Case Details

  • Civil Appeal No. 4015 of 2020 (and No. 4723 of 2024) filed in the Supreme Court of India, Civil Appellate Jurisdiction.
  • Parties: Reliance Industries Ltd (appellant) vs. Securities and Exchange Board of India (respondent).
  • Originating orders: SAT judgments dated 05‑Nov‑2020 and 04‑Dec‑2023; Whole Time Member (WTM) order of SEBI preceding the appeals.
  • Dispute period: November 2007 trading in the cash and futures segments of Reliance Petroleum Ltd (RPL) shares.

Parties Involved

  • Appellant: Reliance Industries Ltd (RIL), 75 % shareholder of RPL in 2007.
  • Respondent: Securities and Exchange Board of India (SEBI).
  • Regulatory bodies: Securities Appellate Tribunal (SAT), SEBI’s Whole Time Member (WTM).
  • Legal counsel for appellant: Senior Counsel Harish Salve.
  • Legal counsel for respondent: Senior Counsel Arvid P. Datar.
  • Judges: J.B. Pardiwala, J. (author of judgment) and R. Mahadevan, J.

Issues / Allegations / Violations

1. Alleged illegal and undue gain of Rs 447.27 crore by RIL through manipulation of RPL futures prices, violating the Securities Contracts (Regulation) Act, 1956 (SCRA) and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003 (PFUTP).

2. Breach of client‑level position limits prescribed in SEBI Circular No. SMDRP/DC/CIR‑10/01 (02‑Nov‑2001) and NSE Circular NSE/CMPT/2982 (07‑Nov‑2001).

3. Whether the agency agreements with twelve independent entities constituted a fraudulent/ manipulative device to evade those limits.

4. Whether the 9.92 cr short‑futures positions taken in the November 2007 RPL futures series were genuine hedges or “naked” hedges.

5. Whether the sale of 1.95 cr RPL shares in the cash segment during the last ten minutes of trading on 29‑Nov‑2007 was intended to depress the settlement price and generate unlawful profit in the futures segment.

6. Whether the elements of “fraud” under Regulation 2(1)(c) of the PFUTP Regulations – especially inducement of other market participants – were satisfied.

Findings & Observations

  • Shareholding & price trajectory: RIL owned 75 % of RPL; IPO price on 1 May 2006 was Rs 60 per share, rising to Rs 247.90 by 31 Oct 2007 – a four‑fold increase in 17 months.
  • Board resolution (29‑Mar‑2007): Authorized two officials to raise Rs 87,000 crore through various means, including divestment of up to 5 % of RIL’s RPL holding (22.5 cr shares). The resolution was broad and did not specifically mention cash‑segment sale or futures hedging.
  • Agency agreements: RIL entered into identical principal‑agent agreements with twelve entities. Clause 1.2 required agents to act only on RIL’s instructions; Clause 3.2 stipulated that all profits and losses belong to RIL, agents receiving only commission.
  • Futures trading (01‑Nov‑2007 to 06‑Nov‑2007): The twelve entities took short‑futures positions totalling 9.92 cr RPL shares.
  • Squaring‑off: Prior to settlement (29‑Nov‑2007), RIL bought back 1.95 cr of those positions; the remaining 7.97 cr were automatically closed by NSE at the settlement price (weighted‑average of cash‑segment price in the last half‑hour).
  • Cash‑segment sales: Total of 20.29 cr RPL shares sold in November 2007; 1.95 cr sold in the final 8 min 20 sec on 29‑Nov‑2007 on NSE. Physical delivery was effected.
  • Proceeds: Aggregate cash‑segment and futures settlement proceeds amounted to Rs 5,013 crore (Rs 4,500 crore from cash sales + Rs 513 crore from futures settlement).
  • SAT majority view: Treated the agency structure as a pre‑planned scheme to circumvent position limits, held the futures trades fraudulent, and ordered disgorgement of Rs 447.27 crore (after adjusting for permissible limits).
  • SAT minority & Supreme Court analysis: The 2001 SEBI Circular required disclosure of excess positions but did not prohibit exceeding client‑level limits. Consequently, breach attracted only a regulatory penalty, not fraud under PFUTP. The Court found that the futures positions were taken to hedge the risk of the planned 22.5 cr cash‑segment sale and were therefore valid hedges.
  • Position‑limit calculation: SAT calculated percentage based solely on the November 2007 futures series (up to 93.6 % of open interest). The Court held that limits apply to the aggregate open interest across all derivatives (November, December, January futures and options). Using the correct basis, RIL’s share was 40.10 %, still above the limit but justified by hedging needs.
  • Price‑manipulation allegation: The Court examined the last‑minute cash sales. RIL’s lowest ask was Rs 210 per share, above the last‑traded price; no evidence that the sales were intended to depress the settlement price. Other market participants also sold during the same window. The Court concluded there was no inducement and no proven manipulation.
  • Fraud under PFUTP: Because inducement was not established and the alleged conduct did not constitute a manipulative device, the elements of fraud under Regulation 2(1)(c) were not satisfied.

Penalties / Settlements / Directions

  • Disgorgement order (Sections 11 & 11B, SEBI Act): Set aside; Rs 447.27 crore disgorgement cancelled.
  • Regulatory penalty for non‑disclosure of excess positions: Upheld – Rs 25 crore under Section 15HA of the SEBI Act (as affirmed by the SAT majority).
  • Refund: RIL to be refunded Rs 250 crore deposited in the Investor Protection Fund on 17‑Dec‑2023.
  • No further market‑ban or capital‑reduction orders were imposed.

Corrective Actions & Future Obligations

  • RIL must comply with the disclosure requirements of the 2001 SEBI Circular for any future breaches of client‑level position limits.
  • No specific audit, governance reform, or ongoing reporting obligations were ordered beyond existing SEBI regulations.
  • Pending applications, if any, were disposed of by the Court.

Final Ruling & Enforcement

  • The Supreme Court partially allowed the appeals, setting aside the SAT’s finding of fraud and the associated disgorgement order.
  • The Court upheld the penalty for breach of the 2001 SEBI Circular (Rs 25 crore).
  • The Court directed the refund of Rs 250 crore to RIL from the Investor Protection Fund.
  • The judgment is final; any further relief must be sought through appropriate legal channels.

Judgment delivered by J.B. Pardiwala, J., and R. Mahadevan, J., New Delhi, 29 May 2026.