Supreme Court overturns SEBI fraud finding against Reliance in 2007 RPL futures case

On 29 May 2026, the Supreme Court provided major relief to Reliance Industries Limited (RIL) by setting aside the findings of fraud earlier recorded by the Securities and Exchange Board of India (SEBI) in connection with the November 2007 futures trading of Reliance Petroleum Limited (RPL) shares. The court also struck down the SEBI direction asking RIL to disgorge Rs 447 crore.

A bench led by Justice J.B. Pardiwala, with Justice R. Mahadevan, held that the Securities Appellate Tribunal (SAT) had made a serious error in finding RIL guilty of fraud under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, commonly known as the PFUTP Regulations.

The dispute relates to RPL futures contracts in November 2007. SEBI had alleged that RIL used twelve agency entities to take a much larger position in RPL derivatives than the per-client limits would otherwise allow, and that this amounted to a fraudulent and manipulative device. SEBI’s March 2017 order directed disgorgement of Rs 447 crore plus interest.

In its 136-page judgment, the bench observed that the agreements between RIL and the twelve entities were not, by themselves, a device for fraud or market manipulation. The court emphasised that the PFUTP Regulations cannot be invoked simply because the twelve agency agreements were used to take an excess position. SEBI was required to prove how the way these agreements were actually used was fraudulent — and that, the court said, had not been established.

The court also said that the threshold for fraud under the PFUTP Regulations is high and cannot be met by inference alone. It found that SEBI used the wrong method to calculate RIL’s share of the market. Instead of comparing RIL’s position only to the futures segment in RPL, the regulator should have looked at the entire derivatives market for that stock. A 40.10 per cent open interest figure alone, without evidence of intent, did not prove an attempt to corner the market.

The court directed SEBI to refund Rs 250 crore that RIL had deposited in the Investor Protection Fund under a Supreme Court interim order of 17 December 2020. The bench, however, agreed with the SAT majority that RIL had violated certain disclosure requirements under the 2001 SEBI circular on position limits, and the related penalty for that breach was upheld.

The judgment is significant for the development of securities law in India. It tightens the standard of proof that the regulator must meet before labelling conduct as fraud under the PFUTP Regulations and clarifies how market share should be calculated in derivative-segment investigations.