Reliance Industries Limited & Orsv.Securities and Exchange Board of India

Legal Analysis: Reliance Industries Limited & Ors. vs. Securities and Exchange Board of India

Citation: 2026 INSC 585
Court: Supreme Court of India
Bench: Division Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan
Judgment Author: Justice J.B. Pardiwala (with Justice R. Mahadevan concurring)
Date of Decision: May 29, 2026
Nature of Judgment: Civil Appeals under Section 15Z of the Securities and Exchange Board of India Act, 1992 against the judgment of the Securities Appellate Tribunal (SAT) Mumbai, which had upheld the Whole Time Member’s (WTM) order holding Reliance Industries Ltd. (RIL) guilty of fraudulent and manipulative trade practices in the trading of Reliance Petroleum Ltd. (RPL) shares and futures.

Synopsis of the Judgment
RIL, the promoter of RPL (75% subsidiary), decided to divest 5% of its holding (22.5 crore shares) in the cash segment. Between 01.11.2007 and 06.11.2007, RIL entered into agency agreements with 12 entities to take short positions of 9.92 crore shares in the November 2007 RPL futures segment (to hedge against a possible price fall). The 2001 SEBI Circular on single‑stock futures prescribed client‑level position limits, but did not explicitly prohibit or require disclosure of “persons acting in concert”. RIL did not disclose the agency arrangements. On the settlement date (29.11.2007), RIL sold 1.95 crore shares in the cash segment during the last 10 minutes. SEBI alleged that RIL (i) circumvented position limits through 12 entities, (ii) cornered 93% of open interest in November futures, (iii) depressed the settlement price by dumping shares in the last 10 minutes, thereby making unlawful gains of Rs.513 crore in the futures segment, and (iv) violated the PFUTP Regulations. The WTM and SAT (majority) held RIL guilty of fraud and manipulation. The Supreme Court partly allowed RIL’s appeal, holding that: (i) the agency agreements were not per se fraudulent; (ii) the 9.92 crore futures positions were valid hedges; (iii) the calculation of cornering (93%) was flawed (should have been across all derivatives, not just one series); (iv) SEBI failed to prove price manipulation on 29.11.2007; (v) however, RIL violated the disclosure requirements under the 2001 SEBI Circular by not disclosing the agency arrangements. The Court set aside the disgorgement order of Rs.447 crore and the findings of fraud under the PFUTP Regulations, but upheld the penalty for breach of position limits/disclosure.

1. Basic Information of the Judgment

• Case Title: Reliance Industries Limited & Ors. vs. Securities and Exchange Board of India

• Civil Appeal No.: 4015 of 2020 (with another appeal arising from Diary No. 4723 of 2024)

• Bench: Justice J.B. Pardiwala and Justice R. Mahadevan (Division Bench)

• Judgment Author: Justice J.B. Pardiwala

• Date of Decision: May 29, 2026

• Citation: 2026 INSC 585

• Appeal From: Judgment and order dated 05.11.2020 (and 04.12.2023) passed by the Securities Appellate Tribunal (SAT), Mumbai, which by a 2:1 majority dismissed RIL’s appeal against the order of the Whole Time Member (WTM) of SEBI.

2. Legal Framework

Laws, Regulations and Circulars Involved:

• Securities and Exchange Board of India Act, 1992 (SEBI Act): Section 11B (power to issue directions and disgorge illegal gains), Section 15Z (appeal to Supreme Court from SAT), Section 12A (prohibition of manipulative and deceptive devices).

• Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations): Regulation 2(1)(c) (definition of “fraud”), Regulation 3 (prohibition of certain dealings in securities – fraudulent, manipulative or deceptive devices), Regulation 4 (prohibition of manipulative, fraudulent and unfair trade practices), Regulation 4(2)(d) and (e) (inducing persons to deal in securities, manipulation of price).

• Securities Contracts (Regulation) Act, 1956 (SCRA): Section 9 (power to make bye‑laws), Section 18A (contracts in derivatives – legal and valid if traded on recognised exchange and settled through clearing house).

• SEBI Circular No. SMDRP/DC/CIR-10/01 dated 02.11.2001 (2001 SEBI Circular): Introduced single‑stock futures; prescribed client/customer level position limits (higher of 1% of free‑float market capitalisation or 5% of open interest); required disclosure of positions exceeding limits; did not explicitly mention “persons acting in concert”.

• SEBI Circular No. IES/DC/CIR-4/99 dated 28.07.1999 (1999 SEBI Circular): On index futures; required disclosure where persons acting in concert together owned 15% or more of open interest.

• NSE Circular No. NSE/CMPT/2982 dated 07.11.2001 (2001 NSE Circular): Operationalised position limits.

• Indian Contract Act, 1872: Section 226 (acts of agent attributable to principal).

Key Precedents Cited and Applied:

• Firm of Pratapchand Nopaji v. Firm of Kotrike Venkata Setty & Sons (1975) 2 SCC 208 – Principle: what cannot be done directly cannot be done indirectly.

• Jagir Singh v. Rambir Singh (AIR 1979 SC 381) – Same principle.

• SEBI v. Kanhaiyalal Baldevbhai Patel (2017) 15 SCC 1 – Definition of “fraud” under PFUTP Regulations; inducement is a necessary ingredient; expansive definition but inducement must be established; proof beyond reasonable doubt not required in civil adjudication; preponderance of probabilities is the standard.

• SEBI v. Rakhi Trading (P) Ltd. (2018) 13 SCC 753 – Once factum of manipulation is established, it necessarily follows that investors have been induced to buy or sell; no separate proof of inducement required.

• SEBI v. Kishore R. Ajmera (2016) 6 SCC 368 – Intention to manipulate may be inferred from attending circumstances; factors include volume, persistence, proximity of buy/sell orders.

• Pyramid Saimira Theatre Ltd. v. SEBI (2010 SCC OnLine SAT 146) – Under PFUTP Regulations, any manipulative or deceptive device or contrivance does not require further proof of mala fide state of mind.

• Ketan Parekh v. SEBI (2006 SCC OnLine SAT 221) – Synchronised transaction not per se illegal; intention inferred from nature, frequency, value, circular trading, change of beneficial ownership.

• Pankaj Oil Mills v. CIT (1976 SCC OnLine Guj 33) – For a valid hedge, total of hedging transactions should not exceed total underlying stocks exposed to risk.

• Ontario (Minister of Finance) v. Placer Dome Canada Ltd. (2006 SCC OnLine Can SC 20) – Hedging must have clear correlation with underlying risk.

What the Judgment is About: The judgment sets aside SEBI’s finding of fraud and manipulation against Reliance Industries in the trading of RPL shares and futures, but upholds the violation of disclosure requirements under the 2001 SEBI Circular. It clarifies the scope of “fraud” under the PFUTP Regulations, emphasising that inducement is a necessary ingredient unless manipulation is cogently proved. It holds that (i) agency agreements do not automatically constitute fraud; (ii) valid hedging can justify excess positions; (iii) cornering must be calculated across all derivatives, not a single series; (iv) selling shares at a discount during a temporary price spike is not manipulation; (v) but non‑disclosure of agency arrangements to circumvent position limits is a regulatory violation. The disgorgement of Rs.447 crore was set aside and directed to be refunded.

3. Relevant Facts

• Reliance Industries Ltd. (RIL) was the promoter of Reliance Petroleum Ltd. (RPL), holding 75% shares. RPL’s IPO in May 2006 was at Rs.60 per share. By October 2007, the price had quadrupled to Rs.247.90.

• On 29.03.2007, RIL’s board passed a resolution authorising two officials to raise up to Rs.87,000 crore through various means, including divestment of investments.

• In September‑October 2007, analysts (Goldman Sachs, Morgan Stanley, Kotak) reported that RPL was overvalued and a price correction was likely.

• RIL decided to divest 5% of its holding – 22.5 crore shares – in the cash segment.

• Between 01.11.2007 and 06.11.2007, RIL entered into agency agreements with 12 independent entities. Under the agreements:
  All transactions were based on prior instructions of RIL (principal).
  Profits and losses from transactions would be to the account of RIL.
  The entities earned only a fixed commission.

• Through these 12 entities, RIL took short sale positions of 9.92 crore shares in the November 2007 RPL futures at an average price of Rs.265.67 per share. RIL squared off 1.95 crore positions before settlement, leaving 7.97 crore open positions.

• RIL sold 20.29 crore shares in the cash segment during November 2007 at an average price of Rs.208‑209. Out of this, 1.95 crore shares were sold in the last 10 minutes of trading on 29.11.2007 (the settlement date for the November futures) at prices between Rs.210‑224.

• SEBI issued a show cause notice on 16.12.2010 alleging:
  RIL manipulated the futures market by cornering 93.63% of open interest in November futures.
  The agency agreements were a device to circumvent position limits.
  The sale of shares in the last 10 minutes was intended to depress the settlement price, enabling RIL to earn Rs.513 crore unlawful gains.

• The WTM held RIL guilty of violating Section 12A of the SEBI Act and Regulations 3 & 4 of PFUTP Regulations, and ordered disgorgement of Rs.447.27 crore (after adjusting for permissible open interest of 1.09 crore shares) plus 12% interest.

• RIL appealed to the SAT. By a 2:1 majority, the SAT dismissed the appeal, upholding the WTM’s findings.

• RIL appealed to the Supreme Court.

4. Issues

1. Whether the agency agreements entered into between RIL and the 12 entities constituted a fraudulent and manipulative device under the PFUTP Regulations.

2. Whether the 9.92 crore open positions in the November 2007 RPL futures segment were valid hedges against RIL’s proposed sale of 22.5 crore shares in the cash segment.

3. Whether the agency agreements were used by RIL to corner open positions in the November 2007 futures segment for the purpose of manipulating the futures market.

4. Whether the sale of 1.95 crore RPL shares in the cash segment during the last 10 minutes of trading on 29.11.2007 was an attempt to depress RPL share prices to make unlawful profits in the November 2007 futures segment.

5. Whether the definition of “fraud” under Regulation 2(1)(c) of the PFUTP Regulations requires proof of inducement, and if so, whether SEBI had discharged that burden.

6. Whether the order of disgorgement under Section 11B of the SEBI Act was sustainable.

5. Ratio Decidendi

A. The 2001 SEBI Circular did not prohibit exceeding position limits; it only required disclosure. Breach of position limits, without more, does not amount to fraud under the PFUTP Regulations (Paras 133-147, 209-211).

The Court examined the 1999 and 2001 SEBI Circulars. The 1999 Circular on index futures required disclosure where persons acting in concert together owned 15% or more of open interest. The 2001 Circular on single‑stock futures, applicable in 2007, prescribed client‑level position limits but did not explicitly prohibit aggregation of positions by persons acting in concert. The 2001 Circular stated that the exchange monitors trading member‑level limits, but client‑wise limits are a “requirement of disclosure by the client”. Therefore, exceeding the limit was not banned; only non‑disclosure attracted penalty. RIL violated the disclosure requirement by not informing the exchange or SEBI about the agency arrangements. However, this violation is a regulatory infraction attracting penalty under the 2001 Circular, not fraud under the PFUTP Regulations. The principle “what cannot be done directly cannot be done indirectly” applies, but it leads to a finding of breach of disclosure, not automatically fraud.

B. The 9.92 crore futures positions were valid hedges (Paras 181-197, 212-215).

The Court held that the futures positions were taken to hedge the risk of a price fall on the proposed sale of 22.5 crore shares in the cash segment. The appellant no. 1’s exposure was large, and the position limits prescribed in the 2001 Circular would have made any meaningful hedging impossible. The fact that the hedge was not “perfect” (i.e., not in 1:1 ratio) does not invalidate it. There is no legal requirement of a perfect hedge. The Court rejected SEBI’s reliance on Pankaj Oil Mills because there the underlying risk was equivalent to the hedge; here, the hedge covered only 9.92 crore shares against 22.5 crore shares exposed. Moreover, in 2007 there were no statutory hedging policies for equity derivatives (such policies were introduced only in 2016 for commodity derivatives). The absence of a specific board resolution or hedging policy does not negate the commercial motive of hedging. The Court also noted that RIL held the positions till expiry despite opportunities to close them at profit, which is consistent with hedging (locking in a price) rather than speculation.

C. The calculation of “cornering” was flawed; the correct percentage of open interest held by RIL was 40.10% (across all derivatives), not 93.60% (restricted to November futures) (Paras 148-160, 216-220).

The Court held that the 2001 SEBI Circular requires position limits to be calculated on the “combined position in all derivative contracts on an underlying stock at an exchange”. SEBI erred by calculating RIL’s open interest only in the November 2007 futures series, ignoring December 2007 futures, January 2008 futures and options positions. When calculated correctly, RIL’s share of open interest on 29.11.2007 was 40.10%, not 93.60%. While 40.10% is still high, the Court held that such concentration, without evidence of manipulation, does not by itself constitute fraud. Cornering provides the ability to manipulate, but ability is not equivalent to actual manipulation.

D. SEBI failed to prove price manipulation on 29.11.2007 (Paras 198-208, 221-225).

The Court examined the circumstances of the last 10 minutes of trading on 29.11.2007. The price of RPL shares had unexpectedly risen to Rs.224.70 by 3:21 PM. RIL, which had not sold any shares since 23.11.2007 (price had fallen below Rs.208), saw an opportunity to sell the remaining 4.46 crore shares. It sold 1.95 crore shares at prices between Rs.210 and Rs.224. The Court noted:

• RIL did not sell below Rs.208 (its earlier acceptable price).

• The orders were placed below the Last Traded Price (LTP) only because there were no buyers at higher prices – a normal trading phenomenon.

• Other market participants sold 1.06 crore shares during the same period, but SEBI did not investigate their role.

• If RIL’s intention was to depress the settlement price, it would have dumped a far larger quantity at much lower prices, and would have started selling earlier (at 3:00 PM when price was Rs.208).

• RIL continued to hold 70% of RPL shares after the sale; a decrease in price would harm its own valuation, making a deliberate price‑depression strategy irrational.

Applying the test of preponderance of probabilities, the Court held that SEBI’s case of price manipulation was based on suspicion and not on cogent evidence. Therefore, the allegation of fraud under Regulation 4(2)(e) (manipulation of price) was not established.

E. The definition of “fraud” under Regulation 2(1)(c) of PFUTP Regulations – inducement is a necessary ingredient, but may be inferred from manipulation (Paras 161-180, 218-220).

The Court analysed the definition of “fraud” which includes “any act, expression, omission or concealment … in order to induce another person … to deal in securities”. The Court noted that the definition is extremely broad and poorly drafted. It held that to bring a transaction within the ambit of fraud, either (i) injury/inducement must be proved, or (ii) in cases where inducement is impossible to prove (e.g., widespread market), the factum of manipulation must be cogently established. Relying on Rakhi Trading, the Court held that once manipulation is established, inducement is automatically inferred. However, here SEBI failed to establish manipulation itself. Therefore, fraud was not made out.

F. The disgorgement order was set aside, and the penalty for violation of the 2001 SEBI Circular was upheld (Paras 227-230).

The Court set aside the disgorgement order of Rs.447.27 crore, holding that the finding of fraud under the PFUTP Regulations was unsustainable. However, the Court upheld the penalty for violation of the disclosure requirements under the 2001 SEBI Circular (the appellant no. 1 had already undergone a one‑year ban from F&O trading). The Court directed that the Rs.250 crore deposited by RIL in the Investor Protection Fund pursuant to the Court’s interim order be refunded.

G. The appeal was partly allowed (Paras 227-230).

The Supreme Court partly allowed the appeal, setting aside the findings of fraud and manipulation under the PFUTP Regulations and the disgorgement order, but confirming the violation of the 2001 SEBI Circular.

6. New Legal Principles Established / Reiterated

• Breach of position limits under the 2001 SEBI Circular is not per se fraud under the PFUTP Regulations: The 2001 Circular only required disclosure of excess positions; non‑disclosure is a regulatory infraction attracting penalty under the Circular, not automatically a fraudulent or manipulative trade practice under the SEBI Act and PFUTP Regulations. The principle “what cannot be done directly cannot be done indirectly” applies to the disclosure obligation, but does not convert a disclosure violation into fraud.

• Valid hedging can justify positions in excess of client‑level position limits: Hedging is a legitimate commercial tool. In 2007, there was no legal requirement for a “perfect hedge” (1:1 ratio) or a prior board‑approved hedging policy. The absence of such policies does not make the hedge fraudulent. The test is whether the hedge was entered into with the genuine intention to mitigate risk, not to evade regulation.

• Cornering for position limit purposes must be calculated across all derivative contracts on the underlying stock (all series and options), not restricted to a single futures series: The 2001 SEBI Circular explicitly requires calculation on the “combined position in all derivative contracts”. SEBI’s failure to do so led to a gross overstatement of concentration (93.60% vs. 40.10%).

• Sale of shares below LTP during a temporary price spike does not, by itself, establish price manipulation: In online trading, orders are placed below LTP when there are no buyers at higher prices. The intention to manipulate must be proved by additional factors, such as selling at prices significantly below the prevailing market, selling massive quantities far in excess of normal volumes, or selling immediately after a pattern of price increase without any reasonable commercial justification. Here, RIL sold at prices above its own cut‑off (Rs.208) and only after a sudden, unexplained price rise.

• In PFUTP fraud cases, the burden on SEBI is higher where inducement is not separately proved: While Rakhi Trading allows inducement to be inferred from manipulation, the underlying manipulation must be cogently established on a preponderance of probabilities. The degree of probability required is proportionate to the seriousness of the allegation. The Court applied the principle from Bater v. Bater (as quoted in Alupro Building Systems) that the degree of probability depends on the subject matter.

7. Court’s Examination and Analysis of Concepts

• Analysis of agency agreements and principal‑agent relationship (Paras 133-147): The Court held that the agreements were genuine principal‑agent contracts. RIL did not dispute that the 12 entities acted on its behalf. The Court applied Section 226 of the Contract Act to hold RIL liable for the acts of its agents. However, liability for the acts does not automatically mean the acts were fraudulent. The Court examined whether the structure itself was a fraudulent device. It held that the 2001 Circular allowed clients to take positions up to the prescribed limit per client; it did not prohibit a principal from using multiple agents. The defect was non‑disclosure, not the agency structure per se.

• Analysis of hedging (Paras 181-197): The Court distinguished between speculative trading and hedging. Hedging is intended to reduce risk, not to make a profit. RIL’s decision to take short futures positions at the beginning of November (when analysts were predicting a price fall) and hold them till expiry, despite opportunities to close at a profit, indicated a hedging motive. The Court rejected SEBI’s “naked hedge” argument (that from 16.11.2007 onwards, RIL had only 4.5 crore shares left to sell but held 7.97 crore futures positions). The Court accepted RIL’s explanation that it kept the positions as an anticipatory hedge against a further price fall (which did occur – prices fell below Rs.208). The absence of a 1:1 ratio was held not to be fatal.

• Analysis of cornering and position limits (Paras 148-160): The Court noted that SEBI’s calculation was erroneous because it ignored other derivative contracts. The Court illustrated with a hypothetical that if position limits were per series only, a trader could accumulate a dominant position by spreading holdings across series. The 2001 Circular’s requirement to calculate “combined position” was intended to prevent this. SEBI’s mistake was fundamental. When recalculated, RIL’s share (40.10%) was still large but not as extreme. The Court held that concentration alone is not manipulation; there must be an overt act affecting price or demand.

• Analysis of price manipulation on 29.11.2007 (Paras 198-208, 221-225): The Court examined trading data. RIL had sold 18.04 crore shares before 23.11.2007 at an average price above Rs.208. Prices then fell to Rs.190 and remained below Rs.208. RIL did not sell. On 29.11.2007, prices suddenly rose to Rs.224.70 at 3:21 PM. RIL placed sell orders for 1.95 crore shares. The Court noted that several orders were placed below LTP, but this was because there were insufficient buyers at higher prices. In a live market, a seller must match the highest bid, which may be below the last traded price. The Court also noted that SEBI ignored 1.06 crore shares sold by other participants at similar prices during the same period. The Court held that the evidence was insufficient to prove that RIL intended to depress the settlement price, especially considering that RIL still held 70% of RPL and would suffer from a price decline.

• Analysis of “fraud” definition (Paras 161-180, 218-220): The Court expressed concern that the definition in Regulation 2(1)(c) was too broad and poorly drafted, observing that “even walking, jogging and cycling” could mathematically be securities frauds. It held that to avoid absurdity, the requirement of inducement must be given meaning. It laid down a two‑pronged approach: (i) if injury/inducement is proved, no need to prove deceitful intention; (ii) if inducement is not separately proved, the factum of manipulation must be cogently established. In this case, SEBI failed to establish manipulation, and there was no direct evidence of inducement. Therefore, fraud was not made out.

8. Critical Analysis

Strengths: The judgment is a thorough and balanced analysis of a complex market manipulation case. It correctly identifies the limits of SEBI’s power to invoke PFUTP Regulations for what was essentially a regulatory breach (non‑disclosure of position limits). The Court’s emphasis on the need for cogent evidence of manipulation, rather than suspicion, is a crucial safeguard against overreach by the regulator. The judgment also provides important clarifications on hedging: it recognises that large promoters may need to hedge significant exposures, and the absence of a perfect hedge or a written policy does not make the hedge fraudulent. The correction of the cornering calculation (from 93% to 40%) is factually accurate and demonstrates the importance of reading the entire regulatory framework. The Court’s analysis of the last‑minute trading is pragmatic – it recognises that selling during a temporary price spike is rational behaviour, not manipulation.

Potential concerns: The judgment leaves some ambiguity regarding the interplay between the 2001 SEBI Circular and the PFUTP Regulations. It holds that non‑disclosure of agency arrangements violates the Circular, but does not specify what penalty (if any) remains after the one‑year ban already served. The Court set aside the disgorgement, but did not discuss whether SEBI could have imposed a monetary penalty under Section 23H of the SCRA or the 2001 Circular (which prescribed a maximum of Rs.1 lakh per person). The practical effect is that RIL faces no significant penalty for the undisputed circumvention of position limits – the one‑year ban had already been served, and the disgorgement was set aside. Some may argue that this sends the wrong signal. Another concern is the Court’s criticism of the definition of “fraud” under PFUTP Regulations. While the observation is valid, the Court did not strike down or read down the definition; it only interpreted it restrictively. Future SEBI cases may struggle with the same ambiguity.

Practical impact: This judgment will be cited by market participants in cases where SEBI alleges fraud based on technical breaches of disclosure or position limits. It reinforces that SEBI must prove actual manipulation or inducement, not merely regulatory non‑compliance, to invoke the PFUTP Regulations. It also provides a roadmap for defending against manipulation allegations by showing commercial justification (e.g., hedging) and by pointing to flawed calculations and alternative explanations for trading behaviour. The judgment may encourage SEBI to be more precise in its show cause notices and to conduct more thorough investigations, especially regarding the calculation of position limits across all derivative contracts. For the securities market, the judgment brings clarity that large hedging transactions are permissible even if they temporarily concentrate open interest.

9. Final Outcome

• Civil Appeal No. 4015 of 2020 and connected appeal: Partly allowed.

• The impugned judgment and order dated 05.11.2020 (and 04.12.2023) of the Securities Appellate Tribunal (SAT) were set aside insofar as they upheld the findings of fraud and manipulation under the PFUTP Regulations and the order of disgorgement.

• The findings of fraud under Regulations 3 and 4 of the PFUTP Regulations were set aside.

• The order of disgorgement of Rs.447.27 crore (along with interest) was set aside.

• RIL was directed to be refunded Rs.250 crore deposited in the Investor Protection Fund pursuant to the interim order of this Court dated 17.12.2020.

• The Court upheld the penalty for violation of the disclosure requirements under the 2001 SEBI Circular (the one‑year ban from F&O trading already undergone).

• No order as to costs.

10. Practical Application

For a market participant (e.g., promoter or institutional investor) facing SEBI allegations of fraud for exceeding position limits through multiple entities: Argue that under the applicable circular (e.g., the 2001 SEBI Circular), exceeding position limits is not per se prohibited; only non‑disclosure attracts penalty. The use of multiple agents is not fraudulent unless accompanied by manipulation or inducement. Demonstrate that the transactions were genuine hedges or legitimate commercial transactions. If SEBI calculates cornering only on a single futures series, point out that the circular requires calculation across all derivative contracts. For price manipulation allegations, show that the trading was consistent with a legitimate commercial objective (e.g., raising funds, reducing risk) and that other market participants traded similarly. Cite this judgment for the proposition that suspicion and motive are not enough; SEBI must prove actual manipulation or inducement.

• For SEBI (the regulator): When alleging fraud based on circumvention of position limits, first ensure that the applicable circular clearly prohibits aggregation of positions by persons acting in concert. If not, rely on the principle “what cannot be done directly cannot be done indirectly” and the agency relationship to argue that the conduct is fraudulent. However, after this judgment, a pure disclosure violation (without manipulation) may not suffice. Therefore, SEBI should also investigate and prove actual price or demand manipulation, or inducement of other market participants. In cases where manipulation is alleged based on last‑minute trading, collect and analyse data on all market participants’ trades during the relevant period, not just the accused’s trades. Use statistical evidence to show that the accused’s trades had a disproportionate impact. Also, ensure that position limit calculations are done correctly across all derivatives.

• For the Securities Appellate Tribunal (SAT): When reviewing SEBI orders, carefully examine whether the alleged conduct falls under the PFUTP Regulations or merely violates a disclosure requirement under a circular. If the conduct is a mere breach of position limits without evidence of manipulation or inducement, hold that it is a regulatory violation attracting penalty under the circular, not fraud under PFUTP. Also, ensure that SEBI has correctly calculated cornering across all derivative contracts. If SEBI relies on Rakhi Trading to dispense with proof of inducement, verify that manipulation has been cogently established – mere suspicion or “simulation exercises” are not sufficient.

• For a corporate lawyer advising a listed company on derivatives trading: Ensure that any use of multiple entities for trading futures is accompanied by full disclosure to the stock exchange and SEBI. The agency agreements should be documented, and the company should proactively report the aggregate positions to avoid allegations of concealment. If the company is hedging a large exposure, document the hedging rationale in board minutes or a separate hedging policy (even if not required by law) to demonstrate commercial intent. Avoid selling large quantities in the last minutes of a settlement period unless there is a clear commercial justification (e.g., a sudden price spike). Maintain detailed trading records to rebut allegations of price manipulation.

11. Court Lines

• “We say so because even though individual clients/customers, who are acting together, may be well within the client/customer level position limits, yet the effect of their coordinated transactions may have adverse impact on the market and participants.” (Para 136)

• “What cannot be done directly, cannot be done indirectly.” (Para 139, quoting Firm of Pratapchand Nopaji)

• “In our considered opinion, the position limits prescribed in the 2001 SEBI Circular could in no way properly hedge the appellant no. 1’s interests. Therefore, it was necessary for the appellant no. 1 to enter into 9.92 crore futures positions.” (Para 183)

• “Cornering of positions with the intent to manipulate the market ought to be patently clear from the conduct and transactions of the accused person. … concentration by itself cannot be considered to be manipulation.” (Para 193)

• “Mere suspicion and conjecture cannot be the basis to attribute fraudulent character to a transaction.” (Para 205)

• “If the intention of the appellant no. 1 was to depress the prices, it would have placed sell orders at prices lower than Rs. 210 per share which would also have been lower than the LTP. In our considered view, selling huge blocks of shares during the last 10 minutes, though not illegal, is definitely not an ideal circumstance. However, in the present matter, the attending circumstances show that price hike was available during the small window of 10 minutes, therefore, we cannot fault the appellant no. 1 that it took advantage of the same.” (Para 207)

• “The definition of fraud under the PFUTP Regulations is so broad and vague that there is a high possibility of false positives i.e., an activity may be incorrectly classified as fraudulent when it is actually legitimate.” (Para 174)

• “We are left with no other option but to set aside the impugned judgment and order dated 05.11.2020 passed by the SAT respectively, insofar as the finding on fraud under the PFUTP Regulations is concerned.” (Para 228)

12. Legal Strategy Insight

• For the appellant (RIL) – successful strategy: The key to winning was to distinguish between regulatory non‑compliance (non‑disclosure of agency arrangements) and fraud (manipulation or inducement). RIL emphasised the commercial rationale of hedging, provided detailed trading data to show that the last‑minute sales were rational (selling into a price spike, not below earlier acceptable price), and pointed out that SEBI’s cornering calculation was flawed (ignoring other derivative series). RIL also argued that as a promoter still holding 70% of RPL, it had no incentive to depress the share price. The legal team successfully demonstrated that SEBI’s case was based on suspicion and selective facts, not on cogent evidence of manipulation. The strategy of placing detailed tables and “simulation exercises” (showing that RIL could have made higher profits by closing earlier) helped rebut the allegation of manipulative intent.

• For SEBI (respondent) – lessons from loss: SEBI’s case was weakened by (i) incorrect calculation of cornering (using only November futures), (ii) failure to investigate other market participants’ trades on 29.11.2007, (iii) over‑reliance on the fact that 12 out of 17 orders were placed below LTP without considering market mechanics, and (iv) insufficient evidence of inducement. Future SEBI investigations should ensure that position limit calculations are done correctly across all derivative contracts. In last‑minute trading cases, collect and analyse all trades during the relevant period, not just the accused’s trades. If possible, use econometric analysis to quantify the price impact attributable to the accused’s trades. Also, present evidence of actual market participants who were induced to trade by the alleged manipulation (e.g., through surveys or trading records showing that they relied on artificial price signals). Without such evidence, invoking PFUTP fraud may be difficult after this judgment.

• For a corporate general counsel (hedging and derivatives compliance): After this judgment, companies can take comfort that legitimate hedging transactions are protected even if they exceed position limits, provided the limits were not intentionally concealed. However, full disclosure is mandatory. Companies should proactively file disclosures with stock exchanges regarding any agency arrangements or persons acting in concert that result in aggregate positions exceeding prescribed limits. They should maintain documentation of the hedging rationale, including internal memos, board minutes (even if not legally required), and contemporaneous records of market conditions (e.g., analyst reports, price trends) that led to the hedging decision. To avoid allegations of last‑minute price manipulation, companies should adopt a written policy on trading near settlement dates, including limits on volume and time of trading, unless there is a compelling commercial justification (e.g., a sudden price spike).

• For a defence lawyer in a SEBI fraud case: Focus on the distinction between regulatory violations and fraud. Argue that non‑disclosure or breach of position limits, without proof of manipulation or inducement, does not attract PFUTP Regulations. Use this judgment to challenge SEBI’s reliance on Rakhi Trading to dispense with proof of inducement – argue that manipulation itself must be cogently proved, not merely alleged. In price manipulation cases, present alternative explanations for the trading pattern (e.g., hedging, raising funds, selling into a temporary price spike). Use trading data to show that other market participants behaved similarly. If SEBI calculates cornering only on a single contract series, point out the error. Also, highlight the commercial irrationality of the alleged manipulation (e.g., a promoter would not depress its own share price). The burden on SEBI is high, and this judgment sets a strong precedent for dismissing speculative allegations.