Supreme Court Clears RIL of Fraud in Reliance Petroleum Share Trading Case
The Supreme Court on Friday absolved Reliance Industries (RIL) of allegations of illegal and undue gains amounting to Rs 447 crore in 2007, related to trading in Reliance Petroleum (RPL) shares. The court set aside the Securities Appellate Tribunal's (SAT) order that had directed disgorgement of the profit, ruling that no fraud was committed by the corporate giant.
RIL had earned a total of Rs 5,013 crore from the transactions, comprising Rs 4,500 crore from sales in the cash segment and Rs 513 crore from trades executed by 12 independent entities in the November 2007 future segment. The company had entered into agreements with these 12 entities to take up sales positions of 9.92 crore RPL shares in the November 2007 future segment.
Court's Observations on Sebi Circular Violation
While the bench of Justices J B Pardiwala and R Mahadevan exonerated RIL of any fraudulent intent, it criticized the company for attempting to exploit the absence of position limits for 'persons acting in concert' in the 2001 Sebi circular. The court noted that RIL established agency relationships with the 12 entities to circumvent regulatory oversight.
We uphold the penalty levied by the WTM and SAT in its majority judgment as regards the violation of the 2001 Sebi circular, the bench stated. However, the court provided a significant reprieve by setting aside SAT's November 5, 2020 judgment that had found RIL guilty of fraud.
No Breach of Sebi Fraud Regulations
The court observed that RIL cannot be accused of breaching the Sebi (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations. In a 136-page judgment, Justice Pardiwala wrote, RIL cannot shield its actions behind the argument that the 2001 Sebi circular did not provide any position limits for 'persons acting in concert'. We say so because the very stipulation of position limits in the Circular creates an implicit duty to disclose such trades that may be in breach of such limits.
RIL welcomed the verdict, emphasizing that the court recognized the absence of any fraudulent activity. The company now faces only a reprimand for the procedural violation rather than the severe financial penalty originally imposed.
