In a significant ruling for India's securities market, the Supreme Court on Friday (29 May) granted major relief to Reliance Industries Limited (RIL), setting aside findings of fraud and market manipulation in the nearly two-decade-old Reliance Petroleum Limited (RPL) futures trading case.
The Court overturned the Securities Appellate Tribunal's majority decision that had upheld SEBI's action against the company and had led to a disgorgement order of ₹447.27 crore based on alleged unlawful gains from derivatives trading. The regulator had alleged that Reliance earned over ₹513 crore through a manipulative trading strategy in 2007. The Supreme Court, however, held that SEBI failed to establish fraud or market manipulation.
Background of the Case
The dispute traces back to November 2007, when Reliance Industries decided to divest a portion of its holding in Reliance Petroleum Limited, then its subsidiary.
According to the record, RIL planned to sell around 22.5 crore RPL shares in the cash market. To manage the risk associated with a potential fall in share prices, the company entered into futures positions through twelve entities that acted under agreements with Reliance.
SEBI later alleged that these entities were effectively acting on behalf of Reliance and were used to accumulate large positions in RPL futures contracts beyond regulatory limits. The regulator claimed that the arrangement enabled Reliance to influence the futures market and make unlawful gains.
The regulator also alleged that the company sold 1.95 crore RPL shares during the final minutes of trading on November 29, 2007, with the intention of depressing the settlement price and increasing profits in the derivatives segment.
Court's Observations
A Division Bench of Justice J.B. Pardiwala and Justice R. Mahadevan examined whether the transactions amounted to fraud under the SEBI Act and the PFUTP Regulations.
The Court held that merely using agency agreements to take positions in excess of prescribed limits could not automatically be treated as a fraudulent scheme.
The bench observed that the regulatory framework existing at the relevant time did not adequately address the issue of persons acting in concert in relation to position limits. It noted that while the arrangements may have resulted in a violation of disclosure requirements, that alone was insufficient to establish fraud.
“The PFUTP Regulations cannot be attracted on the sole circumstance of the appellant using 12 agency agreements to take excess position limits,” the Court observed.
Futures Positions Were Valid Hedges
A key issue before the Court was whether Reliance's futures trades were genuine hedging transactions or part of a manipulative strategy.
The Court accepted Reliance's contention that the futures positions were taken to hedge the risks arising from the proposed sale of a substantially larger quantity of shares in the cash market.
Rejecting SEBI's argument that the trades amounted to "naked hedges," the Court said there was no legal requirement in 2007 for a perfect one-to-one hedge ratio and found the futures positions to be commercially justified.
No Evidence of Price Manipulation
The Supreme Court also disagreed with SEBI's allegation that Reliance deliberately depressed RPL's share price by selling 1.95 crore shares during the final minutes of trading on the settlement day.
The bench noted that Reliance had refrained from selling shares when prices were lower in the days preceding the settlement and only sold when prices rose sharply on November 29, 2007.
The Court observed that if the company had genuinely intended to manipulate prices, it could have sold a much larger quantity of shares at lower prices. Instead, its conduct appeared consistent with a commercial attempt to take advantage of a sudden increase in market prices.
“The respondent was unable to discharge the higher burden of proof to establish manipulation,” the Court held.
The judgment further noted that Reliance continued to hold around 70% of RPL even after the sale, making it unlikely that the company would intentionally depress the value of a business in which it retained a substantial stake.
Decision
Allowing the appeals, the Supreme Court held that SEBI had failed to prove fraud, manipulation, or unfair trade practices against Reliance Industries.
The Court concluded that the futures positions taken in November 2007 were valid hedging transactions and that the allegation of market cornering for manipulative purposes was not supported by evidence. Consequently, the findings that led to the ₹447.27 crore disgorgement order were set aside.
However, the bench agreed that there had been a breach of disclosure-related requirements under the 2001 SEBI Circular and allowed the penalty imposed on that limited aspect to remain in force.
Case Details
Case Title: Reliance Industries Limited & Ors. v. Securities and Exchange Board of India
Case Number: Civil Appeal No. 4015 of 2020 with Civil Appeal (@ Diary No. 4723 of 2024)
Judge: Justice J.B. Pardiwala and Justice R. Mahadevan
Decision Date: May 29, 2026
