CS Executive · Capital Market and Securities Laws

Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market: formula sheet

Full chapter guide

Key formulas

Section 12A, SEBI Act (base prohibition): No person shall directly or indirectly use manipulative or deceptive devices, defraud, or act as fraud or deceit in connection with issue or dealing in securities listed or proposed to be listed on a recognised stock exchange; This is the Act-level ban that the PFUTP Regulations give effect to.
Fraud (core idea): Act, omission, concealment or misrepresentation, by a person or with connivance or by an agent, to induce another to deal in securities, whether or not there is wrongful gain or avoidance of loss; Inclusive definition. Gain or loss need not be proved. Recall the examples from your study material.
Dealing in securities: Buying, selling or subscribing, or agreeing to buy, sell or subscribe, as principal or agent, and any act that forms part of it; Wide enough to cover agreements and acts connected with the dealing.
Penalty, Section 15HA: Not less than ₹5,00,000; may extend to ₹25,00,00,000 or 3 × profits made, whichever is higher; The floor is five lakh rupees. The upper limit is the higher of the two amounts.
SEBI measures, Section 11(4): By reasoned order, SEBI may suspend trading, restrain access to the market, impound proceeds, attach property for up to 90 days, or direct no disposal of assets; Hearing must be given before or after the order. Attachment needs Special Court confirmation within ninety days.
Section 12A(a): manipulative or deceptive device: No person shall directly or indirectly use or employ any manipulative or deceptive device or contrivance in connection with issue, purchase or sale of listed or proposed-to-be-listed securities, in contravention of the Act, rules or regulations; Applies to securities listed or proposed to be listed on a recognised stock exchange.
Section 12A(b): scheme to defraud: No person shall employ any device, scheme or artifice to defraud in connection with issue or dealing in securities; Covers any plan or trick aimed at defrauding, not only a single false statement.
Section 12A(c): fraud or deceit: No person shall engage in any act, practice or course of business which operates or would operate as fraud or deceit upon any person; The words 'would operate' mean the act need not have caused actual loss.
Section 15HA: penalty: Penalty ≥ ₹5,00,000 and may extend to the higher of ₹25,00,00,000 or 3 × profits made from the practice; Minimum is five lakh rupees. The upper limit is whichever is higher: twenty-five crore rupees or three times the profits.
Section 11(4A): power to levy penalty: SEBI may, by an order for reasons recorded in writing, levy penalty under Section 15HA after holding an inquiry in the prescribed manner; Section 15HA is expressly listed in Section 11(4A).
Section 11(4): interim measures: SEBI may, by order with recorded reasons, suspend trading, restrain access to the market, impound proceeds, attach bank accounts for up to 90 days, or bar disposal of assets; Hearing must be given before or after the order. Attachment needs confirmation from the Special Court within ninety days.
Prohibition on insider trading: Section 12A(d): no person shall directly or indirectly engage in insider trading; Clause (e) also bars dealing while in possession of material or non-public information, or communicating it, in contravention of the Act, rules or regulations.
Three acts under section 15G: Dealing on the basis of UPSI + Communicating UPSI + Counselling or procuring dealing on the basis of UPSI; The section applies to an insider and to securities of a body corporate listed on a stock exchange. Communication is exempt if in the ordinary course of business or required by law.
Penalty for insider trading (section 15G): Not less than ₹10 lakh; up to ₹25 crore or 3 × profits made, whichever is higher; The minimum is fixed at ₹10 lakh. The upper limit is the higher of the two amounts.
Penalty for fraudulent and unfair trade practices (section 15HA): Not less than ₹5 lakh; up to ₹25 crore or 3 × profits made, whichever is higher; Do not mix the minimum amounts of sections 15G and 15HA.
SEBI's function: Section 11(2)(g): prohibiting insider trading in securities; Section 11(1) makes it SEBI's duty to protect investors and regulate the market.
Minimum penalty under Section 15HA: Minimum = ₹5,00,000; The penalty shall not be less than five lakh rupees.
Maximum penalty under Section 15HA: Maximum = higher of (₹25,00,00,000, 3 × profits made out of the practice); Compare both figures and take the larger one as the ceiling.
Break-even profit for the ceiling: 3 × profit > ₹25 crore when profit > ₹8.33 crore (approx.); Above this profit, the three-times-profit limb becomes the ceiling.
Factors for fixing the amount: Section 15J: (a) gain or unfair advantage; (b) loss to investors; (c) repetitive nature; These guide the quantum within the range.
Related provisions: Section 11B(2): SEBI may levy penalty after inquiry; Section 24: imprisonment up to ten years, or fine up to ₹25 crore, or both; Penalty and prosecution are separate. Section 24 opens with 'without prejudice to any award of penalty'.
SEBI's duty (section 11(1)): Protect investors + promote development of + regulate the securities market; The base of all SEBI's investigation and enforcement powers.
Penalty under section 15HA: Minimum ₹5 lakh; maximum = higher of (₹25 crore, 3 × profits made); Applies to fraudulent and unfair trade practices relating to securities.
Civil court powers (section 11(3)): Discovery and production of documents; summoning and examining on oath; inspection of books; issuing commissions; Available when exercising powers under section 11(2)(i), 11(2)(ia) or 11(2A).
Attachment (section 11(4)(e)): Attachment up to 90 days; Special Court confirmation within 90 days; Only property or accounts related to proceeds actually involved in the violation.
Appeal to SAT (section 15T): Appeal within 45 days of receiving a copy of the order; SAT to endeavour to dispose of within 6 months; SAT may admit a late appeal if there was sufficient cause.
Penalty levy (section 11(4A)): Order with written reasons + inquiry in the prescribed manner; Covers sections including 15HA.

Quick revision

Section 12A of the SEBI Act bars manipulative and deceptive devices, fraud, insider trading and unlawful acquisition of control.
Section 12A covers securities listed or proposed to be listed on a recognised stock exchange.
Section 15HA penalty: not less than ₹5 lakh, up to ₹25 crore or three times the profits, whichever is higher.
Section 15G penalty for insider trading: not less than ₹10 lakh, up to ₹25 crore or three times the profits, whichever is higher.
Section 15G covers dealing on the basis of unpublished price sensitive information, communicating it, and counselling or procuring others to deal.
Communication is not an offence under Section 15G if required in the ordinary course of business or under any law.
Section 11(1) makes it SEBI's duty to protect investors and to promote and regulate the securities market.
Section 11(2)(g) lists prohibiting insider trading as a SEBI measure.
Section 11(4) lets SEBI suspend trading, restrain market access, impound proceeds and direct that assets not be disposed of.
Attachment of bank accounts or property under Section 11(4) is for not more than ninety days unless the Special Court confirms it.
Section 11(4A) lets SEBI levy penalties under Section 15HA and Section 15G after an inquiry in the prescribed manner.
SEBI must give an opportunity of hearing to the persons concerned before or after passing orders under Section 11(4).

Common mistakes

Saying fraud needs proof of wrongful gain or loss. Fix: Write that under the Regulations it is immaterial whether there is any wrongful gain or avoidance of loss.
Treating the Regulations as a separate law from the SEBI Act. Fix: State that the Regulations are subordinate rules made under the Act, and tie them to Section 12A.
Quoting the wrong penalty, such as a fixed maximum only. Fix: Write all three parts: minimum ₹5,00,000; maximum the higher of ₹25,00,00,000 or three times the profit.
Saying liability needs proof of actual loss to an investor. Fix: Section 12A(c) covers acts that 'operate or would operate' as fraud or deceit. Loss is not a condition.
Treating insider trading and market manipulation as the same thing. Fix: Remember: insider trading exploits secret information; manipulation distorts price or trading appearance.
Saying insider trading means only buying or selling. Fix: Section 15G also covers communicating UPSI and counselling or procuring others to deal.
Stating the maximum as always ₹25 crore. Fix: Always compute three times the profit and compare it with ₹25 crore.
Treating ₹25 crore plus three times profit as a sum. Fix: The limit is one figure, the higher of the two. Never add them.
Stating the 15HA maximum as a fixed ₹25 crore. Fix: Say it may extend to ₹25 crore or three times the profits made, whichever is higher.
Forgetting the minimum penalty of ₹5 lakh. Fix: Always quote both limits: not less than ₹5 lakh.

Exam tips

Write the source line first: made by SEBI under the SEBI Act, 1992, linked to Section 12A.
Learn the definition of fraud word by word, and mention that gain or loss need not be shown.
For case questions, use the order: provision, facts, conclusion, and cite Section 12A or 15HA where it matters.
Keep the Section 15HA figures ready: ₹5,00,000 floor and the higher of ₹25,00,00,000 or three times the profits.
Papers are written, so a clear short answer with correct terms earns more than a long vague one.
Learn Section 12A(a) to (c) almost word for word. Examiners reward the exact phrases 'manipulative or deceptive device' and 'operates or would operate as fraud or deceit'.
For case-study questions, name the practice first (for example circular trading or front running), then link it to the section and penalty.
Always write the Section 15HA penalty with minimum and the 'whichever is higher' limit. Check the arithmetic if profit is given.