Investor Protection Reimagined: Ombudspersons, Charters, and the Limits of Redress

India has an increasingly sophisticated enforcement architecture with respect to the securities market, and the Securities and Exchanges Board of India (SEBI) has a history of high-profile regulatory action. Yet, retail investors in India continue to face persistent challenges in securing timely and meaningful redressal for routine grievances against intermediaries and listed entities. These grievances often arise in relatively routine but consequential contexts, such as delays or failures in transfer of securities, unauthorised trades or misuse of client accounts by intermediaries, misspelling of financial products, incorrect or delayed credit of corporate benefits, or difficulties in accessing funds or securities due to operational lapses in depositories and brokers. It is against this backdrop that the Securities Markets Code 2025 (SMC) seeks to reconfigure the framework for investor protection and grievance redressal.

The SMC was introduced in the Lok Sabha and then sent to the Standing Committee on 18 December 2025. It seeks to repeal and replace the SEBI Act 1992; Securities Contract Regulation Act 1956 (SCRA), and the Depositories Act 1996 and provides for a modern regulatory framework for investor protection and capital mobilisation at a scale commensurate with the emerging needs of the fast-growing Indian economy. The SMC seeks to strengthen investor protection, promote investor education and awareness, and ensure effective and time-bound redressal of investor grievances. It enables the effective and prompt resolution of investor grievances by introducing an ombudsperson, thereby enabling a comprehensive platform for redressal of any unresolved grievances. The enactment of the SMC must be situated in the context of regulatory fragmentation across the SEBI Act, SCRA, and Depositories Act; increasing complexity of capital markets; rising retail participation; and delays in enforcement and grievance redress. A unified code was therefore necessary to streamline institutional powers and reduce regulatory overlap. This was also necessary to enable more timely and effective investor protection.

Currently, investors may seek redressal of grievances through multiple mechanisms, including Investor Service Centres and the investor grievance redressal and arbitration framework operated by stock exchanges in accordance with SEBI regulations, as well as through SEBI’s centralised online grievance redressal system, the SCORES portal. In addition, the SEBI (Investor Protection and Education Fund) Regulations 2009 provide that amounts disgorged through enforcement actions and credited to the Investor Protection and Education Fund (IPEF) along with the accrued interest be used for restitution to investors. The restitution must be subject to (i) investor identification and (ii) demonstration of a direct link between the violation and the loss suffered.

Despite this steadily expanding enforcement architecture and high-profile regulatory actions by SEBI, the issues of retail and small investors in Indian capital markets, as outlined above, persist. The lived experience of the investor often diverges sharply from the narrative of strong regulatory action projected through headline-grabbing penalties and settlement orders. While enforcement actions serve a deterrent purpose, the investor is rarely the direct or timely beneficiary of large enforcement actions. For instance, monetary penalties are paid to the Consolidated Fund or the IPEF; settlement orders often close proceedings without individual restitution; disgorgement, where ordered, is slow and procedurally complex. The International Organization of Securities Commission (IOSCO) also recognises the need for a fair, efficient, and accessible dispute resolution mechanism.

The re-attempt to create such a mechanism by introducing an investor charter (a formal articulation of investor rights and responsibilities issued by the regulator) and an ombudsperson indicates a step towards the realisation of routine, accessible and non-adversarial investor grievance redressal with respect to deficiencies in services provided by registered intermediaries; delay or failure in transfer of securities; brokerage issues; mis-selling; or other regulatory violations.

This article examines how the SMC signals a shift in Indian securities regulation from a primarily disclosure-driven model to one grounded in the idea of fair treatment of investors. It focuses in particular on the two aforementioned institutional innovations: a. the investor charter and b. the ombudsperson mechanism. While these measures appear to strengthen the framework for routine grievance redress, the article argues that their effectiveness is likely to be constrained by structural issues, including overlaps with SEBI’s adjudicatory powers, concerns around independence, and the risk of creating a parallel dispute resolution system.

Before delving into this further, it is useful to distinguish between three broad regulatory approaches that inform securities law. First, disclosure-based regulation, which focuses on requiring issuers and intermediaries to provide material information such as financial performance, risks, and corporate developments, on the assumption that informed investors can make rational decisions. Second, merit regulation, which involves the regulator assessing the substantive quality or fairness of securities and investment schemes and in some cases restricting or prohibiting offerings that do not meet prescribed standards. Third, a fairness-based approach, as reflected in the SMC, which shifts the focus towards ensuring that investors are treated equitably in practice by combining disclosure obligations with enforceable rights and accessible grievance redress mechanisms.

Disclosure and Merit Standards and the Idea of Fair Treatment

In this section, we examine how the SMC operationalises the idea of fair treatment within its regulatory design. It focuses on the manner in which disclosure, which traditionally has been the central tool of investor protection, is reworked and situated within a broader framework that connects investor rights, grievance redress, and enforcement to investor outcomes. We first show how fair treatment is now a statutory objective and then analyse how disclosure obligations are recast and embedded within this fairness-oriented framework.

1. From disclosure to fair treatment as a statutory objective

The SMC marks a significant recalibration of the Indian securities regulation landscape in that it formally enshrines fair treatment of investors as a statutory objective rather than treating it as a derivative outcome of disclosure-based regulation. While the regulatory architecture continues to draw from the foundational premise of the SEBI Act 1992, which is that timely and adequate disclosures enhance market integrity, SMC represents a normative shift as it expressly recognises investor rights and embeds disclosure, grievance redressal, and enforcement within a unified fairness framework.

2. Disclosure as an investor-centric statutory obligation

Under the SEBI Act 1992 and the regulations framed thereunder, investor protection was largely pursued indirectly through issuer-centric disclosure obligations, that is, the requirement that companies provide timely and accurate information on their financial position, risks, and material developments. Disclosure-based regulation is premised on the belief that informed investors promote efficient price discovery (securities prices more accurately reflect available information) and market discipline (companies and intermediaries are incentivised to act responsibly under investor scrutiny). SMC retains this logic but advances it by transforming disclosure from a purely instrumental mechanism into a statutory duty linked to fair treatment. Clause 35, for instance, mandates that ‘securities market service providers’ provide a fair disclosure of information at such frequency and in such manner as may be specified. By placing this obligation in the parent legislation, SMC signals that a disclosure is no longer merely regulatory compliance but a core element of equitable participation in the securities market.

3. Codification of investor rights and the investor charter

Importantly, SMC also formally recognises investor rights as regulatory objectives. Clause 11, for example, enumerates the functions of SEBI, expressly including investor protection, promotion of fair treatment, and facilitation of orderly market functioning. This is reinforced in Clauses 71–73, which together institutionalise investor protection as a core regulatory function rather than a collateral consequence of market supervision.

Clause 71 empowers SEBI to specify an investor charter, laying down principles of investor protection, rights, and responsibilities. Prior to SMC, investor charters existed largely as regulatory or administrative instruments, with uncertain enforceability. Their elevation and mention in the SMC could be seen as a response to structural risks inherent in disclosure-based regulation, which can be categorised as information asymmetry, unequal bargaining power, and limited investor capacity to process complex disclosures. By codifying the investor charter, the SMC mitigates these risks by converting normative expectations of fair treatment into legally cognisable standards, thereby enhancing regulatory accountability and investor confidence.

Further, Clause 72 mandates the establishment of investor grievance redressal mechanisms, not only by SEBI but also by securities market service providers and issuers, while Clause 73 provides for the appointment of one or more ombudspersons to lead the receiving and resolving of investor grievances.

These provisions directly link disclosure obligations to investor outcomes by ensuring that if disclosures fail to prevent harm, investors have structured avenues for redressal of their grievances.

4. Governance disclosure and regulatory accountability

Additionally, the SMC extends disclosure standards to governance-related disclosure obligations for the regulator itself. Clause 8 requires board members of SEBI to disclose any direct or indirect pecuniary interests, including those of family members, and to recuse themselves from decisions where conflicts exist. Though this is a ‘governance’ rather than a ‘market’ disclosure requirement, it serves in the interest of fairness of regulatory decision-making by reducing conflicts that could undermine investor trust.

5. Proportional enforcement and civil defaults

The notion of fair treatment also animates SMC’s approach to regulatory intervention and enforcement. It decriminalises many minor, procedural, and technical contraventions into civil defaults primarily to ease compliance burdens for regulated entities and to avoid disproportionate sanctions for non-serious errors. While this shift is not directly investor-protective, it contributes to a more proportionate and credible enforcement framework, allowing regulators to focus on serious violations that materially affect investor interests. While this does not amount to ‘merit regulation’ in the classical sense of assessing the economic quality of securities, it does reflect a proportionality standard in enforcement design, which works towards fairness by calibrating penalties to the gravity and outcome of defaults rather than formal breach alone. This proportionality is reinforced in SMC’s penalty framework. Clauses 103–109 prescribe graduated penalties for different classes of contraventions, linking maximum penalties to unlawful gains made or loss caused to investors or others, and requiring factors such as disgorgement and circumstances that are aggravating or mitigating to be considered. This integrates an outcome-oriented measure into the sanctioning calculus, aligning enforcement standards with investor protection.

It is important to distinguish this approach from classical ‘merit regulation’. The SMC does not grant SEBI the authority to vet the intrinsic merits or economic soundness of securities or investment schemes prior to issuance. Rather, its merit-sensitive dimensions, such as proportional penalties (sanctions calibrated to the gravity of misconduct and harm caused), limitation periods for investigations (which are meant to restrict the time within which enforcement may be initiated), and civil default treatment (the reclassification of certain violations from criminal offences to civil penalties) operate within a conduct regulation paradigm that emphasises fairness of process and investor outcomes. (For reference, see securities law scholarship and comparative international literature distinguishing disclosure-based and merit-based regulatory models.)

In sum, SMC’s disclosure standards and its proportional regulatory design are best understood not as independent regulatory silos but as mutually reinforcing mechanisms under the umbrella of ‘fair treatment’. Disclosure ensures that material information reaches investors equitably; while proportional enforcement and grievance redressal mechanisms ensure that the regulatory response to harm prioritises effective restitution and fairness in outcomes. Together, these features signal a substantive shift from a purely formalistic disclosure regime to one where disclosure and conduct standards are evaluated through the normative lens of investor fairness.

Do Ombudspersons and Investor Charters Strengthen Investor Protection?

Historically, the idea of an ombudsperson in India was based on a suggestion that came from the Joint Parliamentary Committee (JPC), which, as per the committee, drew on the success of the banking ombudsperson.

Curiously, the idea of ombudsperson is not new for SEBI too. SEBI’s Ombudsman Regulations (2003), which was amended in 2003 and then in 2006, established a mechanism for the handling of investor complaints against intermediaries and listed companies. It was a way to allow for amicable settlements or adjudication, but legal issues surrounding the lack of an enforcement mechanism for the ombudsperson award or the power to award compensation led to its repeal in 2023. Courts and tribunals have in the past held that SEBI does not have the power to adjudicate disputes between entities. In SEBI v Franklin Templeton Trustee Services Pvt Ltd (2020), the Karnataka High Court observed that the SEBI Act does not confer a right on investors to seek adjudication of complaints before SEBI. In contrast, the National Consumer Disputes Redressal Commission, in Vaman Nagesh Upaskar v India Infoline Ltd (2020), exercised jurisdiction under the Consumer Protection Act 1986 to adjudicate a dispute involving the unauthorised use of a demat account and granted compensation against the depository participant, recognising the investor as a consumer. These have now been largely taken care of through Chapter X, which focuses on the investor charter and investor grievance redressal mechanisms, in the SMC.

Interestingly, the JPC’s recommendations relied on the banking ombudsperson as a point of reference, although the Supreme Court of India (SCI) had previously highlighted its role and limitations in India. In Canara Bank v PRN Upadhyaya (1998), the SCI clarified that the banking ombudsperson must follow the directions of the Reserve Bank of India (RBI) when resolving complaints. The court set aside an award made by the ombudsperson for failing to comply with RBI guidelines on interest rates for loans for leased properties, ordering a fresh review in accordance with those regulations. In M/S Durga Hotel Complex v Reserve Bank of India (2007), the SCI highlighted that the banking ombudsperson has limited jurisdiction and cannot proceed with a complaint if the matter is taken to another legal forum. The court emphasised that the ombudsperson is a non-adversarial body (it seeks to resolve disputes through informal, conciliatory processes rather than contested hearings between opposing parties). It also held that any adversarial proceedings, such as those involving a Debt Recovery Tribunal (where parties formally present evidence and arguments before a decision-maker), should be given priority in exercising jurisdiction over the dispute. The predominance of adversarial proceedings over non-adversarial proceedings is subject to caveats that are not addressed here. Therefore, the SMC and the ombudsperson regulations made thereunder will have to address these issues of jurisdictional overlap, information symmetry, and independence.

Regarding jurisdictional overlap, Clause 78 of the SMC may be of concern, as the ombudsperson’s order will not bar SEBI from initiating action, which may lead to a situation similar to the one that the Durga Hotel Complex judgment dealt with. The question of independence under Clause 73 of the SMC, when the regulator’s officers are employed as ombudspersons, might bear on the proceedings as it may constrain the ability of the mechanism to meaningfully hold the regulator accountable for systemic deficiencies, even where such issues contribute to investor harm. There is, however, some respite under the SMC regarding information symmetry, as detailed below.

The current regulatory ombudsperson system lacks institutional memory because their awards/orders are not published, leading to recurring disputes with no reference to precedent. This leads to a lack of coherence, which hampers the development of a shared understanding among regulated entities in relation to how similar issues are resolved. Proposed Clause 11(2)(y) of the SMC addresses this information asymmetry with a mandate to publish the orders of the ombudsperson. The analyses of some experts suggest that anonymised orders, issued without detailed reasoning, would be a preferable approach. The perception might be to cushion the market’s reaction to the ombudsperson’s decisions. However, this would undermine market discipline by removing the deterrent effect on companies that breach their obligations to investors.

Design Challenges

The interaction between the ombudsperson mechanism and SEBI’s adjudicatory powers under the SMC raises various structural questions: while the SEBI Act is proposed to be repealed, SEBI continues to wield quasi-judicial authority under the SMC. The ombudsperson operates parallelly as a non-adversarial forum, but overlap may arise when grievance redressal requires findings that bear on regulatory violations, illustrating the ‘limits of redress’ referenced in the title of this article. The provisions for a timeframe-based investor grievance redressal mechanism (IGRM) and subsequent access to the complaint mechanism of an ombudsperson on non-resolution marks an institutional shift. According to the SMC, an investor may place a complaint with the ombudsperson if their grievance is not addressed through the IGRM. This bar on parallel proceedings under Clause 74 of SMC operates largely at a procedural level and does not eliminate substantive overlap, as the same underlying conduct may still be examined across forums for different purposes. As grievance redressal in capital markets often requires the ombudsperson to examine conduct that may also determine rights and liabilities, it risks encroachment into SEBI’s adjudicatory domain.

At the time of the redressal of the complaint, if the ombudsperson is of the opinion that the respondent has contravened any of the provisions of the SMC, he may inform SEBI. Capital market disputes frequently overlap with regulatory non-compliance and private contractual injury. If the ombudsperson mechanism begins to adjudicate questions that effectively determine rights and liabilities, it risks encroaching upon SEBI’s quasi-judicial domain and the jurisdiction of specialised tribunals. The regulations under SMC therefore must provide for clear subject-matter limits. The ombudsperson should remain a forum for resolving service-level failures, procedural lapses, and breaches of fair treatment standards, rather than becoming a parallel dispute resolution body for complex market misconduct. Further, forum shopping (a practice where parties strategically choose between available forums to obtain a more favourable outcome) will have to be prevented to ensure that parties do not take advantage of the non-adversarial grievance redressal system for enforcement arbitrage (exploiting differences between regulatory or adjudicatory forums to avoid stricter consequences) or to bypass evidentiary scrutiny.

SEBI will also have an opportunity to use the grievance data to identify systemic market issues. To achieve this, it must institutionalise feedback loops in the form of anonymised publication of complaint outcomes, integration of ombudsperson findings into supervisory reviews, and risk-scoring of intermediaries based on grievance trends. Without such integration, the redress framework may provide closure to individual investors while failing to prevent future harm.

Conclusion

By repealing and replacing outdated laws, the SMC establishes a framework to ensure the fair treatment of investors and enhance mechanisms for grievance redressal. The incorporation of the ombudsperson concept and the focused approach to investor rights signal a priority for speedy redressal of investor grievances, along with enforcement measures. As the Indian economy continues to grow, the emphasis on transparency, accountability, and investor empowerment will be crucial in maintaining market integrity and protecting the interests of all participants in the securities market. The ombudsperson appears to address crucial issues of speedy dispute resolution, but not without challenges posed by jurisdictional issues and the nature of the mechanism.