Examine the role and limitations of SEBI's Informal Guidance Scheme in resolving regulatory ambiguity for market participants.

Introduced in 2003 and recently recast as the SEBI (Informal Guidance) Scheme, 2025, the Scheme allows eligible market participants to seek SEBI's written view — as an "interpretive letter" or a "no-action letter" — on how securities law applies to a proposed transaction [1][2]. It is a low-cost instrument of regulatory certainty, but an advisory one.

Role in resolving ambiguity

• Ex-ante clarity: participants learn SEBI's reading before acting, avoiding enforcement and litigation risk that a wrong self-interpretation would invite [2].
• Settling grey areas at the company law–SEBI interface: on 31 July 2026, on a request from IDBI Bank on sale of unlisted shares to non-QIB investors, SEBI clarified that an off-market secondary transfer by an existing shareholder is not a deemed public issue if purchasers stay within 200 in a financial year [3] — distinguishing a company's offer/invitation under Section 42, Companies Act, 2013 from a shareholder's transfer [4].
• Market-wide signalling: letters are published on SEBI's website, so a bilateral reply acquires quasi-precedential value for all similarly placed entities [5].
• Regulatory agility: clarification arrives without the time cost of amending regulations.

Limitations

• Not binding on the Board — it is only the Department's view, and SEBI may later adopt a different position [2].
• Conditional and fact-specific: protection holds only if the requestor acts strictly per the facts represented; slight variation removes comfort [2].
• Narrow eligibility — intermediaries, listed/soon-to-be-listed companies, AMCs and acquirers; retail investors and unregistered entities are outside [2].
• Discretionary refusal of hypothetical, general or policy-laden queries, or matters under investigation [2].
• Piecemeal: it supplements, never substitutes, rule-making — persistent issues like unlisted-share trading still needed separate regulatory action [6].

The Scheme thus functions best as a first-response mechanism, not a substitute for codified law. Converting recurring clarifications into FAQs and, where a pattern emerges, into regulations, alongside time-bound disposal and wider eligibility, would deepen its value — advancing SEBI's statutory mandate of investor protection with orderly market development.