationalising Chapter XII, but not to create fresh categories of criminally punishable market abuse. This represents a meaningful narrowing of what was originally proposed, and it applies specifically to Clause 93. Clause 92(f), by contrast, has been left largely intact, since conduct falling under it remains civil in character and does not engage the same constitutional concerns.
The Knock-On Changes
The Committee also noted the Ministry’s proposal to move the penalty provisions of Clauses 92 and 93 out of the general penalty clause and into standalone provisions calibrated to each. The Committee has asked that this restructuring be undertaken only alongside the broader redrafting of the two clauses, so that the penalty framework and the substantive scope of each offence remain aligned.
Further, Clause 155, read with Schedule II of the Bill, proposes to make Clause 93, read with Clause 96, a scheduled offence under the PMLA. Because a scheduled offence designation carries its own serious enforcement consequences, the Committee has been explicit that every amendment it has recommended to Clause 93, namely the narrower headnote, the tightened Clause 93(b), the removal of the reference to “bye-laws” from Clause 93(c), and the deletion of Clause 93(g), must be reflected in Schedule II as well. The purpose is to ensure that the scope of what triggers PMLA proceedings is coextensive with the criminal offence as defined. Separately, the Committee has also recommended that Clause 94, which deals with non-compliance with an Adjudicating Officer’s order, be removed from the PMLA schedule altogether, as failure to comply with a regulatory direction is not, in itself, the kind of market abuse that should attract money-laundering consequences.
Why This Matters
Together, the Committee’s recommendations narrow Clause 93 to a more precisely defined category of conduct and tie criminal liability strictly to what Parliament itself has written into the statute and remove SEBI’s discretion to add new categories of criminal market abuse by regulation. For market participants, intermediaries, and their advisors, this should translate into a criminal provision whose boundaries are pre-defined, rather than one capable of being expanded administratively after the fact.
Whether the final text of the Bill, once the Committee’s recommendations are incorporated, achieves the clean separation between civil and criminal liability that both the Ministry and the Committee say they are aiming for will only become clear once the redrafted clauses are placed before Parliament. What is already clear, however, is that the Committee has firmly established two important principles: that criminal provisions in economic legislation must be drawn by Parliament with sufficient specificity, and that the ability to expand criminal liability through subordinate legislation sits uncomfortably with the constitutional framework governing the delegation of legislative power.
