The Supreme Court quashed SEBI and SAT orders against Reliance Industries in the Reliance Petroleum trading case, setting aside allegations of fraudulent market practices, directing refund of Rs 250 crore deposited during proceedings and ending the prolonged legal battle arising from 2007 stock market transactions.
In a major legal victory for Reliance Industries Limited (RIL), the Supreme Court of India set aside a Securities and Exchange Board of India (SEBI) order that had accused the company of engaging in fraudulent and manipulative trading practices in the shares of Reliance Petroleum Limited (RPL).
The apex court also quashed a 2020 decision of the Securities Appellate Tribunal (SAT), which had upheld SEBI’s findings and the financial penalties imposed on Reliance Industries.
As part of its ruling, the Supreme Court directed the refund of Rs 250 crore that had earlier been deposited by Reliance Industries during the pendency of the proceedings. The judgment brings an end to a prolonged legal battle arising out of transactions carried out in 2007 involving Reliance Petroleum shares in both the cash and futures segments of the stock market.
Background Of The Dispute
The controversy dates back to November 2007, when SEBI began examining certain trades executed by 12 entities linked to Reliance Industries in the shares of Reliance Petroleum Limited, a subsidiary of RIL at the time.
According to SEBI, the entities had taken large short positions in the futures market and subsequently sold substantial quantities of Reliance Petroleum shares in the cash market. The regulator alleged that these trades artificially influenced the market price of the shares and amounted to manipulative conduct prohibited under securities laws.
SEBI claimed that the trading strategy adopted by the entities led to a sharp decline in the price of Reliance Petroleum shares, thereby enabling gains in the futures segment. Following its investigation, the market regulator concluded that the trades violated provisions of the SEBI Act and the Prohibition of Fraudulent and Unfair Trade Practices Regulations.
In 2017, SEBI passed a detailed order against Reliance Industries and the connected entities, directing disgorgement of unlawful gains amounting to approximately Rs 447 crore along with interest. The regulator held that the trades were structured in a manner intended to manipulate the securities market and imposed penalties on Reliance Industries and associated entities.
Reliance Industries challenged the order before the Securities Appellate Tribunal, arguing that the transactions were genuine market trades executed in compliance with applicable regulations and that there was no fraudulent intent. However, in 2020, the SAT upheld SEBI’s findings and sustained the disgorgement directions and penalties imposed by the regulator.
Supreme Court Set Asides SEBI And SAT Findings
Reliance Industries subsequently approached the Supreme Court challenging both the SEBI order and the SAT judgment. The apex court ruled in favour of Reliance Industries and set aside the findings of both authorities. With the Supreme Court quashing the SEBI order, the disgorgement direction requiring Reliance Industries to pay Rs 447 crore also stands nullified.
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The Court additionally ordered the refund of Rs 250 crore that had been deposited by the company during the litigation process. The ruling effectively closes one of the longest-running and most closely watched securities market disputes involving one of India’s largest corporate groups.
The decision is being viewed as a significant relief for Reliance Industries, as the company had consistently maintained that the trades in question were legitimate market transactions and did not violate securities regulations. The litigation had remained pending for several years and involved extensive examination of market practices relating to derivatives trading and large-scale share transactions.
Despite the favourable verdict, shares of Reliance Industries were trading over 1 per cent lower at Rs 1,336.70 during afternoon trade on Friday. The stock has declined nearly 15 per cent so far this year amid broader market fluctuations and sectoral pressures.
The Supreme Court’s ruling is expected to have wider implications for securities regulation and enforcement standards concerning allegations of market manipulation in complex trading transactions.
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