Supreme Court Upholds Review, Sets Aside ₹447 Crore Disgorgement Order in Reliance Petroleum Derivatives Case

Supreme Court Sets Aside Sebi's ₹447.27-Crore Disgorgement Order Against Reliance Industries

The Supreme Court has dealt a significant blow to the market regulator Securities and Exchange Board of India (Sebi) by setting aside its ₹447.27-crore disgorgement order against Reliance Industries Ltd (RIL) in a long-running derivatives trading case. In a relief for RIL, the court on Friday overturned a November 2020 majority ruling of the Securities Appellate Tribunal (SAT), which had upheld Sebi's findings of fraudulent and manipulative trading in RPL shares and derivatives in 2007.

The bench comprising Justices J.B. Pardiwala and R. Mahadevan allowed Reliance's appeal and directed the refund of ₹250 crore deposited by Reliance in the Investor Protection Fund pursuant to an interim order passed during the pendency of the appeal. The court held that SAT had committed an "egregious error" in sustaining the findings of fraud under the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations.

Sebi had alleged that RIL entered into arrangements with 12 entities that accumulated substantial short positions in RPL futures contracts before undertaking the sale of 5% stake in Reliance Petroleum in the cash market in November 2007. The regulator claimed that the connected entities benefited from the decline in share price through their short futures positions and that the gains ultimately accrued to Reliance.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The regulator estimated that the entities earned profits of around ₹513 crore from the derivatives trades. Sebi had directed RIL to disgorge ₹447.27 crore, along with interest at 12% per annum from November 2007. The matter eventually reached SAT, which upheld the disgorgement order in a split verdict in November 2020. Reliance subsequently challenged the ruling before the Supreme Court.

The apex court in its ruling examined four key issues, including whether the agreements between Reliance and the 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 intended to depress prices and generate unlawful gains.

The Supreme Court's decision is the latest relief for RIL in a separate proceeding arising from the same 2007 Reliance Petroleum trading episode. In that case, the court in November 2024 quashed Sebi penalty on RIL chairman and managing director Mukesh Ambani, over alleged share manipulation involving RPL.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline