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Informist, Friday, May 29, 2026

 

--SC partly sets aside SAT order on RIL disgorgement case on fraud allegation 

--CONTEXT:SEBI said RIL did insider trading on Reliance Petroleum share sale 

--SC rejects SAT order on SEBI asking RIL to disgorge INR 4.5 bln

--SC OKs SAT order on SEBI penalty vs RIL for not following disclosure law 

 

NEW DELHI – The Supreme Court Friday rejected the Securities and Exchange Board of India's 2017 order finding Reliance Industries Ltd. and 12 others guilty of insider trading in selling the shares of Reliance Petroleum Ltd. in 2007. It set aside the market regulator's order asking Reliance Industries to disgorge INR 4.5 billion, along with simple interest at the rate of 12% per annum with effect from 2007 till payment.  

 

However, the apex court upheld the Securities and Exchange Board of India's order finding that the 12 entities used by Reliance Industries validly took open interest positions within the permissible limits while trading in the futures and options segment in the securities of Reliance Petroleum and, since no disclosure was required, validly executed the transactions without disclosing that they were acting in concert. The breach of the position limits being technical only invites a penalty under the market regulator's circulars on disclosure, the market regulator had said, which the apex court upheld on Friday.

 

The apex court directed that INR 2.5 billion deposited by Reliance Industries in the Investors' Protection Fund for staying the market regulator's recovery of the whole amount, shall be returned to the company. In essence, the apex court partially set aside the Securities and Appellate Tribunal's 2020 order, which had upheld both disgorgement and penalty aspect on disclosure against Reliance Industries.

 

The agreements entered between Reliance Industries and the twelve entities were not a device used for fraud and manipulation, said the apex court. The SEBI's 2001 circular did not place a ban on the breach of position limits, rather it only required disclosure when positions were taken in excess, and penalised only the non-disclosure of the same, said the court. Reliance Industries is liable only to be penalised in terms of the disclosure requirement under SEBI's circular, said the court.

 

The apex court said that allegations under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market), 2003 cannot be attracted on the sole circumstance of Reliance Industries using 12 agency agreements to take excess position limits, and it was necessary for the market regulator to prove whether the manner in which these agency agreements were utilised was fraudulent or not. The top court rejected SEBI's argument that Reliance Industries' futures positions from 2007 onwards were "naked hedges". 

 

The case has its genesis from Reliance Industries selling its 4.1% stake in Reliance Petroleum. To prevent a slump in Reliance Petroleum stock, the shares were first sold in the future market and later in the spot market. 

 

SEBI alleged that Reliance Industries had employed 12 other agents and ended up cornering 93.6% of the open interest on the settlement day of November 2007 futures contract. If all the open interest positions are taken into consideration, RIL was in violation of the limits prescribed by SEBI, said the market regulator. SEBI had said that Reliance Industries had made "unlawful gains" of INR 5.13 billion in the case and asked the company to disgorge INR 4.5 billion along with interests. 

 

Challenging the market regulator's order, Reliance Industries moved the appellate tribunal. "The 12 entities in picture were distinct entities and hence for the exchange surveillance mechanism there was no way to capture that these entities were indeed agents of any particular entity," said the appellate tribunal, upholding SEBI’s allegation. Further, the appellate tribunal also took into consideration the trading action in the last 10 minutes of trading on 29 November 2007. "If they were responsible market players, they would not have concentrated 100% of their trading activities in both the cash and F&O (forward and options) segments in one month and instead spread it across multiple months", said the appellate tribunal in the ruling. Challenging the appellate tribunal's ruling, Reliance Industries moved the apex court.

 

At 1224 IST, shares of Reliance Industries Ltd. were down 1.2% at INR 1,335.40 on the National Stock Exchange.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Surya Tripathi

Edited by Deepshikha Bhardwaj

 

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