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Capital Market and Securities Laws · Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market

SEBI Investigation, Adjudication and Enforcement Action for PFUTP

Updated 11 October 2026 · Fact-checked

When SEBI suspects fraudulent or unfair trade practices, it investigates using its section 11 powers, may pass interim directions, and can levy penalty under section 15HA after an inquiry. A person aggrieved by SEBI's or an adjudicating officer's order can appeal to the Securities Appellate Tribunal within 45 days.

Understand Investigation, Adjudication and Enforcement Action

SEBI has a statutory duty under section 11(1) of the SEBI Act, 1992 to protect investors and to promote and regulate the securities market. Action against market manipulation or fraud flows from this duty. Enforcement has three stages: finding the facts (investigation), deciding the consequence (penalty or directions), and review (appeal).

Investigation. Under section 11(2), SEBI can call for information, inspect, conduct inquiries and audits of stock exchanges, mutual funds, intermediaries and other persons associated with the market. It can also call for information and records from any person, including a bank or a statutory authority, if relevant to an investigation into a securities transaction. It can exchange information with foreign regulators. Section 11(2A) lets SEBI inspect the books of a listed public company, or a public company intending to list, where it has reasonable grounds to believe the company has indulged in insider trading or fraudulent and unfair trade practices.

While doing this, section 11(3) gives SEBI the powers of a civil court under the Code of Civil Procedure, 1908. These cover discovery and production of documents, summoning persons and examining them on oath, inspection of books, and issuing commissions for examining witnesses or documents.

Enforcement action. Section 11(4) allows SEBI, by an order with written reasons, in the interests of investors or the market, to act either pending investigation or after it. Measures include suspending trading in a security, restraining persons from accessing the market, impounding proceeds or securities, attaching bank accounts or property for up to ninety days, and directing a person not to dispose of assets. SEBI must give an opportunity of hearing either before or after passing such orders. Attachment must be confirmed by the Special Court within ninety days, and only property linked to the proceeds actually involved in the violation can be attached.

Penalty. Section 11(4A) lets SEBI levy penalty under listed sections, including 15HA, after holding an inquiry in the prescribed manner. Section 15HA provides that a person who indulges in fraudulent and unfair trade practices relating to securities is liable to a penalty of not less than five lakh rupees, which may extend to twenty-five crore rupees or three times the profits made, whichever is higher.

Appeal. Under section 15T, a person aggrieved by an order of SEBI or of an adjudicating officer may appeal to the Securities Appellate Tribunal (SAT). The Tribunal can confirm, modify or set aside the order.

Key rules to remember

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.

How to solve Investigation, Adjudication and Enforcement Action questions

Use this order for any question on how SEBI acts against fraud or manipulation.

  1. 1Identify the alleged conduct and confirm it is a fraudulent or unfair trade practice relating to securities.
  2. 2State SEBI's source of power: section 11(1) duty and the relevant part of section 11(2) or 11(2A) for investigation.
  3. 3Describe the investigative powers used, including civil court powers under section 11(3).
  4. 4State any interim or enforcement directions under section 11(4), noting reasons in writing and the hearing requirement.
  5. 5State the penalty: section 11(4A) inquiry and section 15HA range, then apply it to the facts if figures are given.
  6. 6Explain the appeal: section 15T, 45 days, SAT's powers, and condonation for sufficient cause.
  7. 7Close with a clear conclusion that answers the exact question asked.

Quickest way: Investigate, Direct, Penalise, Appeal

When to use it: For short-answer or case-based questions where time is limited.

  1. Write the four stages in a line: investigate, direct, penalise, appeal.
  2. Attach one section to each: 11(2), 11(4), 15HA with 11(4A), 15T.
  3. Add the key numbers: ₹5 lakh, ₹25 crore or 3 times profit, 90 days, 45 days.
  4. Apply to the facts in two or three lines and conclude.

Common mistakes in Investigation, Adjudication and Enforcement Action

  • Stating the 15HA maximum as a fixed ₹25 crore.

    Students remember the headline figure only.

    Fix: Say it may extend to ₹25 crore or three times the profits made, whichever is higher.

  • Forgetting the minimum penalty of ₹5 lakh.

    Attention goes to the upper limit.

    Fix: Always quote both limits: not less than ₹5 lakh.

  • Saying SEBI can attach property indefinitely.

    Confusion between the initial attachment and what follows.

    Fix: Attachment is for up to ninety days, and SEBI must obtain confirmation from the Special Court within that time.

  • Ignoring the hearing requirement for directions.

    Students focus on SEBI's powers and not the safeguards.

    Fix: Add that SEBI gives an opportunity of hearing either before or after passing the order, and records reasons in writing.

  • Giving the wrong appeal period or forum.

    Mixing up with periods from other laws.

    Fix: Appeal goes to SAT within forty-five days of receiving the order copy; late appeals are allowed only for sufficient cause.

  • Saying only SEBI orders can be appealed.

    Students overlook the adjudicating officer.

    Fix: Section 15T covers orders of SEBI, orders of an adjudicating officer, and orders of IRDA or PFRDA.

Worked examples

Example 1

SEBI finds that a promoter of a listed company manipulated the share price and made a profit of ₹10 crore. What is the maximum penalty under section 15HA?

Show the solution
  1. Section 15HA penalty may extend to ₹25 crore or three times the profits made, whichever is higher.
  2. Three times the profit = 3 × ₹10 crore = ₹30 crore.
  3. Compare ₹25 crore with ₹30 crore. The higher is ₹30 crore.
  4. The minimum remains ₹5 lakh.

Answer: The penalty is not less than ₹5 lakh and may extend to ₹30 crore, being three times the profit, which is higher than ₹25 crore. SEBI levies it under section 11(4A) after an inquiry in the prescribed manner.

Example 2

SEBI, during an investigation into suspected fraudulent trading, attaches the bank account of a broker on 1 March. Explain the validity of the attachment and the remedies available.

Show the solution
  1. Section 11(4)(e) allows SEBI to attach bank accounts or property of an intermediary or person associated with the market involved in a violation, for a period not exceeding ninety days.
  2. SEBI must record reasons in writing and give an opportunity of hearing before or after the order.
  3. Within ninety days of attachment, SEBI must obtain confirmation from the Special Court. Only property or transactions related to the proceeds actually involved in the violation may be attached.
  4. If SEBI passes an order, the broker as a person aggrieved may appeal to SAT under section 15T within forty-five days of receiving the order copy.
  5. SAT may confirm, modify or set aside the order after hearing the parties.

Answer: The attachment is valid if reasons are recorded, a hearing is given and it is limited to proceeds involved. It lapses unless SEBI obtains Special Court confirmation within ninety days. The broker may appeal to SAT within forty-five days.

Exam tips

  • Write the section number next to each power; examiners reward the provision first, then the facts, then the conclusion.
  • In penalty problems, always compute three times the profit and compare it with ₹25 crore.
  • Mention the hearing and written reasons whenever you describe section 11(4) directions.
  • Quote the 45-day appeal period with the sufficient-cause proviso.
  • Keep the answer in order: investigation, directions, penalty, appeal.

Practice questions from Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market

Investigation, Adjudication and Enforcement Action: frequently asked questions

Who can appeal to the Securities Appellate Tribunal?

Any person aggrieved by an order of SEBI or of an adjudicating officer under the SEBI Act can appeal under section 15T. Orders of IRDA and PFRDA can also be appealed there.

What is the time limit to appeal to SAT?

The appeal must be filed within forty-five days from the date the copy of the order is received. SAT may admit it later if it is satisfied there was sufficient cause for the delay.

What is the penalty for fraudulent and unfair trade practices?

Under section 15HA, the penalty is not less than ₹5 lakh and may extend to ₹25 crore or three times the profits made, whichever is higher.

Can SEBI act before the investigation ends?

Yes. Section 11(4) lets SEBI pass interim measures, such as restraining market access or impounding proceeds, pending investigation or inquiry. It must record reasons and give a hearing.

How quickly should SAT decide an appeal?

SAT must deal with the appeal as expeditiously as possible and endeavour to dispose of it within six months of receiving it.