Breach of Futures Position Limits Is Not Market Fraud Unless SEBI Proves Manipulation or Inducement: Supreme Court Sets Aside Reliance Disgorgement

Case Name: Reliance Industries Limited & Ors. v. The Securities and Exchange Board of India

Citation: 2026 INSC 585

Date of Judgment/Order: May 29, 2026

Bench: Justice J.B. Pardiwala and Justice R. Mahadevan

Held: The Supreme Court held that mere breach or circumvention of futures position limits does not, by itself, amount to fraud or market manipulation under the SEBI PFUTP Regulations. To establish fraud, SEBI must prove either actual inducement/injury to market participants or clear deceitful intent and manipulative conduct from the surrounding facts. The Court held that concentration of open interest may give an ability to manipulate, but it cannot automatically be treated as manipulation. The Court further held that Reliance’s 9.92 crore RPL futures positions were valid hedges against the proposed sale of 22.5 crore RPL shares in the cash segment, and there was no legal requirement in 2007 for a perfect 1:1 hedge, separate hedging policy, or specific board resolution for such hedging.

Summary: The case arose from SEBI’s allegation that Reliance Industries Limited, while divesting 5% of its holding in Reliance Petroleum Limited, used 12 entities to take large short positions in the November 2007 RPL futures segment, allegedly bypassed client-wise position limits, and then sold 1.95 crore RPL shares in the cash segment during the last 8 minutes 20 seconds of trading on November 29, 2007 to depress the settlement price and earn unlawful profits in futures. SEBI’s Whole Time Member and the SAT majority held that Reliance had committed fraud and manipulation and ordered disgorgement of gains. The Supreme Court disagreed with the fraud finding. It held that the agency structure may have violated disclosure/position-limit requirements under the 2001 SEBI/NSE circulars, because Reliance could not do indirectly through agents what it could not do directly, but SEBI had not proved that the structure itself was a fraudulent device. The Court found that SEBI wrongly calculated market concentration by looking only at one futures series instead of all RPL derivatives, that the actual open interest was 40.10% and not 93.60%, and that such concentration was explained by genuine hedging. The Court also held that SEBI failed to prove that the last-minute sale of shares was intended to depress prices, particularly because Reliance had earlier sold shares only around INR 208–209, the price had unexpectedly risen in the last minutes, and Reliance still retained about 70% shareholding in RPL, making intentional price depression commercially unlikely.

Decision: The Supreme Court partly allowed the appeal. It set aside the SAT majority judgment dated November 5, 2020 to the extent it held Reliance guilty of fraud under Regulations 3 and 4 of the PFUTP Regulations and also set aside the disgorgement order. The Court directed refund of INR 250 crore deposited by Reliance in the Investor Protection Fund pursuant to the Supreme Court’s interim order dated December 17, 2020. However, the Court upheld the penalty imposed by the WTM and SAT for violation of the disclosure requirements under the 2001 SEBI Circular relating to position limits. Pending applications were disposed of.