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15. The AO framed the following issue, namely, whether noticee-2, being the CMD of Noticee-1 and responsible for its day-to-day affairs, was liable for manipulative trading done by Noticee-1, resulting in violation of Regulations 3(a), (b), (c), (d) and Regulation 4(1), 4(2)(d), (e) of the PFUTP Regulations, 2003 and SEBI Circular No. SMDRP/DC/CLR-10/01 dated November 02, 2001?

16. Shri Somasekhar Sundaresan, the learned counsel for the appellants contended that the impugned order was based on surmises and conjectures which is evident from various paragraphs in the impugned order. Shri Somasekhar Sundaresan, contended that in paragraph 67 of the impugned order it was observed that being a Managing Director implies a high level of accountability and knowledge of the overall functioning of the Company and that there was no agreement between noticee no. 2 (Mukesh Ambani) and the Board of RIL that limits the power of noticee no. 2's to implement the decision of the Board of RIL. The AO further observed that even if such an agreement existed it would go against the interest of RIL whereby the Managing Director does not have any oversight over the decisions relevant to the Company. In paragraph 71, the AO observed that he finds it difficult to believe that the entire asset sale as decided in the Board meeting dated March 29, 2007 was left at the discretion of the two officers without the supervision of the Managing Director. The AO in paragraph 72, 73 and 74 came to the conclusion that the two officers were not competent to take the decisions independently. In paragraph 72, the AO held that authorising two officials to independently carry out the trading activities was not desirable in any corporate structure and, therefore, came to the conclusion that the intention of the Board of RIL was never to put the entire responsibility of the activities on the said officials without an oversight of the Managing Director who is also a Member of the Board of RIL. In paragraph 72 the AO came to the conclusion that it is highly unlikely that noticee no. 2 was not aware of the transactions in the cash and F&O segment executed by the two officials of the Company. In paragraph 77 the AO further came to the conclusion that the two officials did not have any locus in the entire scheme of transactions and therefore could not have independently taken a decision for such multi-level implementation plan and, therefore, concluded that noticee no. 2, being the Managing Director of RIL must have given approval or had knowledge about the entire manipulative scheme including manipulative trades undertaken by RIL.

99. It was also contended that necessary documents which were specifically mentioned in the show cause notice were not supplied and the appellants provided a list of documents before the AO and one such document was the investigation report. It was urged that the documents so mentioned in the show cause notice were withheld and SEBI refused to provide a copy of the investigation report which was contrary to the law laid down in T. Takano v. SEBI 2022 SCC OnLine SC 210.

100. It was also urged, that the finding of the AO that the appellant had violated the PFUTP Regulations is purely based on surmises and conjectures. The finding that there was a nexus between the Facility Agreements executed by the noticees with Vinamra and the impugned trades carried out by RIL and its agents is patently erroneous. It was urged, that the Facility Agreement was executed prior in point of time before the alleged trades were executed by RIL and, therefore, it cannot lead to any presumption that the loan given by noticee nos. 3 and 4 to Vinamra was for the purposes for the 12 agents to trade by taking open positions. It was urged that the impugned order is based on pure conjectures and on the assumption that the Facility Agreements were entered into solely for the purpose of funding RIL transactions in the November 2007 futures market. Further, the impugned order proceeds on an erroneous basis that the inter corporate deposit (ICDs) of Rs. 2775 crores in case of noticee no. 3 and Rs. 550 crores in the case of noticee no. 4 were in fact meant for the purpose of funding manipulative trade of RIL.

117. Even otherwise on merits, we are of the opinion that the finding that the appellants by providing funds to Vinamra were complicit in the manipulative scheme adopted by RIL and its agents and had aided and abetted in the manipulative scheme is purely based on surmises and conjectures and cannot be sustained. The finding that the appellants consequently contravened PFUTP Regulations cannot be sustained.

118. In this regard, we may note that noticee nos. 3 and 4 had executed Facility Agreement with Vinamra on August 04, 2007 and September 22, 2007 much before RIL took a decision in an around October 30, 2007 to sell 5% stake in RPL. Between October 30, 2007 and November 03, 2007 RIL appointed 12 agents to undertake transactions in November 2007 future segment for RPL shares. Agency Agreement was executed during this period between RIL and the 12 agents. Short positions were taken by the 12 agents between November 01, 2007 and November 06, 2007.

122. The evidence that has been brought on record does not indicate that noticee nos. 3 and 4 could have known in August / September 2007, namely, at the time of execution of the Facility Agreement that RIL would decide in end of October to sell the RPL shares or that RIL would take position in the November futures through its agents or that RIL would enter into agency agreements with the 12 agents or that RIL would trade in the last 10 minutes on November 29, 2007 in such a manner so as to suppress the price of the RPL shares. Thus, in our opinion, when the Facility Agreement was executed, noticee nos. 3 and 4 could not have known that RIL would enter into the cash segment or would take positions in the November 2007 futures.