Supreme Court Sets Aside SEBI Disgorgement Order Against RIL in RPL Shares Case

In Reliance Industries Limited & Ors. v. The Securities And Exchange Board Of India, the Supreme Court of India delivered a significant verdict in the long-standing dispute over the alleged manipulation of Reliance Petroleum Ltd. (RPL) shares, setting aside a major disgorgement order against the appellant. While the Court found a technical violation of disclosure requirements, it ruled that the activities did not constitute 'fraud' under the securities regulations.

A bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan heard the statutory appeals challenging the majority decision of the Securities Appellate Tribunal (SAT). The case centered on transactions executed in November 2007, where the appellant reportedly used twelve agents to take massive short positions in the futures segment while divesting shares in the cash segment.

The Core Conflict: Hedging or Market Manipulation?

The Securities and Exchange Board of India (SEBI) had initially alleged that the appellant executed a pre-planned fraudulent scheme to corner the market and depress settlement prices. SEBI contended that by using twelve independent entities to bypass position limits, the appellant violated the Securities Contracts (Regulation) Act, 1956 and the Securities And Exchange Board Of India (Prohibition Of Fraudulent And Unfair Trade Practices Relating To Securities Market) Regulations, 2003. However, the Supreme Court meticulously analyzed the nature of these trades.

Court's Rationale on Position Limits and PAC

The Court observed that while the SEBI circular No. SMDRP/DC/CIR-10/01 dated 02.11.2001 (2001 SEBI Circular) prescribed client-level limits to deter concentration, it did not explicitly ban exceeding these limits for 'persons acting in concert' (PAC), provided there was proper disclosure. The Bench noted that the appellant's interpretation was "hyper-literal" yet acknowledged that the regulatory framework at the time was less stringent than current standards. The Court emphasized that "what cannot be done directly, cannot be done indirectly," thereby upholding the penalty for non-disclosure while rejecting the charge of fraud.

Defining Fraud under PFUTP Regulations

A pivotal aspect of the judgment was the interpretation of 'fraud' under Regulation 2(1)(c) of the Securities And Exchange Board Of India (Prohibition Of Fraudulent And Unfair Trade Practices Relating To Securities Market) Regulations, 2003. The Court scrutinized whether the appellant's cornering of 40.10% of the open interest (across all derivatives) amounted to manipulation. Referring to SEBI v. Kanhaiyalal Baldevbhai Patel and SEBI v. Kishore R. Ajmera ( "(2016) 6 SCC 368": 2016 CaseBase(SC) 493), the Court evaluated the necessity of proving 'inducement'.

The Court, in its reasoning, observed: "In our considered view, both intention and act cannot be made into irrelevant factors for deciding fraud... In situations where injury due to wrongful act is established, i.e, inducement to deal in securities has caused the other person to be adversely affected and allowed the party accused of fraud to gain unlawful profits or avert ordinary losses at the former’s expense, there would be no requirement on the respondent authority to prove deceitful intention. In other words, where injury is impossible to be proved, the requirement of wrongful intention becomes mandatory."

Valid Hedges vs. Naked Hedges

SEBI had argued that the trades were 'naked hedges' used for speculation. The Court disagreed, pointing out that the underlying risk exposure of 22.5 crore shares justified the futures positions. Relying on the principles in Pankaj Oil Mills v. CIT, the Bench held that there is no legal requirement to ensure a perfect 1:1 ratio for a hedge to be valid. The Court also noted that specific hedging policies were only introduced in 2016, long after the disputed transactions.

The Last Ten Minutes of Trading

Addressing the allegation that the appellant dumped 1.95 crore shares in the final minutes of 29.11.2007 to depress prices, the Court found the theory "highly unlikely." As a promoter holding 70% of the company, the appellant would suffer a greater loss through a drop in valuation than any gain made in the futures market. The Court cited SEBI v. Terrascope Ventures Ltd. to illustrate the level of clarity required to prove manipulative intent, which was absent here.

Final Directions of the Court

The Court has the following directions:

"We are left with no other option but to set aside the impugned judgment and order dated 05.11.2020 passed by the SAT respectively, insofar as the finding on fraud under the PFUTP Regulations is concerned. In the result, the appeals partly succeed and are hereby partly allowed. Accordingly, the order of disgorgement is also set aside. We direct that the appellant no. 1 be refunded Rs. 250 crore deposited in Investor’s Protection Fund pursuant to the order of this Court dated 17.12.2020. We uphold the penalty levied by the WTM and SAT in its majority judgment as regards the violation of the 2001 SEBI Circular."

Case Details:
Case No.: CIVIL APPEAL NO. 4015 OF 2020
NeutralCitation: 2026 INSC 585
Case Title: RELIANCE INDUSTRIES LIMITED & ORS. Versus THE SECURITIES AND EXCHANGE BOARD OF INDIA
Appearances:
For the Petitioner(s): Mr. Harish Salve, Senior Advocate
For the Respondent(s): Mr. Arvind P. Datar, Senior Advocate

Source: 2026 CaseBase(SC) 505