The Supreme Court has set aside the findings of the Securities and Exchange Board of India (SEBI) and the majority decision of the Securities Appellate Tribunal (SAT) against Reliance Industries Ltd. (RIL) in the long-running Reliance Petroleum Ltd. (RPL) futures trading matter.
The BENCHNOF held that the allegations of fraud, market manipulation, and unlawful gains amounting to ₹447.27 crore were not established under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations).
The dispute arose from trading activities undertaken by RIL in November 2007 involving shares of its then subsidiary, Reliance Petroleum Ltd. (RPL). SEBI had alleged that RIL manipulated the price of RPL shares through a coordinated strategy involving twelve entities that took large short positions in RPL futures while RIL simultaneously sold substantial quantities of RPL shares in the cash market. According to SEBI, this enabled RIL to earn unlawful profits by depressing the settlement price of futures contracts.
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Background of the Dispute
At the relevant time, RIL held approximately 75% of the shareholding in RPL. Following a board resolution authorising the raising of ₹87,000 crore through various means, including divestment of investments, RIL decided to sell around 5% of its stake in RPL, equivalent to approximately 22.5 crore shares. The decision came at a time when RPL’s share price had witnessed a steep increase from its IPO price of ₹60 per share in May 2006 to nearly ₹248 per share by October 2007. Analysts from institutions such as Goldman Sachs, Morgan Stanley, and Kotak Institutional Equities reportedly viewed the stock as significantly overvalued, leading to concerns about a potential correction in price.
To hedge against the risk of a decline in RPL’s share price during the planned divestment, RIL entered into agreements with twelve entities that took short positions in the November 2007 RPL futures contracts. These entities collectively assumed short positions covering approximately 9.92 crore shares. Simultaneously, RIL sold approximately 20.29 crore shares in the cash market during November 2007, ultimately realising over ₹5,000 crore through cash market sales and futures-related gains.
SEBI’s Allegations
SEBI issued a show-cause notice alleging that RIL had employed the twelve entities as agents to circumvent position limits applicable in the derivatives market. According to SEBI, RIL effectively cornered a dominant share of the open interest in RPL futures, amounting to more than 93% of market-wide positions. SEBI further alleged that the arrangement was designed to evade regulatory limits and constituted a fraudulent and manipulative scheme.
A crucial aspect of SEBI’s case concerned the sale of approximately 1.95 crore RPL shares during the last few minutes of trading on 29 November 2007, the settlement date for the futures contracts. SEBI contended that these sales artificially depressed the weighted average settlement price of RPL shares, thereby generating substantial profits for RIL’s short positions in the futures segment. Based on these allegations, SEBI concluded that RIL had violated Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations.
Divergent Views Before SAT
The dispute eventually reached the Securities Appellate Tribunal, where a split verdict emerged. The majority upheld SEBI’s findings, concluding that the use of twelve entities constituted a pre-planned strategy to evade position limits and corner the market. The majority further held that the futures transactions were not genuine hedges and that RIL had manipulated prices by dumping shares in the cash segment on the settlement date. According to the majority, these actions amounted to fraud and market manipulation warranting disgorgement of profits.
The minority member, however, disagreed. The minority accepted that the use of multiple entities may have breached position-limit regulations but held that such a breach did not automatically amount to fraud. It observed that concentration of positions by itself could not establish market manipulation and that SEBI had failed to prove any separate manipulative act capable of attracting the PFUTP Regulations. The minority also accepted RIL’s contention that the futures positions were genuine hedges against its proposed sale of 22.5 crore shares in the cash market.
Supreme Court Examines the Concept of Hedging
Before the Supreme Court, RIL argued that its futures positions represented bona fide hedging transactions intended to protect against the risk of a decline in RPL’s share price during the planned sale of its shareholding. Senior Advocate Harish Salve submitted that hedging is an integral and legitimate feature of derivatives markets and that RIL’s positions covered less than half of the proposed cash market sale, demonstrating the absence of speculative intent.
The company further argued that if its objective had been speculative profiteering, it could have closed the futures positions earlier and earned significantly higher profits. Instead, the positions were maintained until settlement, consistent with a hedging strategy designed to offset risks associated with the proposed divestment.
Court Finds No Evidence of Fraudulent Manipulation
A central issue before the Supreme Court was whether SEBI had established the essential ingredients of “fraud” under the PFUTP Regulations. RIL contended that fraud requires proof of inducement and deception affecting other market participants. It argued that all transactions were genuine exchange-traded transactions executed with unrelated counterparties at prevailing market prices and that no evidence existed of artificial trades, circular trading, or creation of a false market.
The Court examined the statutory framework and the competing findings of the SAT. Particular attention was paid to whether the alleged breach of position limits and concentration of positions could, by themselves, constitute fraud. The Court considered the argument that even if there had been a breach of regulatory position limits, such violation would attract consequences under the Securities Contracts (Regulation) Act, 1956 (SCRA), but would not automatically amount to fraudulent conduct under the PFUTP Regulations.
Sale of Shares on Settlement Day Not Sufficient to Prove Manipulation
The Supreme Court also scrutinised SEBI’s allegation that RIL intentionally depressed the settlement price through last-minute sales of RPL shares. RIL argued that the market price had risen sharply shortly before market close and that the sales were genuine commercial transactions aimed at monetising its holdings at elevated prices. It pointed out that numerous other market participants also sold shares during the same period and that SEBI had failed to establish a direct causal connection between RIL’s trades and the alleged price decline.
The company further maintained that merely placing orders below the last traded price could not establish manipulation because exchange trades are ultimately executed at the best available market price. According to RIL, several of the orders cited by SEBI were executed at prices higher than those offered, undermining the allegation of deliberate price suppression.
Major Relief for Reliance Industries
The Supreme Court ultimately concluded that the findings of fraud and manipulation could not be sustained. The judgment is expected to have far-reaching implications for the interpretation of hedging transactions, position-limit violations, and the scope of the PFUTP Regulations. The ruling draws a distinction between regulatory infractions and fraudulent market conduct, emphasising that allegations of fraud require clear evidence of manipulation and inducement rather than mere concentration of positions or breaches of trading limits.
Case Details
Case Title: Reliance Industries Limited & Ors. Versus SEBI
Citation: JURISHOUR-1463-SC-2026
Case No.: Civil Appeal No. 4015 Of 2020
Date: 29/05/2026
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