Supreme Court sets aside Sebi ₹447 crore disgorgement order in Reliance Petroleum derivatives case
NEW DELHI/MUMBAI: In a relief for Reliance Industries Ltd (RIL), the Supreme Court on Friday quashed market regulator Securities and Exchange Board of India (Sebi). ₹The Rs 447.27 crore compensation order in the long-running Reliance Petroleum Ltd (RPL) derivatives trading case marks a significant turning point in one of the most significant disputes in India’s capital markets.
A bench comprising Justices JB Pardiwala and R. Mahadevan allowed Reliance’s appeal and overturned the majority verdict of the Securities Appellate Tribunal (SAT) in November 2020, which had upheld Sebi’s findings of fraudulent and manipulative trading in RPL shares and derivatives in 2007.
The bank gave a repayment order ₹250 crore was deposited by Reliance in the Investor Protection Fund as per the interim order passed during the pendency of the appeal.
The high court ruled that SAT made a “serious error” in maintaining its findings of fraud under the Prohibition of Fraudulent and Unfair Trading Practices (PFUTP) Regulations. “For all the reasons stated above, we conclude in the majority judgment that SAT made a serious error in making the decision,” the court said.
Email queries sent to RIL and Sebi early on Friday remained unanswered till press time.
While setting aside the findings of fraud and award of damages, the court upheld the findings regarding violation of Sebi’s 2001 derivative position limit and disclosure framework.
The 2001 derivative position limit rules were introduced by Sebi and the stock exchanges as risk control measures to prevent a single market participant from gaining a dominant position in an equity futures market.
Conflict
The latest relief follows another Supreme Court victory for RIL in a separate case arising from the same Reliance Petroleum trading incident in 2007. In this case, the court quashed the Sebi penalty imposed on RIL chairman and managing director Mukesh Ambani in November 2024 for alleged share manipulation involving RPL.
The origins of the dispute date back to November 2007, when RIL decided to sell around 5% of its stake in Reliance Petroleum, then a listed subsidiary.
Sebi had alleged that before executing the sale in the cash market, Reliance entered into agreements with 12 entities that accumulated significant open positions in RPL futures contracts. The organizations included Chintamani Holdings & Trading, Devarshi Commercial, Darshan Mercantile, Dhriti Investments & Holdings, Fiascon Holdings, Gandhar Trading & Investments, Harish Textiles Engineers, Mahalaxmi Glass Works, Mesmore Investment & Finance, Priority Constructions, Siddhivinayak Investment & Trading and Titanium Investments.
According to the regulator, 12 entities acted on behalf of RIL and created futures positions equivalent to approximately 9.92 crore shares.
Sebi also alleged that on November 29, 2007, when the futures contracts expired, Reliance sold around 1.95 crore RPL shares in the cash market in the final minutes of trading, which reduced the share price and reduced the settlement price of the futures contracts.
The regulator alleged that associated entities benefited from the decline through their short positions and the gains ultimately accrued to Reliance. Sebi estimated that entities made profits of approx. ₹513 crore from derivatives trading.
In an order passed in March 2017, the then full-time member of Sebi, G. Mahalingam, held that RIL had engaged in a fraudulent and manipulative scheme in violation of the PFUTP Regulations. Sebi orders liquidation of the company ₹447.27 crore with interest at 12% per annum from November 2007.
The matter eventually reached the SAT, which upheld the compensation award in a split decision in November 2020. Reliance later challenged the decision before the Supreme Court.
In its verdict, the apex court examined four key issues, including whether the agreements between Reliance and 12 entities were fraudulent, whether the futures positions constituted legitimate hedges, whether Reliance had cornered positions in the derivatives market, and whether the sale of shares in the cash market was aimed at depressing prices and generating illegal profits.
