“The legality of a policy, and not the wisdom or soundness of the policy, is the subject of judicial review.”
— Supreme Court of India
Introduction
Financial markets operate on a delicate balance between commercial freedom, regulatory supervision, and judicial accountability. In India, the Securities and Exchange Board of India (SEBI) occupies a central position in maintaining the integrity of the securities market. At the same time, its extensive statutory powers do not place its decisions beyond judicial scrutiny.
The long-running regulatory proceedings involving the National Stock Exchange of India Ltd. (NSE) provide an important illustration of this institutional boundary. The dispute surrounding NSE’s co-location and dark-fibre arrangements raised questions concerning preferential access to trading infrastructure, investor protection, regulatory discretion and the extent to which courts and appellate bodies should interfere with decisions of a specialised financial regulator.
The controversy ultimately reached the Supreme Court. In September 2026, the Supreme Court disposed of SEBI’s proceedings against NSE after the parties moved towards a settlement, bringing a major chapter of the decade-long regulatory dispute to a close. (Reuters)
The larger constitutional question, however, survives the particular dispute: when does SEBI’s regulatory authority end, and when does judicial review begin?
SEBI and the Architecture of Securities Regulation
SEBI was established to protect investors, promote the development of the securities market, and regulate the securities market. The SEBI Act, 1992 gives the regulator extensive powers to investigate market conduct, issue directions, frame regulations and take enforcement measures.
These powers are deliberately broad because securities markets are technically complex and capable of causing systemic harm when regulatory safeguards fail. Market misconduct can involve sophisticated trading systems, algorithms, institutional structures and rapidly changing financial products. Consequently, Parliament entrusted a specialised regulator with powers that an ordinary administrative authority may not possess.
But regulatory expertise is not equivalent to constitutional supremacy.
SEBI remains a statutory authority. Its powers must therefore be exercised within the limits prescribed by the Constitution, the parent legislation and principles of administrative law.
This distinction is fundamental. Regulatory expertise determines why SEBI is entrusted with decision-making; legality determines whether that decision can survive judicial scrutiny.
The NSE Co-location Controversy
The NSE controversy originated in allegations concerning its co-location facility and the manner in which certain market participants allegedly obtained access to trading infrastructure.
SEBI’s regulatory proceedings examined whether certain brokers had received an advantage through access arrangements that could affect the fairness and integrity of the market. The controversy resulted in regulatory orders and prolonged litigation before the Securities Appellate Tribunal and subsequently the Supreme Court.
The dispute became particularly significant because NSE is not simply another commercial enterprise. As a recognised stock exchange, it performs an important function within India’s financial-market infrastructure.
The regulatory question was therefore broader than whether one private entity had breached a particular rule. It concerned the integrity of market infrastructure and the obligation of an exchange to provide a fair and level playing field.
The litigation consequently demonstrated the tension between two legitimate objectives: effective financial regulation and protection against arbitrary regulatory action.
Why Courts Give Deference to SEBI
Judicial review does not ordinarily permit a court to substitute its own economic or regulatory preferences for those of an expert statutory authority.
The Supreme Court has repeatedly recognised this principle in matters involving SEBI. In Prakash Gupta v. Securities and Exchange Board of India, the Court emphasised the importance of SEBI’s specialised regulatory role and its information-gathering capabilities. The Court observed that its powers must be understood in the context of SEBI’s larger purpose of maintaining order in the securities market and protecting investors.
This approach was also reaffirmed by the Supreme Court in Vishal Tiwari v. Union of India in 2024. The Court explained that judicial review of a policy framed by a specialised regulator is concerned with questions such as violation of fundamental rights, constitutional inconsistency, conflict with statutory provisions, and manifest arbitrariness. It further cautioned that courts should not interfere merely because they believe another regulatory approach would be preferable. (Sci API)
This principle is particularly important in securities regulation.
A judge may possess extensive legal expertise, but that does not necessarily translate into expertise concerning high-frequency trading systems, exchange architecture, market microstructure, or financial risk management.
Therefore, courts generally review the legality of SEBI’s action rather than redesigning the regulatory policy themselves.
Judicial Review Is Not Judicial Abdication
Deference, however, cannot mean immunity.
SEBI’s decisions can affect substantial commercial interests, professional reputations and access to the securities market. Regulatory orders may impose financial penalties, restrictions on market participation or other serious consequences.
Consequently, the courts retain the constitutional responsibility to ensure that regulatory power is exercised lawfully.
Judicial review may become particularly important where a regulator:
- acts beyond the authority granted by statute;
- ignores mandatory statutory requirements;
- violates principles of natural justice;
- relies upon irrelevant considerations;
- concludes unsupported by the material before it;
- acts in a manifestly arbitrary manner; or
- imposes consequences without following a legally valid procedure.
The court’s role in such circumstances is not to become a competing securities regulator. Rather, it ensures that the regulator itself remains within the legal boundaries established by Parliament and the Constitution.
This distinction can be expressed simply: courts review the decision-making process and legality; they ordinarily do not replace the regulator’s technical judgment with their own.
The Role of the Securities Appellate Tribunal
The Securities Appellate Tribunal occupies an especially important position in this framework.
The SAT provides a specialised appellate forum for persons aggrieved by orders passed by SEBI and certain other financial regulators. It therefore serves as an important institutional bridge between regulatory decision-making and judicial oversight.
The NSE litigation demonstrated the significance of this appellate structure. After SEBI’s orders concerning the co-location controversy, the matter travelled through the appellate process and ultimately reached the Supreme Court.
This layered system reflects an important principle of administrative law: regulatory power should be strong enough to protect the market, but sufficiently accountable to prevent unchecked authority.
The Supreme Court’s Role
The Supreme Court’s role is particularly sensitive because securities regulation frequently involves questions containing both legal and technical dimensions.
The Court has made it clear that specialised regulators deserve substantial institutional respect. In Vishal Tiwari, while considering challenges involving SEBI’s regulatory framework, the Court stressed that technical questions in economic and financial matters should ordinarily be approached with restraint when the relevant expert regulator has considered the issue. (Sci API)
At the same time, the constitutional power of judicial review remains intact.
The Court can examine whether an authority has acted within jurisdiction, complied with statutory requirements, and respected constitutional and administrative-law standards. What it generally avoids is converting judicial review into a merits-based reassessment of every technical regulatory choice.
Thus, the constitutional relationship is not one of SEBI versus the judiciary. It is better understood as a system in which SEBI exercises specialised statutory power while courts preserve the rule-of-law limits within which that power must operate.
What the NSE Settlement Reveals
The latest development in the NSE litigation adds another dimension to the debate.
In September 2026, the Supreme Court disposed of SEBI’s proceedings against NSE following the settlement concerning the co-location and dark-fibre matters. The resolution removed a significant regulatory obstacle that had remained associated with NSE for years and came as the exchange moved closer to its long-awaited public listing. (Reuters)
The settlement should not, however, be interpreted as a simple victory for either side.
For SEBI, the prolonged proceedings demonstrate the difficulty of regulating sophisticated market infrastructure while defending regulatory conclusions through multiple levels of litigation.
For NSE, the episode demonstrates that even a major market institution remains subject to sustained regulatory scrutiny where questions concerning equal market access and governance arise.
For the legal system, the case demonstrates something broader: regulatory disputes in modern financial markets cannot always be reduced to a simple contest between administrative power and judicial power.
They involve investigation, specialised adjudication, appellate review, settlement mechanisms and ultimately constitutional oversight.
Regulatory Expertise Versus Rule of Law
The central challenge is therefore not deciding whether SEBI or the courts should have the “final say” in every matter.
The better question is: what kind of question is being asked?
If the question is whether a particular regulatory policy is commercially optimal, technically efficient, or economically preferable, considerable deference to SEBI is justified.
If the question is whether SEBI possessed statutory authority, followed a fair procedure or acted rationally on relevant material, judicial review becomes essential.
This distinction protects both institutions.
Excessive judicial intervention may weaken the effectiveness of securities regulation by encouraging courts to second-guess specialised decisions.
Excessive regulatory deference, on the other hand, may weaken accountability and create the possibility that statutory power becomes practically immune from meaningful scrutiny.
The constitutional solution lies between these extremes.
The Larger Principle of Institutional Restraint
Indian administrative law increasingly recognises that different institutions possess different forms of expertise.
SEBI has regulatory and market expertise. SAT has specialised appellate expertise. Constitutional courts possess the ultimate responsibility for determining questions of legality and constitutional validity.
The institutional boundaries should therefore be respected.
Judicial review is strongest when it performs its constitutional function without becoming regulatory administration. Similarly, regulatory authority is strongest when it accepts that expertise does not eliminate accountability.
The Supreme Court’s approach in SEBI-related matters reflects this institutional balance. The Court has repeatedly recognised SEBI’s wide regulatory and adjudicatory powers while simultaneously preserving the judiciary’s ability to intervene where constitutional or statutory limits are crossed. (Securities and Exchange Board of India)
Conclusion
The SEBI-NSE saga illustrates a fundamental principle of modern financial governance: a powerful regulator is necessary, but no statutory authority operates outside the rule of law.
SEBI must have sufficient freedom to investigate market misconduct, regulate exchanges and protect investors without constant judicial substitution of technical judgment. Yet the same regulatory power must remain subject to legality, procedural fairness, constitutional limitations and appellate supervision.
The boundary between regulatory power and judicial review is therefore not a rigid wall. It is an institutional line of responsibility.
SEBI decides matters within its specialised statutory domain. SAT provides specialised appellate scrutiny. Courts ensure that the entire regulatory framework remains consistent with law and constitutional principles.
Ultimately, the objective should not be to determine whether SEBI or the judiciary is more powerful. The objective should be to ensure that regulatory power is effective, judicial review is meaningful, and neither overwhelms the other.
The NSE controversy, including its eventual resolution in 2026, serves as a reminder that the credibility of India’s capital markets depends not merely on strong regulators or active courts, but on the disciplined interaction between the two.
References
Securities and Exchange Board of India Act, 1992, particularly the provisions relating to SEBI’s regulatory, investigative and adjudicatory functions.
Securities Contracts (Regulation) Act, 1956, concerning recognition and regulation of stock exchanges.
Securities and Exchange Board of India v. NSE Members Association & Anr., Civil Appeal Nos. 435 of 2007, 5076 of 2007 and 3003 of 2011, Supreme Court of India, judgment dated 13 October 2022. (Securities and Exchange Board of India)
Sahara India Real Estate Corporation Ltd. & Ors. v. Securities and Exchange Board of India & Anr., Civil Appeal Nos. 9813 and 9833 of 2011, Supreme Court of India, judgment dated 31 August 2012. (Indian Kanoon)
Prakash Gupta v. Securities and Exchange Board of India, Supreme Court of India, 2021.
Vishal Tiwari v. Union of India & Ors., 2024 INSC 3, Supreme Court of India. (Securities and Exchange Board of India)
SEBI v. NSE — co-location and dark-fibre proceedings, Supreme Court of India, proceedings culminating in disposal following settlement in September 2026. (Reuters)
