Supreme Court Grants Relief To Reliance Industries In 2007 RPL Futures Trading Case, Sets Aside SEBI's ₹447 Crore Disgorgement Order

The Supreme Court on Friday (May 29) set aside the ₹447.27 crore disgorgement order imposed by the Securities and Exchange Board of India, being approved by the Securities Appellate Tribunal, on Reliance Industries Ltd (RIL) in connection with alleged manipulative trading in the futures segment of Reliance Petroleum Ltd. (RPL) during November 2007.

Partly allowing the appeal filed by Reliance Industries Limited, a bench of Justice JB Pardiwala and Justice R Mahadevan held that the finding of “fraud” under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (PFUTP Regulations) could not be sustained, observing that the Securities Appellate Tribunal (SAT) had committed an “egregious error” in affirming SEBI's conclusions on manipulation and fraudulent intent.

"We have reached the conclusion that the SAT in its majority judgment committed an egregious error in passing the impugned judgment in so far as the question of fraud under regulations 3 and 4 of the PFUTP Regulations respectively is concerned," the Court observed.

Since the finding of fraud under the PFUTP Regulations was overturned, the judgment authored by Justice Pardiwala held that the consequential disgorgement order directing payment of ₹447.27 crore along with interest at 12% could not survive and directed refund of Rs. 250 Crores deposited by RIL pursuant to earlier interim orders passed during the pendency of the proceedings.

“We direct that the appellant No. 1 be refunded Rs. 250 crores deposited in Investors Protection Fund pursuant to the order of this Court dated 17-12-2020,” the Court directed.

At the same time, the Court upheld SEBI's finding that RIL had violated position limit requirements prescribed under the 2001 SEBI circulars governing derivatives trading, characterising the breach as a technical regulatory violation rather than a fraudulent market manipulation exercise.

"We concur with the observations of the SAT in its majority judgment as regards the penalty to be levied on the appellant No. 1 for alleged violation of the disclosure requirements under 2001 SEBI circular in respect of position limits," the Court clarified.

The Case

The dispute arose from RIL's decision in March 2007 to raise funds by selling approximately 5% of its stake (22.5 crore shares) in its subsidiary Reliance Petroleum Ltd. Between November 1-6, 2007, RIL engaged 12 entities as agents to take net short positions of 9.92 crore shares in the November 2007 RPL Futures at an average price of ₹265.67 per share.

Subsequently, between November 6-29, 2007, RIL sold 20.29 crore RPL shares in the cash segment, realizing approximately ₹4,500 crore. On the expiry day, November 29, 2007, RIL sold 2.25 crore shares in the last ten minutes of trading – with 12 out of 17 orders placed below the Last Traded Price (LTP) – which resulted in the settlement price being fixed at ₹215.25 per share. This gave RIL an additional profit of ₹513 crore from the futures segment.

SEBI alleged that this was a well-planned fraudulent scheme where RIL used the principal-agent model to circumvent position limits and manipulated the settlement price by depressing the cash market price in the last ten minutes of trading.

According to SEBI, the depressed settlement price enabled RIL to earn an additional profit of approximately ₹513 crore from its short futures positions.

SEBI treated the arrangement as a pre-planned manipulative scheme involving the use of front entities to circumvent position limits and influence settlement prices in the derivatives market.

Aggrieved by the SAT's order affirming the SEBI's decision, the RIL appealed to the Supreme Court.

Headnote

Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 – Regulation 2(1)(c), 3 and 4 – Definition and Proof of 'Fraud' and 'Market Manipulation' – Inducing another person to deal in securities remains a strict requirement for establishing fraud under Regulation 2(1)(c) - Where the respondent authority is unable to show or prove direct inducement or injury to third parties, a higher burden of proof is cast upon it to cogently and sufficiently establish the factum of price manipulation. In such cases, the standard of proof required is a higher degree of the preponderance of probabilities - Motives and suspicions alone cannot form the sole basis for holding that there was fraudulent intent. [Relied on SEBI v. Kanhaiyalal Baldevbhai Patel (2017) 15 SCC 1; SEBI v. Kishore R. Ajmera (2016) 6 SCC 368; SEBI v. Rakhi Trading (P) Ltd. (2018) 13 SCC 753; Paragraphs 175 - 207]

Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 – Regulations 3 and 4 – Hedging vs. Market Manipulation – Concentration of Open Interest – Concentration of positions or "cornering the market" by itself cannot be considered per se manipulation or a fraudulent device under the PFUTP Regulations if it is validly justified by the commercial consideration of hedging - Hedging includes anticipatory hedging to mitigate risk against potential price corrections - There is no legal mandate or policy requiring a perfect 1:1 ratio of hedges to stock quantity, nor was there any legal requirement in 2007 for a specific board resolution or a pre-existing written policy to execute equity derivatives hedges. [Relied on Pankaj Oil Mills v. CIT, 1976 SCC OnLine Guj 33; Paras 187 - 193]

SEBI Circular dated 02.11.2001 – Client/Customer Level Position Limits – Mode of Calculation – Position limits under the 2001 SEBI Circular are applicable on the combined open positions across all derivative contracts on an underlying stock at an exchange - It is erroneous to calculate client specific position limits or market concentration merely on the basis of a singular, specific one-month series (e.g., November futures series) instead of aggregating holdings across all series (including near-month, mid-month, and far-month futures along with options) of that underlying stock on the exchange. [Paragraphs 151 - 154]

SEBI Circular dated 02.11.2001 – Principle of "What cannot be done directly, cannot be done indirectly" – Principal-Agent Relationship and Position Limits – A client cannot circumvent the prescribed individual client-level position limits by splitting trades and appointing multiple independent entities/agents to open separate accounts for its sole benefit - Since the 2001 SEBI Circular creates an implicit duty to disclose trades that cross mandated thresholds, executing such aggregate transactions through a non-disclosed principal-agent arrangement violates the circular's disclosure requirements. [Relied on Firm of Pratapchand Nopaji v. Firm of Kotrike Venkatta Shetty, (1975) 2 SCC 208 and Jagir Singh v. Rambir Singh, AIR 1979 SC 381; Paras 139 - 140]

Securities Contracts (Regulation) Act, 1956 – Section 18A – Validity of Derivative Contracts Exceeding Position Limits – Section 18A of the SCRA nowhere mandates that a transgression of the client-level position limits specified by an Exchange or SEBI Circular will automatically have the effect of voiding or nullifying the underlying derivative contracts - Where the regulatory text prescribes explicit penalties (such as fines, suspension, or expulsion) but does not expressly mandate nullification as a consequence of a violation, courts cannot read a "void transaction" theory into the text by implication. [Paras 145 - 146]

Market Manipulation – Sale of Shares below Last Traded Price (LTP) in Cash Segment – Placing large sell orders in the cash segment during the closing minutes of a settlement day at a price discounted below the Last Traded Price (LTP) does not conclusively prove a fraudulent intent to depress prices - In an online live trading system driven by market forces, a seller may legitimately discount its asking price to ensure trade fulfillment during a brief phase of high price volatility - it is commercially improbable for a promoter retaining a massive majority stake (70%) to intentionally depress equity values, as the marginal gains reaped in the futures segment would be severely offset by the systemic depreciation of its residual corporate valuation. [Paras 202 - 225]

Cause Title: RELIANCE INDUSTRIES LIMITED AND ORS. Versus THE SECURITIES AND EXCHANGE BOARD OF INDIA (with connected case)

Citation : 2026 LiveLaw (SC) 564

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Appearance:

For Appellant(s) : Mr. Harish N Salve, Sr. Adv. Mr. Ritin Rai, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Amey Nabar, Adv. Mr. Aditya Swarup, Adv. Ms. Swati N Jain, Adv. Mr. Vishnu Sharma A S, Adv. Ms. Ritika Sinha, Adv. Mr. Yasharth Misra, Adv. Mr. Ribhav Pande, Adv. Ms. Namrata Saraogi, Adv. Mr. Madhav Agarwal, Adv.

For Respondent(s) : M/S. K Ashar & Co., AOR Mr. Arvind P. Dattar, Sr. Adv. Mr. Pratap Venugopal, Sr. Adv. Mr. Abhishek Singh, Adv.