The Securities and Exchange Board of India (SEBI) has imposed a penalty of ₹5 lakh on Laxmi Chhugani for executing non-genuine reversal trades in illiquid stock options on the Bombay Stock Exchange.
According to an adjudication order dated 4 September 2026, six trades were executed in two stock-option contracts, generating an artificial volume of 8,60,000 units. SEBI concluded that the transactions created a false or misleading appearance of trading and violated the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.
The investor claimed that she had not authorised the transactions and that her broker, Nine Star Broking Private Limited, may have used her account. However, SEBI rejected this defence because no documentary evidence or complaint concerning unauthorised trading was placed on record.
The order highlights an important responsibility for every market participant: investors remain accountable for activities conducted through their trading accounts unless they can support claims of misuse with timely complaints and reliable evidence.
Background of the Illiquid Options Investigation
SEBI observed large-scale reversal trading in the BSE stock-options segment between 1 April 2014 and 30 September 2015.
Its investigation found that 2,91,744 transactions, representing approximately 81.40% of all trades executed in the relevant segment during the investigation period, were allegedly non-genuine. According to the regulator, these transactions generated artificial volumes in illiquid stock-option contracts.
Laxmi Chhugani was identified as one of the entities whose account was involved in reversal transactions. SEBI consequently initiated adjudication proceedings for alleged violations of Regulations 3(a), 3(b), 3(c), 3(d), 4(1) and 4(2)(a) of the PFUTP Regulations.
A show-cause notice was issued on 3 August 2021. The investor was subsequently informed about SEBI’s Illiquid Stock Options Settlement Schemes introduced in 2022 and 2024. However, she did not avail herself of either settlement opportunity, and the adjudication proceedings continued.
Six Trades Across Two Option Contracts
According to SEBI’s trade data, six non-genuine trades were executed through the investor’s account in the following contracts:
- GAIL15MAR390.00CE
- DISH15APR75.00PEW1
The transactions allegedly generated a combined artificial volume of 8,60,000 units.
In the GAIL options contract, the account purchased a total of 3,30,000 units at an average price of approximately ₹7.50 and subsequently sold the same quantity at ₹1.25. The transactions were carried out with Akash Ispat Private Limited as the counterparty.
SEBI noted that the position was reversed within a few minutes and that the buy and sell rates differed by as much as six times. The trades executed through Laxmi Chhugani’s account represented 100% of the total market volume in that contract during the relevant period.
In the DISH options contract, 1,00,000 units were purchased at an average rate of ₹2.40 and sold at an average rate of ₹0.15. The trades were carried out with Mukut Behari Agarwal as the counterparty.
In this contract, the trading attributed to the investor represented approximately 0.92% of the total volume. However, SEBI noted that the artificial volume generated accounted for 100% of her own trading volume in the contract.
Why SEBI Considered the Trades Non-Genuine
A reversal trade occurs when a person buys or sells a contract and subsequently reverses the position with the same counterparty, generally on the same trading day.
Reversal transactions are not automatically illegal. They become a regulatory concern when the overall pattern indicates that the trades lacked a legitimate commercial purpose and were designed to create artificial volume or predetermined profits and losses.
In this case, SEBI focused on several features:
- The positions were reversed within a short period.
- The same counterparties appeared in both legs of the transactions.
- The quantities purchased and sold were identical.
- There were substantial differences between the buy and sell prices.
- The transactions took place in illiquid option contracts.
- In one contract, the trades constituted the entire market volume.
The Adjudicating Officer observed that the repeated matching of quantity, timing and counterparty was unlikely to be coincidental. SEBI concluded, on the basis of the overall circumstances, that the transactions reflected a prior meeting of minds and were carried out at predetermined prices.
The regulator therefore held that the trades were manipulative, deceptive and capable of creating a misleading appearance of activity in the securities market.
Investor Claimed the Broker Misused Her Account
Laxmi Chhugani denied authorising the disputed transactions. She submitted that after receiving the SEBI notice, she contacted Nine Star Broking Private Limited and requested a copy of her account records, but the broker did not provide them.
She maintained that no financial transactions took place between her and the broker and claimed that any transactions appearing in her name must have been carried out independently by the broker.
An affidavit supporting this position was also submitted in August 2026.
SEBI, however, found that the investor had not produced records demonstrating that the trades were unauthorised. The order specifically noted that she had not provided evidence showing that a complaint concerning unauthorised trading had been filed against the broker.
The regulator also observed that there was nothing on record disputing the fact that the transactions were executed through her trading account. SEBI therefore treated the regulatory obligations connected with that account as her responsibility.
The defence was regarded as an unsupported statement and rejected.
Why Evidence of Unauthorised Trading Is Critical
The case illustrates that merely claiming that a broker misused an account may not be sufficient in regulatory proceedings.
An investor disputing trades should be able to provide supporting materials such as:
- Emails or letters sent to the broker immediately after discovering the trades
- Complaints filed with the exchange or through SEBI’s SCORES platform
- Bank statements showing the absence of corresponding payments
- Trading and demat statements
- Call recordings or order instructions
- Evidence that passwords, credentials or authorisations were misused
- Requests made to the broker for contract notes and client ledgers
The timing of the complaint can be particularly important. A contemporaneous objection generally carries greater evidentiary value than a denial raised only after regulatory proceedings begin.
Investors should therefore review their account statements regularly and report unfamiliar transactions immediately.
The ₹5 Lakh Penalty
SEBI concluded that the violations of the PFUTP Regulations stood established and that the matter attracted a monetary penalty under Section 15HA of the SEBI Act.
The order noted that the available evidence did not quantify any disproportionate gain or unfair advantage obtained by Laxmi Chhugani. It was also not possible to determine the precise loss suffered by investors.
However, the regulator found that six non-genuine trades across two contracts were sufficient to demonstrate a violation. A penalty of ₹5 lakh was consequently imposed.
The amount must be paid within 45 days of receiving the order. Failure to pay may result in recovery proceedings, including interest and the attachment or sale of movable and immovable assets.
Practical Lessons for Investors and Businesses
The order offers several important compliance lessons:
- Regularly review trading accounts, contract notes and exchange alerts.
- Never share trading credentials, blank cheques or unrestricted account access.
- Immediately report unauthorised trades to the broker, exchange and SEBI.
- Preserve all communications and evidence relating to disputed transactions.
- Ensure that every derivative transaction has a genuine commercial or investment rationale.
- Exercise additional caution when trading in illiquid contracts.
- Investigate transactions involving the same counterparty and matching quantities.
- Obtain professional assistance as soon as a show-cause notice is received.
- Do not ignore settlement opportunities without evaluating their legal and financial consequences.
The Larger Takeaway
The decision demonstrates that responsibility often follows the trading account through which a transaction is executed. An investor seeking to distance herself from disputed trades must support that position with credible and timely documentation.
It also shows that screen-based execution does not automatically establish that counterparties acted independently. SEBI can infer coordination from the timing, price, volume and repeated matching of transactions, even where direct evidence of communication is unavailable.
Strong account monitoring and prompt action are therefore essential protections for every investor.
Shunyatax Global Insights
Investors, trusts and businesses should periodically reconcile their trading accounts with bank statements, contract notes, tax records and broker communications. Any unidentified trade should be challenged immediately and documented through official channels.
If you or your business is facing challenges involving a SEBI show-cause notice, allegations of unauthorised trading, PFUTP proceedings, illiquid options or regulatory penalties, Shunyatax Global
can provide professional guidance to help you evaluate the transactions, organise the required records and proceed with clarity and confidence.
Phone: +91 94615 14198
Email: office@shunyatax.in
Website: www.shunyatax.in
Disclaimer: This article is based on a publicly issued SEBI adjudication order and is intended solely for general information. It does not constitute legal, investment, tax or regulatory advice. Readers should consult qualified professionals for advice based on their specific circumstances.