In brief. When SEBI moves against manipulation, front-running, pump-and-dump schemes, or any conduct that distorts a fair market, the weapon is almost always the same: the PFUTP Regulations, read with Section 12A of the SEBI Act. It is the single most-cited rulebook in the enforcement record. Its reach comes less from the words of the regulations than from how broadly the Supreme Court has read one word in them: "fraud."
Securities regulation has specialised rules for specific sins: a takeover code for open offers, an insider-trading code for trading on unpublished price-sensitive information, a disclosure code for listed companies. But markets are inventive, and wrongdoing rarely waits for a rule written precisely for it. SEBI therefore needs one broad, catch-all prohibition that can reach novel forms of market abuse. That prohibition is the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, commonly called PFUTP. Understanding how it works explains most of what SEBI does when it alleges market fraud.
What exactly is PFUTP, and why is it everywhere?
The PFUTP Regulations, 2003, which replaced an earlier 1995 set, are SEBI's general anti-fraud code, anchored in the statutory prohibition of Section 12A of the SEBI Act.1 They are deliberately broad, designed to capture market-distorting conduct that no more specific rule addresses. That breadth is why the fraudulent-and-unfair-trade-practices category is the most heavily used violation head across the body of orders, appearing in thousands of matters spanning front-running, synchronized trading, price ramping, and misstatement. When SEBI cannot pin conduct on a bespoke rule, it reaches for PFUTP.
What do Regulations 3 and 4 actually prohibit?
Two regulations do the heavy lifting. Regulation 3 is the general prohibition: no person may buy, sell or deal in securities in a fraudulent manner, use any manipulative or deceptive device, or employ any scheme or artifice to defraud in connection with dealing in securities.2 Regulation 4 then sets out a long list of specific practices that are deemed manipulative or unfair, including creating a false or misleading appearance of trading, artificially raising or depressing prices, and inducing dealing through misleading statements.2 Together they operate as a wide net (Regulation 3) backed by named, recognisable offences (Regulation 4), so SEBI can either invoke the general principle or point to a specific deemed practice.
How broadly has the Supreme Court read "fraud"?
Very broadly, and that is the doctrinal heart of PFUTP. In SEBI v. Kanaiyalal Baldevbhai Patel, decided on 20 September 2017, the Supreme Court held that "fraud" under the regulations does not require the act to be committed in a deceitful manner at all.3 What matters is effect: an act, expression, omission or concealment that has the effect of inducing another person to deal in securities is fraudulent, and SEBI need only establish that the person induced would not have acted as they did but for the inducement.3 On this reasoning the Court brought front-running by a non-intermediary squarely within PFUTP. The practical consequence is large: SEBI does not have to prove a dishonest state of mind in the criminal sense; it has to prove that conduct distorted another participant's decision. That effect-based reading is what gives PFUTP its formidable reach.
How does SEBI prove manipulation when there is no smoking gun?
Through patterns, to a civil standard. Market manipulation rarely comes with a confession or a paper trail that says "manipulate this stock." In SEBI v. Kishore R. Ajmera, the Supreme Court confirmed that the regulator may establish manipulation on the preponderance of probabilities, drawing an inference from circumstantial evidence where the totality of facts points logically to wrongdoing.4 Synchronized buy and sell orders matched to the second, circular trading among connected accounts, and sudden volume in an illiquid scrip are the classic fingerprints. Because the standard is civil, those fingerprints can carry the case.
What does a PFUTP finding cost?
It can cost on three fronts at once. A penalty for fraudulent and unfair trade practices is imposed under Section 15HA of the SEBI Act, capped after the 2014 amendments at ₹25 crore or three times the profit made from the conduct, whichever is higher.5 On top of the penalty, a Whole-Time Member can order disgorgement of the wrongful gain and debarment from the market. The difference between a fine and a clawback matters, and we separate the three kinds of monetary order in Does SEBI Fine You, or Take Back What You Made?. How those tracks fit together is set out in How Does SEBI Actually Enforce the Law?.
What are the standard defences to a PFUTP charge?
The strongest defences attack the chain SEBI must build. The first is causation and effect: after Kanaiyalal, the regulator must show the conduct had the effect of inducing another to deal, so a noticee can argue no such inducement or effect existed. The second is connection: that the trades relied on are not linked to the noticee, or that an innocent commercial rationale explains them. The third is the standard of proof itself: that the circumstantial pattern is too thin to support even a civil inference. None of these is a silver bullet, but each goes to an element SEBI cannot simply assume.
Why is PFUTP the backbone of Indian market regulation?
Because it is the rule that does not run out. Specific codes police known wrongs; PFUTP, read through the effect-based lens of Kanaiyalal and proved through the evidentiary approach of Ajmera, lets SEBI reach conduct the drafters never anticipated. That flexibility is also its tension: a prohibition broad enough to catch anything must be applied with discipline so it does not catch everything. The case law from the Supreme Court down to the Securities Appellate Tribunal is, in large part, the story of drawing that line. For how often PFUTP actually appears across the enforcement record, see our data study, How Does India's Securities Regulator Actually Work?
Sources & citations
- SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (replacing the 1995 Regulations), read with s. 12A of the SEBI Act, 1992.
- PFUTP Regulations, 2003, Regulation 3 (general prohibition of fraudulent and unfair trade practices) and Regulation 4 (specified manipulative, fraudulent and unfair practices).
- SEBI v. Kanaiyalal Baldevbhai Patel, Supreme Court of India, judgment dated 20 September 2017, (2017) 15 SCC 1, holding that fraud under the PFUTP Regulations turns on the effect of inducing another to deal in securities, and bringing front-running by a non-intermediary within the regulations.
- SEBI v. Kishore R. Ajmera, Supreme Court of India, judgment dated 23 February 2016, (2016) 6 SCC 368, on proof of manipulation by preponderance of probabilities and circumstantial evidence.
- SEBI Act, 1992, s. 15HA (penalty for fraudulent and unfair trade practices), as amended by the Securities Laws (Amendment) Act, 2014.
About this article. Part of Legal Wires' SEBI Enforcement series, an analytical guide to India's securities enforcement record. This is general information and commentary, not legal advice; do not rely on it for any specific matter.
Prepared with AI assistance and reviewed by the Legal Wires editorial team. Regulations and judgments are cited above; where SEBI findings are described, they are the regulator's findings or allegations as recorded in its orders and, where applicable, as modified on appeal. Last reviewed: 27 May 2026.
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