SC Rulings Provide Fresh Direction For SEBI Fraud Cases; Rajesh Exports In Spotlight

Recent Supreme Court decisions have prompted fresh discussions about the Securities and Exchange Board of India's (SEBI) approach to identifying fraud in securities markets. The decisions draw a sharper distinction between fraudulent market conduct and breaches that amount only to regulatory lapses.

Supreme Court Clarifies Fraud Standards

The discussion gained momentum after the 29 May 2026 judgment of the Supreme Court in the long-running matter involving Reliance Industries Limited. The court overturned SEBI’s fraud findings and directed the regulator to refund approximately ₹250 crore to the company. SEBI had earlier alleged that Reliance’s transactions in the futures market generated unlawful gains of about ₹447 crore. However, the apex court held that a breach of position limits alone does not automatically constitute fraud and that SEBI must demonstrate actual market manipulation and satisfy a higher evidentiary threshold.

The 17 March 2026 Terrascope Ventures judgment provided support to the regulatory stance of SEBI. The court held that diverting funds raised from investors can constitute fraud even without proof of traditional deceit. The court restored SEBI’s penalties and ruled that shareholder approval cannot legitimise an otherwise illegal diversion of funds.

Rajesh Exports Case May Test New Framework

The evolving legal standards are expected to influence SEBI’s ongoing probe into Rajesh Exports Limited. On 3 June 2026, SEBI issued an interim order alleging revenue misrepresentation of approximately ₹15.15 lakh crore between FY21 and FY25. The case turned out to be one of the largest alleged accounting irregularities ever investigated in India’s capital markets. The regulator claimed that between 97% and 99% of the company’s reported consolidated revenue came from overseas subsidiaries and questioned the authenticity of supporting records.

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SEBI has barred Chairman and Managing Director Rajesh Mehta from dealing in the company’s securities pending investigation and ordered further forensic scrutiny. The company has denied wrongdoing and stated that it is providing documents and evidence to address the regulator’s concerns.

Market participants are closely watching whether SEBI can meet the fraud standards emerging from the Supreme Court’s recent rulings while pursuing one of the biggest alleged financial misrepresentation cases in Indian market history.

Sources:

Economic Times

Reuters