The Supreme Court has partly allowed an appeal challenging a Securities Appellate Tribunal (SAT) judgment concerning trading in Reliance Petroleum Limited (RPL) shares and futures contracts in November 2007, holding that SAT committed an “egregious error” in concluding that the appellants had engaged in fraudulent and manipulative practices under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations (PFUTP Regulations).

The Court examined four principal issues, including whether agreements entered into between the principal appellant and twelve entities constituted a fraudulent and manipulative device, whether the 9.92 crore open positions in the November 2007 RPL futures segment were valid hedges, whether the agreements were used to corner positions in the futures market, and whether the sale of 1.95 crore RPL shares during the last ten minutes of trading on November 29, 2007 was intended to depress share prices and generate unlawful profits in the futures segment.

After analysing the agency agreements, the alleged cornering of positions in the November 2007 futures segment, the concept of valid hedging, and the allegations of market manipulation under Regulations 3 and 4 of the PFUTP Regulations, the Court concluded that the findings of fraud recorded by SAT could not be sustained.

The Court held that the majority judgment of SAT erred in treating the transactions as fraudulent and manipulative conduct under the PFUTP framework. Consequently, it set aside the SAT judgment and order dated November 5, 2020 insofar as it upheld findings of fraud against the appellants.

However, the Court concurred with SAT and SEBI’s Whole Time Member on the issue of violation of disclosure requirements under the 2001 SEBI Circular relating to position limits. The penalty imposed for the disclosure violations was therefore upheld.

Allowing the appeal in part, the Supreme Court also set aside the disgorgement order and directed refund of ₹250 crore deposited by the appellant in the Investor Protection Fund pursuant to an earlier order of the Court dated December 17, 2020.