SEBI recovers dues from Prabhjeet Singh Chawla in stock options case

The Enforcement Action

The Securities and Exchange Board of India (SEBI) has closed its recovery proceedings against Prabhjeet Singh Chawla (PAN: ACAPC4870A) in the long-running matter of trading in illiquid stock options on the BSE, marking Recovery Certificate No. RC9216 of 2026 as complete. SEBI's enforcement record shows a notice of demand under the certificate issued on 10 July 2026, a completion-of-recovery-certificate entry dated 6 August 2026, and a release order for the same certificate dated 7 August 2026. Read together, these entries indicate that the certificate has run its course and been discharged.

A recovery certificate is the instrument SEBI uses to collect a penalty that an adjudicating officer has already imposed, once the payment window in the underlying order has lapsed. The demand against Mr Chawla arises, per the certificate's own description, from the "Illiquid Stock Options" matter, the SEBI enforcement drive in which the regulator found that a large number of entities executed non-genuine reversal trades that created artificial volume in the stock options segment of the BSE. The completion notice, read with the release order of the following day, records the closure of the certificate rather than any fresh finding against the individual.

The recovery-certificate pages do not state the amount of the underlying penalty, and it is therefore not reproduced here. Mr Chawla has not publicly responded to the recovery proceedings, and no appeal or representation by him is recorded on the enforcement page. This report treats the recovery certificate and its notice of demand as the primary record of the action.

How the Scheme Worked

The recovery against Mr Chawla sits at the tail end of one of SEBI's largest single enforcement exercises. According to SEBI's adjudication orders in the matter, the regulator observed large-scale reversal of trades in the stock options segment of the BSE and investigated trading in illiquid stock options for the period 1 April 2014 to 30 September 2015, which the orders term the investigation period.

SEBI describes a reversal trade as one in which "an entity reverses it's buy or sell positions in a contract with subsequent sell or buy positions with the same" counterparty during the same day. In the orders, such trades are characterised as non-genuine because they lack a basic trading rationale and create a false or misleading appearance of trading through artificial volume. One representative adjudication order in the matter records that a total of 2,91,744 trades, comprising 81.40 per cent of all trades executed in the BSE stock options segment during the investigation period, were alleged to be non-genuine.

The procedural history set out in SEBI's orders is long. An interim order was passed on 20 August 2015 and confirmed by orders dated 30 July 2016 and 22 August 2016. A detailed investigation, completed in 2018, found that 14,720 entities were involved in executing non-genuine trades in the segment, and the interim proceedings were disposed of by a final order dated 5 April 2018, with action against the entities taken, in the orders' words, "in a phased manner". SEBI later framed successive one-time settlement schemes, including the SEBI Settlement Scheme, 2022 and the ISO Settlement Scheme, 2024, to let entities settle. Where entities did not settle, adjudication resumed and penalties followed; where penalties went unpaid, SEBI moved to recovery certificates such as RC9216. That is the sequence that ends, for this individual, with the completion notice of August 2026.

The Law Invoked

SEBI's adjudication orders in the illiquid stock options matter proceed under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, known as the PFUTP Regulations. The orders cite Regulations 3(a), (b), (c) and (d), which prohibit dealing in securities in a fraudulent manner or through any manipulative or deceptive device, and Regulations 4(1) and 4(2)(a), which bar unfair trade practices and, specifically, "indulging in an act which creates false or misleading appearance of trading in the securities market".

Where a violation is established, the penalty is imposed under Section 15HA of the SEBI Act, 1992, which provides for a penalty of "not less than five lakh rupees" extending up to twenty-five crore rupees or three times the profits made, whichever is higher. The quantum is set with regard to the factors in Section 15J of the Act, namely the disproportionate gain, the loss to investors, and the repetitive nature of the default.

The recovery stage rests on Section 28A of the SEBI Act, which allows the regulator to realise unpaid penalties as arrears would be recovered, including by attachment and sale of movable and immovable property. Recovery Certificate No. RC9216 of 2026 is an instrument under that provision.

What Happens Next

For Mr Chawla, the completion and release entries indicate that the certificate has been closed and that no further step under it is contemplated. For the wider matter, SEBI's phased approach means adjudication and recovery continue against other entities named across the 2014-2015 dataset, and the regulator has periodically posted fresh notices of demand, completion entries, and release orders as individual certificates conclude.

The underlying adjudication orders are, as a matter of process, appealable. A person aggrieved by a SEBI adjudicating officer's order may appeal to the Securities Appellate Tribunal (SAT) within the prescribed limitation period, and a SAT order may in turn be appealed to the Supreme Court on a question of law. At the recovery stage, actions of the recovery officer under Section 28A can also be challenged before the SAT. Nothing in a recovery certificate reopens the merits of the underlying finding; it is enforcement of an existing demand, not a fresh proceeding.

Because this is a regulatory adjudication rather than a criminal case, the standard applied is the civil test of preponderance of probabilities, which SEBI's orders in the matter invoke by reference to Supreme Court rulings. There is no criminal charge, arrest, or conviction involved in the recovery certificate discussed here.

What It Means

For ordinary investors, the illiquid stock options matter is a reminder that the regulator's memory is long. The trades in question date from 2014 and 2015; the recovery certificate closing this individual's file is dated 2026. SEBI's willingness to pursue penalties for more than a decade, through settlement schemes and then recovery under Section 28A, signals that unpaid regulatory penalties do not quietly lapse.

The practical lesson concerns the mechanics of the scheme itself. Reversal trades in deeply illiquid options, executed with the same counterparty within seconds and at wide price differences, were used to manufacture artificial volume and, in many documented cases in this category, to book contrived profits or losses. Retail investors should be wary of any arrangement, tip, or intermediary that promises assured profits or convenient "losses" through options contracts that barely trade. If a broker or adviser proposes such trades, that is a signal to step back.

Investors can verify whom they are dealing with. SEBI maintains public registers of registered intermediaries and investment advisers on its website, and the stock exchanges publish member lookups. Checking registration before acting, and being sceptical of trades with no evident commercial rationale, remains the simplest protection against being drawn into arrangements a regulator may later find to be manipulative.

FAQ

Is this a criminal case against the person named?

No. SEBI's record shows a civil recovery proceeding flowing from a regulatory adjudication. As SEBI decides such matters, an adjudicating officer's order is a civil finding under the SEBI Act and the PFUTP Regulations, reached on the preponderance of probabilities, and it is appealable to the Securities Appellate Tribunal. There is no arrest or criminal charge attached to the recovery certificate discussed here.

What exactly did SEBI do in this action?

SEBI marked Recovery Certificate No. RC9216 of 2026, raised against Prabhjeet Singh Chawla in the illiquid stock options matter, as complete, following a notice of demand dated 10 July 2026 and a release order dated 7 August 2026. The completion entry records the closure of the certificate, which is the instrument SEBI uses to collect a penalty already imposed.

Can a SEBI order be appealed?

Yes. A person aggrieved by a SEBI adjudicating officer's order may appeal to the Securities Appellate Tribunal within the limitation period set out in the SEBI Act, and a SAT decision may be appealed to the Supreme Court on a question of law. Actions at the recovery stage under Section 28A can also be challenged before the tribunal.

What are reversal trades in illiquid stock options?

Per SEBI's orders, a reversal trade is one in which an entity reverses its buy or sell position in a contract with an offsetting sell or buy with the same counterparty on the same day. In illiquid options, SEBI found such trades created a false appearance of trading through artificial volume and lacked commercial rationale.

How can I check if my broker or adviser is registered with SEBI?

SEBI publishes registers of registered intermediaries, including brokers and investment advisers, on its official website, and the exchanges offer member and adviser lookups. Verifying registration before you transact, and treating assured-profit or assured-loss options strategies with caution, are among the most reliable safeguards.

Where can I read the official record?

The recovery-certificate entries are on SEBI's enforcement pages under recovery proceedings. This report links the completion notice for Recovery Certificate No. RC9216 of 2026 and the related notice of demand, together with a representative adjudication order in the same illiquid stock options matter.

This report is based on the official SEBI record of the completion of Recovery Certificate No. RC9216 of 2026 against Prabhjeet Singh Chawla in the illiquid stock options matter, published on SEBI's enforcement pages.