The Supreme Court of India has delivered a significant verdict in favor of Reliance Industries Limited (RIL), providing partial relief by overturning a Securities and Exchange Board of India (SEBI) directive to disgorge ₹447.27 crore. This directive was initially imposed in relation to allegations of fraudulent activities during the 2007 futures trading of Reliance Petroleum Limited (RPL) [Reliance Industries Limited vs SEBI].
The decision came from a bench comprised of Justices JB Pardiwala and R Mahadevan, who also annulled SEBI’s earlier findings of fraud against RIL. Nevertheless, the court sustained a separate ₹25 crore penalty against RIL and instructed SEBI to refund ₹250 crore that the company had already deposited.
The origin of the case traces back to November 2007, involving trades in RPL shares and futures contracts. At the time, RPL was a subsidiary of RIL, with RIL holding approximately 75% of its shares. RIL decided to divest nearly 5% of its stake, equating to around 22.5 crore shares.
SEBI conducted an investigation into the RPL scrip trades from November 1 to November 29, 2007, and alleged that RIL had utilized 12 entities to create substantial short positions in the November 2007 RPL futures contract. In the meantime, RIL was selling RPL shares in the cash segment. SEBI claimed that the actions of RIL, particularly the large-scale sale of RPL shares towards the end of trading on November 29, 2007, led to a depressed settlement price for the November 2007 RPL futures contract, thereby enabling RIL to gain unlawfully.
In March 2017, a whole-time member of SEBI determined that RIL had engaged in fraudulent and manipulative strategies and directed RIL to disgorge ₹447.27 crore with an interest of 12%. Additionally, RIL and the involved entities were banned from participating in the equity derivatives market for a year.
RIL contested this order at the Securities Appellate Tribunal (SAT), but in November 2020, SAT upheld SEBI’s disgorgement directive with a 2:1 majority. RIL subsequently appealed to the Supreme Court.
Parallelly, SEBI’s adjudicating officer initiated penalty proceedings based on similar allegations, culminating in penalties of ₹25 crore against RIL, ₹15 crore against Mukesh Ambani, ₹20 crore against Navi Mumbai SEZ Private Limited, and ₹10 crore against Mumbai SEZ Limited in January 2021. SAT later upheld the ₹25 crore penalty on RIL in December 2023, referencing the 2020 SAT ruling, but annulled the penalty against Mukesh Ambani, citing Section 27 of the SEBI Act as it existed in 2007, which only addressed “offences” by companies and not civil penalties. Amendments made in 2019 to include “contraventions” were deemed substantive and prospective.
SAT also dismissed penalties against Navi Mumbai SEZ and Mumbai SEZ, citing insufficient evidence of their involvement in alleged manipulative trades.
In its latest decision, the Supreme Court has upheld the ₹25 crore penalty on RIL but declined to intervene in the disgorgement of ₹447.27 crore.
RIL’s legal representation included Senior Advocates Harish Salve and Ritin Rai, along with Advocates KR Sasiprabhu, Amey Nabar, Aditya Swarup, Swati N Jain, Vishnu Sharma, Ritika Sinha, Yasharth Misra, Ribhav Pande, Namrata Saraogi, and Madhav Agarwal. SEBI was represented by Senior Advocates Arvind Datar and Pratap Venugopal, along with Advocate Abhishek Singh.
