The Securities and Exchange Board of India has disposed of adjudication proceedings against Kedar Mal Poddar HUF in a case involving allegedly non-genuine reversal trades in illiquid stock options on the Bombay Stock Exchange.
The proceedings concerned four reversal trades executed in two option contracts during SEBI’s investigation period of April 1, 2014, to September 30, 2015. According to the show-cause notice, the trades generated an artificial volume of 4,86,304 units and created a false or misleading appearance of market activity.
However, SEBI did not determine whether the alleged trading conduct violated its Prohibition of Fraudulent and Unfair Trade Practices Regulations.
Instead, the Adjudicating Officer closed the proceedings after finding that Kedar Mal Poddar HUF had been dissolved through a partition on September 15, 2017. Its assets had been divided among the members, while its Karta subsequently died on January 10, 2020.
As the entity against which the proceedings were initiated was no longer legally in existence, SEBI held that the case had become infructuous and did not survive against the noticee.
The order, dated August 31, 2026, offers an important distinction: disposal of regulatory proceedings on a legal or procedural ground is not necessarily the same as a decision clearing the noticee of the underlying allegations.
The Wider Illiquid Stock Options Investigation
The matter arose from SEBI’s investigation into large-scale reversal trading in the stock-options segment of BSE.
During the investigation period, SEBI identified 2,91,744 trades as allegedly non-genuine. These represented approximately 81.40% of all trades executed in the BSE stock-options segment during that period.
According to the regulator, these trades generated artificial volume and gave the market a misleading appearance of activity.
Kedar Mal Poddar HUF was identified as one of several entities allegedly involved in such transactions.
Illiquid option contracts typically have limited trading interest and few active counterparties. Because genuine buyers and sellers may be scarce, coordinated transactions between the same parties can materially influence the price and reported trading volume.
This makes illiquid contracts particularly vulnerable to reversal-trade arrangements.
What Is a Reversal Trade?
A reversal trade generally involves two parties entering into a transaction and then reversing it with each other within a short period, often on the same day.
For example, one party may sell an option contract to another at one price and later buy back the same contract from that party at a substantially different price.
The parties may end the day with little or no genuine market exposure. However, the transactions can still create reported turnover, artificial volume or a predetermined transfer of profit and loss.
Not every purchase followed by a sale is improper. Legitimate traders frequently close or reverse positions because of changing market conditions.
Regulatory concern arises when the pattern suggests that the parties coordinated their orders, repeatedly traded with each other, selected unusual prices or conducted transactions that lacked a genuine commercial rationale.
Such transactions may mislead other market participants by creating the impression that an otherwise illiquid contract has genuine liquidity, demand or price discovery.
Allegations Against Kedar Mal Poddar HUF
SEBI’s show-cause notice alleged that the HUF executed four reversal trades in two contracts.
Those trades reportedly generated an artificial volume of 4,86,304 units.
The regulator alleged that the HUF traded with the same counterparties on the same day and reversed its positions in contracts that were illiquid. As a result, the transactions were characterised as non-genuine, manipulative and deceptive.
The notice alleged violations of Regulations 3(a), 3(b), 3(c), 3(d), 4(1) and 4(2)(a) of the PFUTP Regulations, 2003.
These provisions broadly prohibit manipulative, fraudulent and deceptive devices in connection with securities transactions. They also prohibit conduct that creates a false or misleading appearance of trading in the market.
Had the allegations been established, the noticee could have faced a monetary penalty under Section 15HA of the SEBI Act.
However, the case did not proceed to a final determination on the nature of the trades.
Why the HUF’s Legal Status Changed the Case
A Hindu Undivided Family is recognised as a separate taxable and legal arrangement for specific purposes. It operates through its Karta and includes members who hold an interest in the family property.
The HUF may cease to exist following a complete partition where its assets are divided among the members and the joint status comes to an end.
In response to SEBI’s notice, the authorised representative submitted that Kedar Mal Poddar HUF had been dissolved on September 15, 2017.
A partition deed dated September 15, 2017, was produced in support of this position. The record showed that the HUF’s members had separated and its assets had been divided among them.
The representative also submitted the death certificate of Kedar Mal Poddar, the Karta of the HUF, showing that he died on January 10, 2020.
After examining the documents, SEBI accepted that the HUF had ceased to exist as a legal entity from the date of partition.
The show-cause notice, however, was issued later—on August 2, 2022.
Therefore, when formal adjudication proceedings were initiated, the entity named as the noticee had already ceased to exist for nearly five years.
Why the Proceedings Became Infructuous
A proceeding becomes infructuous when subsequent facts or legal circumstances make it unnecessary, ineffective or incapable of producing an enforceable result.
In the present matter, SEBI found that the adjudication could not continue against an entity that no longer existed.
The order did not substitute the former members of the HUF as noticees, nor did it determine any individual liability relating to the alleged trades. It was limited to the proceedings initiated specifically against Kedar Mal Poddar HUF under the 2022 show-cause notice.
Consequently, SEBI disposed of the case without imposing a penalty.
This outcome is based on the legal status of the noticee—not on a finding that the four reversal trades were genuine or compliant.
That distinction matters when reporting or interpreting regulatory orders. Phrases such as “case disposed of,” “proceedings abated” or “matter became infructuous” should not automatically be treated as an exoneration on merits.
Does Dissolution Automatically End Every Liability?
The order should not be understood as establishing a general principle that dissolving an entity removes all regulatory exposure.
The outcome of any case depends on several factors, including:
- The legal form of the noticee
- Whether proceedings began before or after dissolution
- Whether liability can legally continue against members or representatives
- Whether the relevant law permits recovery from successors
- Whether individual participants were separately named
- The nature of the alleged contravention
- The evidence connecting particular persons with the transactions
Regulators may structure proceedings differently where the law supports continuing action against responsible individuals, legal representatives or successor entities.
Businesses should therefore not view closure, restructuring, partition or dissolution as a compliance strategy. Historical records and liabilities may continue to matter long after operations have ended.
Record-Keeping Remains Essential After Closure
The case also demonstrates why records must be preserved even after an organisation or family arrangement has been dissolved.
The partition deed and death certificate were central to establishing that the noticee no longer existed. Without reliable documentation, the authorised representative may have faced difficulty proving the date and legal effect of the HUF’s dissolution.
Entities that close, restructure or undergo succession should preserve:
- Governing and dissolution documents
- Partition or settlement deeds
- Tax returns and financial records
- Bank and demat statements
- Trading records and contract notes
- Correspondence with brokers and regulators
- Details of asset and liability distribution
These records may be needed years later during tax assessments, regulatory proceedings, recovery action or disputes between stakeholders.
Shunyatax Global Insights
The order highlights that regulatory outcomes may depend not only on the alleged transaction but also on the legal identity and continuing existence of the noticee.
Dissolution, partition and succession should be properly documented, and historical financial and trading records should remain accessible even after an entity stops operating.
If you or your business is facing challenges involving an HUF, entity closure, regulatory proceedings, financial records or securities compliance, Shunyatax Global can provide professional guidance to help you evaluate the matter clearly and respond appropriately.
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Disclaimer: This article is based on SEBI’s adjudication order dated August 31, 2026. The proceedings were disposed of because the noticee had ceased to exist; the underlying trading allegations were not adjudicated on their merits. This article is for general information and does not constitute legal, tax, financial or investment advice.