Supreme Court Grants Relief To RIL; Sets Aside SEBI’s Fraud Finding & ₹447 Crore Disgorgement In 2007 RPL Futures Trading Case

The Bench held that Reliance’s futures positions through twelve entities could not, by themselves, be treated as a fraudulent device merely because SEBI alleged concentration or breach of position limits. The Court clarified that even assuming limits prescribed under the SCRA framework were exceeded, such breach could not automatically be termed fraud or manipulation under the PFUTP Regulations framed under the SEBI Act.

On the 2001 SEBI Circular, the Court held that open position limits in the futures market are aimed at preventing market manipulation, preserving the integrity of price discovery, and minimizing systemic risk, and therefore cannot be narrowly interpreted to exclude coordinated conduct by persons acting in concert.

A Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan in a statutory appeal challenging the decision of the Securities Appellate Tribunal, observed, “In our view, the PFUTP Regulations cannot be attracted on the sole circumstance of the appellant no. 1 using 12 agency agreements to take excess position limits and it was necessary for the respondent to prove whether the manner in which these agency agreements were utilised was fraudulent or not”.

“In our considered view, this is a hyper-literal interpretation of the 2001 SEBI Circular without any reference to the objective sought to be achieved by the said Circular. Position limits in the futures market help in preventing or minimizing market manipulation and preserving the integrity of price discovery. They also reduce systemic risks that accompany large concentrated positions thereby preventing market crashes. To say that these objectives apply to individual clients/customers but not to persons acting in concert is erroneous. We say so because even though individual clients/customers, who are acting together, may be well within the client/customer level position limits, yet the effect of their coordinated transactions may have adverse impact on the market and participants”, it noted.

Senior Advocates Harish Salve, Ritin Rai appeared for the appellants and Senior Advocates Arvind P. Dattar, Pratap Venugopal appeared for the respondent.

As per the brief facts, a corporate decision taken by Reliance Industries Limited in March 2007 to divest a 5% stake in its subsidiary, Reliance Petroleum Limited. To hedge against an anticipated price correction, the company executed principal-agent agreements with twelve independent entities to take short positions of 9.92 crore shares in the November 2007 futures segment for the said stock between November 01, 2007 and November 06, 2007, on a one-month basis. Profits from these transactions were contractually routed back to the company.

Simultaneously, the company disposed of large volumes of shares in the cash market, including 1.95 crore shares offloaded in the final ten minutes of trading on the settlement date, generating substantial cumulative gains across both segments.

Pertinently, the Whole Time Member of the Securities and Exchange Board of India held that the company had structured an unfair and fraudulent scheme by cornering 93.63% of the open interest in the futures market.

SEBI ordered the disgorgement of the profits earned through these transactions. On appeal, the Securities Appellate Tribunal dismissed the challenge by a 2:1 majority, affirming that the agency agreements were part of a pre-planned scheme to evade position limits and distort market conditions.

Reversing the majority view of the Tribunal, the Court said that the 2001 SEBI Circular did not bar crossing position limits per se but regulated them through required disclosures.

The Court observed that the 9.92 crore open positions were proportionate to the cash segment risk exposure and qualified as valid commercial hedges. The Court held that inducement or independent price manipulation is a necessary condition to invoke the anti-fraud framework, which was completely absent here.

“…We say so because when the appellant no. 1 through the 12 entities took 9.92 crore positions in the RPL futures segment, it intended to hedge the risk of underlying 22.5 crore shares that were yet to be sold in the cash segment. As on 23.11.2007, the appellant no. 1 had already sold about 18 crore shares in the cash segment, therefore, 4.5 crore shares remained to sold out of the 22.5 crore. It is the contention of the respondent that because the appellant no. 1 retained all 7.97 crore positions in the futures market instead of closing 3.47 crore positions, it indulged in speculation rather than hedging”, it observed.

“…there is no legal requirement to ensure a 1:1 ratio of hedges to stock quantity. While a perfect hedge may be desirable from the point of view of monitoring whether parties are conducting themselves in a lawful manner, yet the economics of perfect hedging may not always be sound. This is the reason for there being no legal mandate regarding the same”, it said.

Consequently, the Court set aside the impugned orders of the Tribunal and the Whole Time Member concerning the findings of fraud under the PFUTP Regulations. The operative directions ordered the setting aside of the disgorgement directive and mandated the refund of ₹250 crore deposited by the company into the Investor’s Protection Fund.

However, the Court upheld the regulatory penalties levied directly for the technical non-disclosure and position limit violations under the relevant SEBI circulars.

Cause Title: Reliance Industries Limited & Ors. v. The Securities and Exchange Board of India (Neutral Citation: 2026 INSC 585)

Appearances:

Appellants: Harish Salve, Ritin Rai, Sr. Advs., K. R. Sasiprabhu, AOR, Amey Nabar, Aditya Swarup, Swati N Jain, Vishnu Sharma A S, Ritika Sinha, Yasharth Misra, Ribhav Pande, Namrata Saraogi, Madhav Agarwal, Advocates.

Respondent: M/S. K Ashar & Co., AOR, Arvind P. Dattar, Sr. Adv., Pratap Venugopal, Sr. Adv, Abhishek Singh, Advocates.

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