The Supreme Court has partly allowed appeals filed by Reliance Industries Limited (RIL) and others against findings of fraud and market manipulation recorded by the Securities and Exchange Board of India (SEBI).
A Bench of Justice J.B. Pardiwala and Justice R. Mahadevan held that SEBI failed to prove manipulation in trades involving Reliance Petroleum Limited (RPL) shares and futures contracts in November 2007.
As a result, the Court set aside findings under Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (PFUTP Regulations).
However, the Court upheld the penalty imposed for violations of disclosure requirements under the 2001 SEBI Circular relating to position limits.
The judgment was delivered on May 29, 2026, in Reliance Industries Limited & Ors. v. SEBI.
Background of the Dispute
The case arose from RIL’s decision in 2007 to sell 5% of its shareholding in Reliance Petroleum Limited.
At the time, RPL was a 75% subsidiary of RIL. The company planned to raise funds through various measures, including the sale of investments.
Several market analysts had described RPL as overvalued.
To hedge against the planned sale of shares, RIL entered into agreements with 12 entities. These entities took short positions amounting to 9.92 crore RPL shares in the November 2007 futures segment.
RIL also sold 20.29 crore RPL shares in the cash market during November 2007.
On November 29, 2007, the settlement date for futures contracts, RIL sold 1.95 crore shares during the final minutes of trading.
SEBI’s Allegations
SEBI alleged that RIL used the 12 entities to bypass position limits prescribed under SEBI and NSE regulations.
According to SEBI, RIL cornered a substantial portion of the futures market and deliberately pushed down the settlement price by selling shares shortly before market close.
SEBI claimed that this strategy generated unlawful gains of approximately Rs. 513 crore.
The regulator ordered disgorgement of Rs. 447.27 crore and found violations of the PFUTP Regulations, the SEBI Act, the Securities Contracts (Regulation) Act, and applicable circulars.
The Securities Appellate Tribunal (SAT) later upheld these findings through a majority decision. One member dissented and concluded that fraud had not been established.
Arguments Before the Supreme Court
Senior Advocate Harish Salve appeared for RIL.
He argued that the futures positions represented genuine hedging transactions linked to the planned sale of 22.50 crore RPL shares.
Salve contended that the regulatory framework in 2007 did not prohibit positions taken through persons acting in concert.
He also argued that any violation of position limits could attract penalties under securities regulations but could not automatically amount to fraud under the PFUTP Regulations.
Senior Advocate Arvind Datar appeared for SEBI.
He argued that RIL used the 12 entities as part of a coordinated scheme to evade position limits and earn unlawful profits.
SEBI further claimed that the final-minute sale of shares was designed to reduce the settlement price and benefit RIL’s futures positions.
Court Rejects Fraud Allegations
The Supreme Court closely examined the agency agreements, futures positions, and cash-market transactions.
The Bench held that the agency agreements alone could not establish fraud.
It noted that the 2001 SEBI Circular contained a loophole regarding persons acting in concert. Therefore, excess positions through agents could justify a regulatory penalty but not a finding of fraud without additional evidence.
The Court ruled that SEBI failed to show how the agreements were used in a manipulative or deceptive manner.
Court Accepts Hedging Defence
The Bench accepted RIL’s argument that the futures positions served as legitimate hedges against the proposed sale of 22.50 crore shares.
The Court rejected SEBI’s view that the absence of a formal hedging policy or board resolution made the transactions suspicious.
It observed that no law in 2007 required such documentation.
The Court also noted that the futures exposure remained below half of the underlying cash-market exposure.
No Proof of Price Manipulation
The Supreme Court also rejected SEBI’s allegation that RIL manipulated prices through the sale of 1.95 crore shares on November 29, 2007.
The Bench observed that many participants traded in RPL shares that day.
It criticised SEBI for attributing the entire price movement to RIL without analysing trades by other significant market participants.
The Court further noted that RIL could have sold a much larger quantity of shares if it truly intended to manipulate the market.
The Bench also found it unlikely that RIL would intentionally reduce the value of RPL because it continued to hold nearly 70% of the company.
Any significant decline in RPL’s share price would have adversely affected the value of RIL’s own investment.
For these reasons, the Court concluded that SEBI had failed to prove market manipulation.
Final Directions
The Supreme Court held that the SAT majority committed an “egregious error” by affirming the findings of fraud under the PFUTP Regulations.
The Court set aside the SAT judgment dated November 5, 2020, to the extent that it upheld findings of fraud and the disgorgement order.
It also directed authorities to refund the Rs. 250 crore deposited by RIL in the Investor Protection Fund under an earlier Supreme Court order.
However, the Court upheld the penalty imposed for violating disclosure requirements under the 2001 SEBI Circular relating to position limits.
The appeals were partly allowed, and all pending applications stood disposed of.
