Reliance Industries Limited vs Securities and Exchange Board of India 2026 INSC 585 - SEBI Regulations - Fraud
Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 — Regulation 2(1)(c) — Definition of "Fraud" — Requirement of Intention and Injury — The plain language of Regulation 2(1)(c) ought not to be read in a strict sense because making the requirement of deceitful intention non-essential runs counter to the element of inducement. For a purposive interpretation, both intention and act cannot be made into irrelevant factors: (i) where injury due to a wrongful act is established, meaning inducement to deal in securities caused another person to be adversely affected and allowed the accused party to gain unlawful profits or avert ordinary losses, there is no requirement to prove deceitful intention; conversely, where injury is impossible to be proved, the requirement of wrongful intention becomes mandatory; (ii) where deceitful or mala fide intention to defraud and manipulate the securities market is clear from blatant misconduct or attending circumstances that cogently establish wrongful intention, then proving injury is not required — (Paras 168, 170, 175, 220).
Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 — Regulations 3 and 4 — Factum of Manipulation and Burden of Proof — Inducing another person or their agent to deal in securities remains a strict requirement for establishing fraud, except where the factum of manipulation is sufficiently and cogently established, in which case it necessarily follows that investors have been induced and further proof of inducement or injury is done away with. However, where circumstances indicate that no inducement is present yet fraudulent conduct may have been at play, the standard of proof to be discharged to establish price manipulation is a higher degree of the preponderance of probabilities, which must be established cogently with all attending circumstances pointing towards the direction that the person alleged must have committed fraud — (Paras 176, 178, 180, 196).
Securities and Exchange Board of India (Scheme for Introduction of Single Stock Futures and the Risk Containment Measures) Circular dated 02.11.2001 — Clause 6 — Position Limits — Series-wise vs. Combined Derivative Calculation — Calculating client-specific or customer-specific positions limits merely on the basis of the total open positions in a singular month's series (such as November 2007 futures) is erroneous and creates a regulatory loophole where a trader could accumulate a dominant position by spreading holdings across several series while staying within the 5% limit. In terms of the 2001 SEBI Circular, position limits are applicable on the combined positions across all derivative contracts on an underlying stock at an exchange, meaning the open interest must be calculated on the aggregate of total open positions across all derivatives (including multiple futures series and options positions) of the underlying stock — (Paras 150, 151, 152, 153, 216).
Securities and Exchange Board of India (Scheme for Introduction of Single Stock Futures and the Risk Containment Measures) Circular dated 02.11.2001 — Clause 6 — Position Limits — Persons Acting in Concert (PAC) and Non-Disclosure — The position limits prescribed in the 2001 Circular apply to the coordinated transactions of individual clients or customers acting together, as the underlying objectives are to prevent market manipulation, preserve price discovery, and reduce systemic risks. A client or customer attempting to capitalize on the absence of explicit position limits for "persons acting in concert" by establishing undisclosed agency relationships with multiple entities violates the implicit duty to disclose trades exceeding mandated limits, attracting the legal principle that what cannot be done directly cannot be done indirectly; the provision of penalty under the 2001 Circular is attracted for failing to comply with such disclosure requirements rather than the breach of position limits per se — (Paras 135, 138, 139, 140, 141, 209).
Securities Contracts (Regulation) Act, 1956 — Section 18A — Validity of Derivative Contracts Exceeding Position Limits — The 2001 SEBI Circular nowhere provides that the transgression of position limits has the effect of voiding or nullifying a contract in derivatives taken above and beyond such limits. The only consequence provided for such a regulatory infraction is a penalty in the form of a fine, expulsion, or suspension from membership, and what is not expressly stated to be a consequence of a violation cannot be read into the circular by implication; hence, derivative contracts exceeding position limits are not rendered invalid or void under Section 18A — (Paras 145, 146, 209).
Commercial Hedging vs. Speculative Trading — Valid Hedge Requirements — Anticipatory Hedging and Perfect Hedge Ratio — For a transaction to be considered a valid hedge, there is no legal requirement to ensure a perfect hedge with a 1:1 ratio of underlying risk to the number of hedge positions, nor does an imperfect hedge or a "naked hedge" automatically equate to speculative trading. Hedging includes anticipatory hedging, where a promoter or trader holding a massive block of shares exposed to the risk of price movements locks in prices or holds existing short futures positions as a protection against anticipated downward price corrections or a bearish trend, particularly when there were no written regulatory hedging policies or board-approved policy requirements for equity derivatives in place at the relevant time — (Paras 158, 159, 187, 188, 189, 212, 214).
Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 — Regulation 4(2)(e) — Price Manipulation — Placing Orders Below Last Traded Price (LTP) — Motives and suspicions cannot be the sole basis for holding that there was fraudulent intent to manipulate or depress prices. In an online trading system driven by market forces and buyer-seller price priority, the mere fact that a seller places large sell orders in tranches below the Last Traded Price (LTP) during the closing minutes of a settlement date does not conclusively prove market manipulation or an intent to depress the settlement price, especially when the seller is discounting the price to ensure execution during a short window of volatility and continues to retain a majority stake (70%) in the company, making an intentional depression of the stock's valuation economically unviable and highly unlikely — (Paras 199, 202, 204, 207, 224, 225).
