The Supreme Court has granted relief to Reliance in the 2007 securities market fraud case

India’s Supreme Court on Friday granted relief to Reliance Industries Ltd in a securities market fraud case, overturning a lower court judgment and a 2020 order by the market regulator, alleging the company engaged in manipulative trading practices.

The court ordered the Securities and Exchange Board of India (SEBI) to refund 2.5 billion rupees ($26.32 million) collected from the Mukesh Ambani-led company pending appeal, according to the order.

RIL and SEBI did not immediately respond to Reuters’ request for comment.

The case relates to RIL’s decision in November 2007 to sell about 5% stake in its subsidiary Reliance Petroleum Limited (RPL). Prior to the sale, RIL had arranged with 12 entities that took short positions in RPL futures contracts, with profits and losses from those trades ultimately accruing to the company.

In its 2020 order, Sebi had ruled that the arrangement amounted to fraud and market manipulation as it exceeded position limits in derivatives, cornered the market and influenced settlement prices.

It directed RIL to pay Rs 4.47 billion to investors.

RIL challenged the order before the Securities Appellate Tribunal, which upheld SEBI’s findings, following which the company approached the Supreme Court.

However, the Supreme Court held that breach of position limit is a regulatory violation but does not in itself establish fraud. He says hedging is a legitimate risk-management tool and there is no legal requirement for a “perfect hedge.”

“There is no legal requirement to ensure a full hedge with a 1:1 ratio,” the court said, adding that SEBI failed to meet the high burden of proof required to establish manipulation.

“Concentration of positions, aggressive trading strategies or even violation of trading norms may invite regulatory consequences, but are not sufficient to establish market abuse,” said Sumit Aggarwal, senior partner at RegStreet Law Advisors.