The Ombudsperson’s Revival, A New Era for Investor Grievance Redressal in India’s Securities Market
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) or any act or omission of an issuer.
This reintroduction of the ombudsperson concept represents an attempt to operationalise an idea first recommended by a parliamentary committee over two decades ago, but which could not be implemented due to lack of statutory backing. The question now is whether the new framework has learned from past failures and whether it can deliver the comprehensive dispute resolution mechanism that Indian investors have long deserved.
The Architecture of Redress
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.
This two-tier structure is designed to ensure that the ombudsperson is a forum of last resort, not first resort. It encourages investors to exhaust other avenues before seeking this remedy, while also providing a clear timeline to prevent indefinite delays.
The deficiency in services that may be adjudicated by the ombudsperson has been defined broadly. It means 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. 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.
This broad definition gives the ombudsperson jurisdiction over a wide range of potential grievances, from technical failures to deliberate malfeasance.
Powers and Remedies
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.
Crucially, the ombudsperson order would be binding on both the complainant and the respondent. This binding nature is essential for the mechanism to have real teeth. Without it, the ombudsperson would be merely another advisory body whose recommendations could be ignored.
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.
This preserves the regulatory authority’s power to take enforcement action while providing investors with a faster, more accessible remedy for their individual grievances.
Enforcement Mechanism
If an SMSP or an issuer/agent fails to comply with an ombudsperson order, they would be liable to a penalty of at least ₹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.
This strong enforcement mechanism addresses one of the key failures of the previous 2003 ombudsman regulations, which lacked any provision for executing orders. Without the power to enforce its decisions, the earlier ombudsman was toothless. The new framework corrects this fundamental flaw.
Learning from Past Failures
To appreciate the significance of this new framework, one must understand Sebi’s previous experience with the concept. The Sebi (Ombudsman) Regulations, 2003, were introduced with similar intentions but could not be operationalised for various reasons.
First, Sebi did not have the power to decide a dispute or a lis. The regulatory framework did not grant it adjudicatory authority over private disputes between investors and service providers.
Second, since Sebi was not clearly empowered under the SEBI Act, 1992, to grant compensation, it could not empower the ombudsperson to do so. The root problem was a lack of statutory authority.
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. This created legal uncertainty about the validity of any orders issued.
Finally, the regulations did not provide for an enforcement mechanism to execute the orders of the ombudsperson. Even if an order were issued, there was no way to compel compliance.
Consequently, the regulations were repealed in 2023, marking the failure of a well-intentioned but poorly designed mechanism.
Strengthening the New Framework
Against this backdrop, the reintroduction of the ombudsperson in the SMC is a welcome step. However, certain improvements could 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 would be advisable to require in the SMC itself—rather than leaving it to regulations—that the ombudsperson have appropriate legal training and experience. This would enhance the credibility and legitimacy of the office.
Second, the actions or omissions of the issuer or agent subject to the ombudsperson’s jurisdiction have not been specified. It would be helpful to clearly define the categories of issuer/agent-investor disputes submitted to the ombudsperson to avoid conflict of jurisdiction with the company law tribunals. Overlap and confusion would defeat the purpose of creating a streamlined mechanism.
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 would be advisable to empower the ombudsperson 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. Restorative justice is often more valuable than mere compensation.
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. This could 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. Transparency and procedural clarity are essential for building trust in the mechanism.
Conclusion: A Welcome Step Forward
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. By learning from the failures of the 2003 regulations and providing statutory backing, enforcement mechanisms, and clear procedures, the SMC has the potential to create a truly effective dispute resolution forum.
Investors in India’s securities markets have long deserved a fast, fair, and accessible mechanism for resolving grievances. The ombudsperson, if properly implemented, could deliver that. The details matter, and the suggestions outlined above would strengthen the framework further. But the direction is clear and commendable.
Q&A: Unpacking the Securities Market Code and Ombudsperson
Q1: What is the Securities Market Code (SMC) Bill, and why is it significant?
The SMC Bill, tabled in Parliament in December 2025, proposes to consolidate and reform India’s securities legislation, presently contained in three separate statutes. It significantly enhances the jurisdiction and role of Sebi. A key provision is the reintroduction of the ombudsperson—officers designated by Sebi to resolve investor grievances related to deficiency in services of securities market service providers or acts/omissions of issuers. This represents an attempt to operationalise a long-pending reform first recommended over two decades ago.
Q2: How does the new ombudsperson mechanism differ from the failed 2003 regulations?
The 2003 regulations failed for several reasons: Sebi lacked power to decide disputes; it was not empowered to grant compensation; the ombudsperson was not a judicial authority; and there was no enforcement mechanism for orders. The SMC addresses these flaws by providing statutory backing for the ombudsperson’s adjudicatory role, explicitly empowering the office to award damages, and including a strong enforcement mechanism with penalties for non-compliance (minimum ₹10 lakh, up to ₹100 crore). Orders are binding and appealable to the Securities Appellate Tribunal.
Q3: What is the process for an investor to approach the ombudsperson?
The investor must 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, the complaint is not maintainable if the investor has already initiated proceedings before any court, tribunal, or authority on the same issue. This two-tier structure ensures the ombudsperson is a forum of last resort while providing clear timelines to prevent indefinite delays.
Q4: What remedies can the ombudsperson grant?
If satisfied that the allegations are true, the ombudsperson may direct the respondent to comply with its obligations; return fees, charges, or other amounts to the complainant; or pay damages. The order is binding on both parties. If the ombudsperson finds contravention of securities laws, they may inform Sebi, which retains its enforcement powers. The article suggests expanding these remedies to include non-monetary relief, such as directions to restore the investor to their original position or implement preventive measures.
Q5: What further improvements are suggested for the ombudsperson framework?
Five improvements are suggested: (1) specifying qualifications for the ombudsperson (legal training and experience); (2) clearly defining categories of issuer/agent disputes to avoid jurisdictional conflict with company law tribunals; (3) empowering the ombudsperson to grant non-monetary remedies; (4) permitting joinder of necessary third parties whose rights may be affected; and (5) explicitly stating that proceedings are governed by natural justice and orders are made public. These would enhance the mechanism’s credibility, effectiveness, and fairness.
