In a major legal victory for Reliance Industries Limited (RIL), the Supreme Court of India on Friday set aside a ruling that directed the conglomerate to surrender Rs 447.27 crore in connection with a high-profile share trading dispute dating back to 2007.
The apex court partly allowed RIL’s appeal against a November 2020 decision by the Securities Appellate Tribunal (SAT) in Mumbai. Delivering the 136-page verdict, a bench comprising Justices JB Pardiwala and R Mahadevan ruled that the SAT’s majority decision contained an “egregious error” regarding the findings of fraud against RIL.
The Ruling: A Partial Victory for RIL
The core of the Supreme Court’s decision centered on allegations of fraud under Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP). The bench stated it had “no other option” but to overturn the SAT’s November 5, 2020 order concerning these fraud findings.
“In the result, the appeal partly succeeds and is hereby partly allowed. Accordingly, the order of disgorgement is also set aside,” the apex court declared.
However, the ruling was not an absolute exoneration. The Supreme Court upheld the SAT’s findings regarding disclosure violations.
“We concur with the SAT’s observations in its majority judgment as regards the penalty to be levied on the appellant number 1 (RIL) for violating the disclosure requirements under the 2001 SEBI circular concerning position limits,” the bench noted.
Refund of Rs 250 Crore Ordered
Following the reversal of the disgorgement order, the Supreme Court directed that RIL be refunded Rs 250 crore.
This sum had been deposited by RIL into the Investors’ Protection Fund as an interim measure on December 17, 2020, when the Supreme Court first admitted the appeal against the SAT ruling. At that time, the court had ordered the deposit of Rs 250 crore within four weeks, while the recovery of the remaining balance, including interest, was put on hold pending the final outcome of the appeal.
Understanding the 19-Year-Old Dispute
The roots of this legal battle lie in transactions conducted nearly two decades ago involving Reliance Petroleum Limited (RPL). In 2007, RPL was an undisputed, 75% subsidiary of RIL.
The Securities and Exchange Board of India (SEBI) took action against RIL on March 24, 2017, when its Whole Time Member ordered the company to disgorge Rs 447.27 crore. SEBI’s investigation alleged that RIL had generated illegal and undue gains by manipulating the prices of RPL shares during trades in November 2007 to maximize profits in the futures market.
RIL subsequently challenged the market regulator’s directive before the Securities Appellate Tribunal in Mumbai. In November 2020, the SAT dismissed RIL’s appeal in a split 2:1 majority verdict, which prompted the conglomerate to escalate the matter to the nation’s highest court. With Friday’s ruling, the long-standing disgorgement order has finally been dismantled.
