Due Process Under Pressure: SEBI's Enforcement Surge, SAT's Procedural Guardrails

India’s capital markets are at a pivotal crossroads, with SEBI intensifying its crackdown on fraudulent practices. From April 2024 to June 2025, over 880 entities faced enforcement actions, signalling a decisive shift from reactive inspections to proactive, technology-driven oversight.

However, as enforcement becomes more assertive, questions about procedural fairness have gained importance. The Securities Appellate Tribunal has recently begun to push back against investigative shortcuts, thereby reinforcing the principles of natural justice outlined in the Constitution. This evolving relationship between SEBI and SAT provides important insights for market participants dealing with regulatory scrutiny.

SEBI’s enforcement strategy now prioritises early detection and deterrence. Administrative warning letters are increasingly used to flag suspected insider trading, allowing entities to self-correct the non-compliance issues. The Integrated Market Surveillance System has enabled the regulator to detect proxy trading, coordinated patterns, and violations during blackout periods, often routed through third parties or connected entities.

This tech-enabled vigilance has enhanced market transparency. However, it has also caused procedural compression. Interim orders are sometimes issued without fully disclosing the relied-upon documents. Searches and seizures are being done by SEBI with approval of the magistrate, designated court, and confidential reports are cited without redaction. Response timelines are shortened, and urgency is emphasised even in cases without imminent market risk.

Recent SAT decisions suggest a recalibration of procedural expectations. In RattanIndia Power Ltd. v. SEBI (Jan 2025), the Tribunal held that audit committee non-compliance must be assessed with proportionality, especially when SEBI’s order lacked a clear articulation of urgency. The ruling emphasised that prima facie findings and a demonstrable need for immediate intervention must back interim directions.

In Sunil Agro Foods Ltd. (June 2025), SAT addressed SEBI’s failure to disclose relied-upon documents in a material event violation case. The Tribunal directed that even redacted versions must be shared to enable meaningful representation, reinforcing that confidentiality cannot override the right to a fair hearing.

These rulings reflect a jurisprudential shift: SAT is no longer merely reviewing the substance of SEBI’s findings but actively scrutinising the investigative process itself. This procedural lens is becoming central to appellate relief.

Three key imperatives emerge for entities and individuals facing regulatory scrutiny:

• Pre-emptive Compliance: Strengthening internal controls around unpublished price-sensitive information, blackout periods, and designated person disclosures is essential. SEBI’s surveillance tools now detect patterns that were previously invisible.

• Procedural Vigilance: Parties must assert their right to access all relied-upon materials and challenge any deviation from SEBI’s prescribed procedures. Procedural lapses are increasingly being recognised as grounds for relief.

• Narrative Framing: Responses to show-cause notices should go beyond technical rebuttals. A coherent, fact-based narrative, aligned with investor protection principles, can influence both SEBI’s stance and SAT’s proportionality analysis.

Their role is not limited to statutory compliance or symbolic presence on the board. SEBI and the courts have consistently emphasised that independent directors are expected to exercise active oversight, apply critical judgment, and scrutinise the company’s affairs with independence and objectivity.

Unlike other financial regulators, SEBI does not yet operate with a publicly codified procedural manual for enforcement. The absence of standardised protocols, covering timelines, disclosure norms, and rights during inquiry, creates uncertainty and increases litigation.

There is a compelling case for SEBI to publish a procedural framework akin to the RBI’s Enforcement Department Manual. Such codification would not dilute regulatory deterrence. Rather, it would enhance transparency, reduce ambiguity, and reinforce SEBI’s credibility as a quasi-judicial authority.

India’s regulatory architecture must evolve to strike a balance between enforcement efficiency and procedural integrity. SEBI’s technological leap is commendable, but it must be matched by jurisprudential discipline. SAT’s recent rulings offer a blueprint for restoring equilibrium.

As regulatory investigations become increasingly complex, market participants must adapt not only in terms of compliance but also in their approach to engaging with the process. The road ahead demands strategic clarity, procedural assertiveness, and a renewed commitment to principled conduct.