Supreme Court Sets Aside Rs. 447 Crore Disgorgement Against Reliance Industries in RPL Futures Case
A Division Bench of Justices J.B. Pardiwala and R. Mahadevan held that SEBI failed to prove fraud under the PFUTP Regulations, setting aside disgorgement while upholding a lesser disclosure penalty.
The Supreme Court has set aside a Rs. 447 crore disgorgement order against Reliance Industries Limited arising from its trading in Reliance Petroleum Ltd. futures in November 2007. In a judgment delivered on 29 May 2026, a Division Bench of Justices J.B. Pardiwala and R. Mahadevan held that the Securities and Exchange Board of India had not established the essential ingredients of fraud under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. The Court found that the 9.92 crore short futures positions taken through twelve agency entities constituted valid hedges, that SEBI's calculation of the appellants' market share in the futures segment was methodologically flawed, and that the sale of 1.95 crore RPL shares in the final minutes of the settlement date did not amount to deliberate price manipulation. The Court directed refund of Rs. 250 crore deposited by Reliance Industries in the Investor Protection Fund, while upholding a separate penalty for violating disclosure requirements under the 2001 SEBI Circular.
How the Dispute Reached the Supreme Court
Reliance Petroleum Ltd. was a 75% subsidiary of Reliance Industries Limited in 2007. The IPO of RPL shares in May 2006 was priced at Rs. 60 per share. By October 2007, the price had risen to approximately Rs. 247.90 — a near-fourfold increase in seventeen months. Analyst reports from Goldman Sachs, Morgan Stanley and Kotak Institutional Equities described the stock as among the costliest refining stocks in the world and flagged the possibility of a price correction.
Against this backdrop, Reliance Industries' board, in a meeting on 29 March 2007, authorised two officials to raise Rs. 87,000 crore through various means including divestment of investments. It was decided that 5% of the company's RPL holding — amounting to 22.50 crore shares — would be sold in the market.
Observing that liquidity in the November 2007 RPL futures segment was nearly four times that of the cash segment between 24 October and 31 October 2007, Reliance Industries decided to take short futures positions while simultaneously placing sell orders in the cash segment. It entered into agreements with twelve independent entities to take sale positions of 9.92 crore RPL shares in the November 2007 futures series between 1 November and 6 November 2007. Under these agreements, all profits were to flow to Reliance Industries while the entities earned only a commission.
By the settlement date of 29 November 2007, 7.97 crore short futures positions remained open and were automatically closed by the National Stock Exchange at the settlement price — the last half-hour weighted average price of RPL in the cash segment. In the final 8 minutes and 20 seconds of that day, Reliance Industries sold 1.95 crore RPL shares in the cash segment. In total, the company realised Rs. 5,013 crore: Rs. 4,500 crore from cash segment sales and Rs. 513 crore from the futures settlement.
SEBI issued a show cause notice in 2009, superseded by a fresh notice in December 2010. The Whole Time Member found that Reliance Industries had made unlawful gains of Rs. 513 crore by manipulating RPL futures prices, cornering 93.63% of open interest in the November 2007 series through the twelve entities, and depressing the settlement price by dumping shares in the final minutes. The WTM directed disgorgement and barred the company from equity derivatives trading for one year.
The Securities Appellate Tribunal, Mumbai, by a 2:1 majority on 5 November 2020, dismissed Reliance Industries' appeal and upheld the disgorgement. The minority member found that SEBI had not cogently established fraud or manipulation. Reliance Industries appealed to the Supreme Court. A second civil appeal arising from a further SAT order dated 4 December 2023 was taken up together and disposed of by the same judgment.
The Core Holdings of the Supreme Court
The Court addressed four principal questions: whether the agency agreements constituted a fraudulent device; whether the futures positions were valid hedges; whether the appellants cornered the market with manipulative intent; and whether the last-minute cash sales amounted to price manipulation.
On fraud and the agency agreements: The Court held that the PFUTP Regulations could not be attracted solely because Reliance Industries used twelve agency agreements to take positions in excess of the limits prescribed in the 2001 SEBI Circular. It was necessary for SEBI to prove that the manner in which those agreements were used was itself fraudulent. The 2001 SEBI Circular had left a gap by not prescribing position limits for persons acting in concert in single-stock futures — a requirement that SEBI introduced only in December 2016. The Court held that the appellants could be penalised for violating the disclosure requirements of the 2001 Circular, but that this did not automatically constitute fraud under the PFUTP Regulations.
On hedging: The Court found that the 9.92 crore futures positions were valid hedges. The underlying exposure in the cash segment — 22.50 crore shares — exceeded the futures positions by more than half. The Court rejected SEBI's reliance on the Gujarat High Court's decision in Pankaj Oil Mills v. CIT as misplaced, since the underlying risk exposure in the cash segment far exceeded the derivatives positions. It also held that there is no legal requirement for a perfect 1:1 hedge ratio, and that no hedging policy or board resolution was legally required in 2007. The NSE's hedge policy and SEBI's position limits for hedges were introduced only in 2016, and even those applied to commodity derivatives, not equity derivatives.
On cornering and market manipulation: The Court found that SEBI's calculation of the appellants' share of open interest was methodologically flawed. SEBI had measured the appellants' positions only against the November 2007 RPL futures series. The correct denominator, the Court held, should have included all open positions across the November 2007, December 2007 and January 2008 RPL futures series as well as RPL options. On that basis, the appellants' share of open interest on 29 November 2007 was 40.10%, not 93.60%. While 40.10% still exceeded the position limits in the 2001 SEBI Circular, the Court held that this excess was proportionate to the genuine hedging requirements arising from the proposed sale of a large block of RPL shares.
The Court articulated the principle that cornering which includes within itself the intent to manipulate prices must be patently clear from the conduct and transactions of the party accused of fraud. Since the 40.10% open interest constituted genuine hedges, the mere fact of a large share in the futures market did not indicate fraudulent intent.
On the last-minute cash sales: The Court found that on 29 November 2007, the price of RPL shares rose unexpectedly in the final ten minutes of trading, reaching Rs. 224.70 at 3:21 p.m. after having traded below Rs. 200 for most of the day. Reliance Industries sold 1.95 crore shares during this window. The Court held that this was consistent with the company's established pattern of not selling below Rs. 208-209 per share — a threshold it had maintained throughout November 2007. Had the intention been to depress the settlement price, the Court reasoned, the company would have sold far more than 1.95 crore shares and at prices below Rs. 210. The Court also noted that Reliance Industries retained approximately 70% of its RPL shareholding, and any deliberate price depression would have adversely affected the value of that majority stake — making the alleged trade-off commercially implausible.
The Court's Framework for Fraud Under the PFUTP Regulations
The judgment sets out a structured approach to the definition of fraud under Regulation 2(1)(c) of the PFUTP Regulations, which requires an act, expression, omission or concealment while dealing in securities, with the object of inducing another person to deal in securities.
The Court acknowledged the tension between two earlier decisions. In SEBI v. Kanaiyalal Baldevbhai Patel, reported in (2017) 15 SCC 1, this Court held that inducement is a sine qua non for establishing fraud under the PFUTP Regulations. In SEBI v. Rakhi Trading (P) Ltd., reported in (2018) 13 SCC 753, the Court held that inducement need not be separately proved if the factum of manipulation is sufficiently and cogently established.
The Court reconciled these positions by outlining two scenarios. First, where injury due to a wrongful act is established — meaning inducement to deal in securities has caused another person to be adversely affected and allowed the accused party to gain unlawful profits — there is no requirement to separately prove deceitful intention. Second, where deceitful or mala fide intention is clear from blatant misconduct or attending circumstances that cogently establish wrongful intention, injury need not be separately proved.
Applying this framework, the Court held that since no inducement pursuant to cornering had been proved, there was a higher burden on SEBI to establish a separate act of price manipulation. That burden was not discharged. The Court concluded that fraud under the PFUTP Regulations was not made out against Reliance Industries.
What the Court Upheld
The Court concurred with the SAT majority's finding that Reliance Industries violated the disclosure requirements under the 2001 SEBI Circular in respect of position limits. The penalty levied by the WTM and upheld by the SAT majority on this count was affirmed. The Court held that the appellants could be penalised for doing indirectly what they could not do directly — that is, exceeding individual position limits through the agency structure — but that this regulatory infraction did not rise to the level of fraud or manipulation under the PFUTP Regulations.
The bar on equity derivatives trading for one year, imposed by the WTM, had already been undergone by the time the matter reached the Supreme Court.
Order
The Supreme Court partly allowed Civil Appeal No. 4015 of 2020 and the connected civil appeal arising from Diary No. 4723 of 2024. The impugned SAT judgment dated 5 November 2020 was set aside insofar as it found fraud under Regulations 3 and 4 of the PFUTP Regulations. The order of disgorgement of Rs. 447.27 crore was set aside. The Court directed that Reliance Industries be refunded Rs. 250 crore deposited in the Investor Protection Fund pursuant to the Supreme Court's order dated 17 December 2020. The penalty for violation of the 2001 SEBI Circular was upheld. Pending applications were disposed of.