Summary: The article discusses the proposed expansion of SEBI’s powers under the Securities Markets Code, 2025, alongside observations made by the Securities Appellate Tribunal (SAT) regarding SEBI’s exercise of existing enforcement powers. It highlights SAT’s June 2025 decision quashing SEBI’s debarment order against Rajesh Mokashi, imposing ₹5 lakh costs on the regulator after noting two independent investigations had found no evidence of misconduct. The article also refers to SAT’s observations in other matters, including setting aside a ₹10 lakh penalty in the SRBC & Co. case and remarks on proportionality, restraint, and mechanical orders. It outlines SEBI’s three enforcement tracks under the SEBI Act, discusses the absence of a statutory penalty framework, and contrasts interpretations of penalty provisions with Supreme Court decisions. The article states that the Securities Markets Code Bill, introduced in the Lok Sabha on 18 December 2025 and referred to the Parliamentary Standing Committee on Finance, proposes consolidating the SEBI Act, 1992, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996, while suggesting further statutory intervention on penalty architecture and SAT’s workload.
The Securities Markets Code, 2025 proposes to expand SEBI’s powers. Before Parliament does that, it must reckon with what the appellate tribunal has been saying — repeatedly and in writing — about how those powers are already being used.
Rajesh Mokashi Vs. Securities and Exchange Board of India, Appeal No. 496 of 2023 (Securities Appellate Tribunal, Mumbai), Order dated 27.06.2025, the Securities Appellate Tribunal quashed a SEBI order debarring Rajesh Mokashi, former Managing Director and CEO of CARE Ratings, from associating with any SEBI-registered intermediary. Two independent investigations—one by Ernst & Young and another led by former Supreme Court Justice B.N. Srikrishna—had found no evidence of misconduct. Despite these findings, SEBI issued a show cause notice and subsequently passed the debarment order. Allowing the appeal, the Tribunal set aside the impugned order, imposed costs of ₹5 lakh on SEBI, and observed that the regulator had unnecessarily wasted the Tribunal’s time.
This was not an outlier.
SAT has, over the years, indicted SEBI for its “callous attitude,” for orders “passed without application of mind,” for conduct amounting to “judicial dishonesty,” and for imposing “harsh and unwarranted” penalties. In one case, it expressly remarked that “the appellant is made to run around on account of apathy on part of WTM of SEBI.” In another, costs were imposed without quantification—itself a statement.
In SRBC & Co. LLP Vs. Securities and Exchange Board of India, Appeal No. 700 of 2022 (Securities Appellate Tribunal, Mumbai), Order dated 22.11.2024, where an audit firm had inadvertently misaddressed an email and immediately recalled it, SAT set aside the ₹10 lakh penalty imposed by SEBI and observed that the regulator should “examine facts holistically and exercise restraint in passing mechanical orders.”
These are not expressions of judicial irritation. They are a pattern — and patterns, in administrative law, are evidence.
The Problem is Structural
To understand why SEBI keeps arriving at SAT on the wrong end of a costs order, you have to understand what the SEBI Act actually gives the regulator.
SEBI operates three distinct enforcement tracks. The first — and most sweeping — is its power to issue directions under Sections 11(4) and 11B: debarments, disgorgements, licence cancellations, capital market restrictions, monetary compensations. This power can be deployed on an ad interim ex parte basis and has been expansively read by courts to cover extraterritorial conduct and non-traditional market participants. The second is formal adjudication under Sections 15A to 15J, through an Adjudicating Officer who can levy monetary penalties ranging from ₹1 lakh to ₹25 crore (or three times the profit, in insider trading cases). The third is the enquiry process under Section 12(3) — suspension or cancellation of intermediary registrations.
None of these tracks comes with a statutory instruction manual. The SEBI Act does not tell SEBI which violation warrants which enforcement response. It does not prescribe proportionality standards. It does not codify when remedial action should precede punitive action. SEBI fills this vacuum with an internal “action matrix” — an administrative document, not a legislative one, generated post-investigation — that determines whether someone faces a ₹1 lakh penalty or a two-year debarment.
This is the architecture that produces mechanical orders.
Shri Ram Mutual Fund and the Automaticity Problem
SEBI’s Adjudicating Officers have long leaned on the Supreme Court’s language in The Chairman, Securities and Exchange Board of India Vs. Shriram Mutual Fund & Anr., Civil Appeal Nos. 9523–9524 of 2003 (Supreme Court of India), Judgment dated 23.05.2006. — that “penalty is attracted as soon as the contravention is established” — as authority for imposing penalties reflexively, without regard to context or consequence. The Tribunal in SRBC was direct about where this leads: accepting that position, it said, “would result in absurd consequences.”
The Supreme Court itself, in Adjudicating Officer, Securities and Exchange Board of India Vs. Bhavesh Pabari, Civil Appeal No. 11311 of 2013, Judgment dated 28.02.2019, corrected this reading years ago. A full bench held that an Adjudicating Officer has the right and discretion to determine the quantum of penalty, and that the three factors listed in Section 15J of the SEBI Act — disproportionate gain, investor loss, and repetitive nature of default — are illustrative, not exhaustive. AOs may even choose not to impose penalties where a non-compliance exists but is insufficiently grave. This is the law. It is not the practice.
The Watchdog-Bulldog Distinction
SAT’s language in the Piramal Enterprises matter bears repeating. The Tribunal held:
“SEBI is the watchdog and not a bulldog. If there is an infraction of a rule, remedial measures should be taken in the first instance and not punitive measures. In the absence of any direct or clinching evidence of insider trading or misuse of UPSI, a reasonable benefit of doubt should be extended to the respondent instead of mechanically imposing a penalty.”
This is not a critique of SEBI’s mandate. It is a restatement of administrative law basics — that enforcement authority must be exercised proportionately, that context matters, that intent is relevant, and that a regulator’s first instinct should not always be to punish.
The problem is that SEBI’s institutional culture has, at least in part, drifted toward the inverse. The Rajesh Mokashi case illustrates this vividly: SEBI pursued debarment against an individual who had been exonerated by two independent investigators, relying on WhatsApp message interpretation and circumstantial inference — the same evidence that Ernst & Young and Justice Srikrishna had reviewed and discounted. SAT was compelled to step in. The Supreme Court, in Securities and Exchange Board of India Vs. R.T. Agro Private Limited & Ors., Civil Appeal No. 2957 of 2022, Judgment dated 25.04.2022, had already cautioned that regulators must not adopt “hyper-technical postures in enforcement.” The pattern continued regardless.
The Securities Markets Code: An Opportunity Being Partially Missed
On December 18, 2025, the Securities Markets Code Bill was introduced in the Lok Sabha, proposing to consolidate the SEBI Act, 1992, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996 into a single statute. The Bill has been referred to the Parliamentary Standing Committee on Finance.
The consolidation is welcome. The SMC does gesture toward proportionality — it draws from the Supreme Court’s K.S. Puttaswamy judgment and incorporates natural justice requirements into the regulatory process. The Standing Committee must go further.
Two gaps demand statutory intervention.
First, the penalty architecture. The maximum penalty for most SEBI Act violations has remained at ₹1 crore since 1992, while the markets themselves have grown beyond recognition. More critically, there is still no penalty matrix — no legislative framework correlating the nature, gravity, and intent of a violation to the range of enforcement consequences. This vacuum is what gives AOs the discretion to impose penalties mechanically, and what gives SEBI the leeway to pursue debarment orders that cannot survive appellate scrutiny. A tiered, codified penalty structure — calibrated to violation type, market impact, and the presence or absence of mens rea — is not a novel idea. It exists in peer jurisdictions and has been recommended in India for years.
Second, the burden on SAT. As of 2023, around 1,000 appeals were filed before the single SAT bench annually, against SEBI’s output of over 1,100 orders in that period. The SMC proposes to allow multiple SAT benches — that is necessary but insufficient if the quality of first-instance orders does not improve. More appeals reaching SAT is not a sign of a healthy regulatory ecosystem. It is a sign that something upstream is broken.
What SAT Has Actually Been Asking For
SAT cannot reform SEBI. It can only correct SEBI order by order, at the cost of the appellants who must fund that correction. What SAT has been doing — through costs orders, through pointed observations, through an increasingly candid vocabulary — is signalling that the problem is institutional, not incidental.
The message is simple: proportionality is not a favour the regulator extends to respondents. It is a constitutional requirement. Remediation before punishment is not leniency. It is the correct sequencing of regulatory authority. And a show cause notice that ignores two clean chits from independent investigators is not enforcement — it is something else.
Parliament has the SMC before it. It has years of SAT orders documenting the dysfunction. It has, in the Rajesh Mokashi judgment, a June 2025 data point that is fresh and unambiguous.
The Securities Markets Code can be the statute that finally answers what SAT has been asking — or it can reorganise the existing problems under a new cover. The Standing Committee’s report will tell us which one it is.
