INTRODUCTION

The Supreme Court’s judgment in Reliance Industries Limited v. Securities and Exchange Board of India , delivered on 29 May 2026, is a kind of moment that exposes not a failure of facts, but a failure of legal architecture. RIL, anticipating a large cash-market sale of its RPL shareholding, took 9.92 crore short positions in RPL futures through twelve agency entities, profiting ₹513 crore when the November 2007 futures settled at a price SEBI alleged RIL had itself depressed through aggressive last-minute selling. The Court, in setting aside SEBI’s fraud finding and the consequent disgorgement order, held that neither the concentration of futures positions through agency arrangements nor the timing of the cash-market sale independently established the elements of fraud under the PFUTP Regulations and in doing so, did something far more consequential than decide a single dispute: it purposively read a mental element back into a provision that appeared, by its text, to have excluded one. The question this article poses is whether the Court’s interpretive intervention, however legally correct, is adequate to address a problem that is essentially legislative in character and whether, in the absence of a statutory definition of what satisfies the intent requirement, the judgment has replaced one form of uncertainty with another.

LEGAL FRAMEWORK

The significance of this interpretive move cannot be overstated. Regulation 2(1)(c) of the PFUTP Regulations defines fraud in terms broad enough to swallow the horizon covering acts, omissions, and concealments “whether in a deceitful manner or not,” language that SEBI had long read as liberating it from the burden of proving anything resembling wrongful intent. The Court, acknowledging what it called the “inelegant drafting” of this provision, held that such breadth could not have been the legislature’s intention, and that both mens rea and actus reus remained relevant considerations in any fraud determination. In its place, the Court erected a two-scenario framework: where inducement causing injury is established, wrongful intention need not be independently proved, but where injury is impossible to prove, a higher degree of preponderance of probabilities must cogently establish wrongful intent from the attending circumstances. The court also clarified that in such cases where malicious intent is established through apparent misconduct and attending circumstances, the need to prove injury should be done away with.

The aspect/requirement of intent was overlooked by the SC judgment in the case of SEBI v. Kanaiyalal Baldevbhai Patel (2017), which completely did away with the requirement of looking into intention or motive, holding that no element of dishonesty or bad faith in the making of the inducement would be required.

However, the next SC judgment in the case of SEBI v. Rakhi Trading (P) Ltd (2018) held that “Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market.” In this case, however, the court completely bypassed the requirement of intention under Regulation 4(2)(c) and held that only the factum of manipulation is required.

However, in the latest decision using the interpretation by the SC, SEBI, in the matter of Rajesh Exports, has recently passed an interim order on the ground of the “intent” element as being clearly established through the blatant misconduct of noticees given in the present case.

CROSS-JURISDICTIONAL ANALYSIS

The element of “intent” can be seen to exist in different jurisdictions, such as the USA, the UK, and Canada. Section 11(b) of the Securities Exchange Act of 1934 requires the plaintiff to prove ‘scienter’. Section 398 is a UK statute that criminalizes a regulatory wrong only where accompanied by a culpable state of mind – either actual knowledge of falsity or conscious disregard of a known risk of falsity. Section 198(1) of the Singapore Securities and Futures Act prohibits a person from carrying out two or more transactions in a corporation’s securities that have, or are likely to have, the effect of raising, lowering, maintaining, or stabilising their price on an organised market, where this is done with the specific intent to induce others to subscribe for, purchase, or sell those securities.

WHY IS IT HARD TO MAKE A CASE AROUND INTENT?

Scienter is what separates fraud from an honest mistake, yet proving it is genuinely hard, not just hard to plead. Firstly, Intent is conceptually simple for individuals but evidentially elusive even there; for corporations, which have no mind of their own, courts must first invent a theory of how a fictional person can “know” anything. Circuit courts have splintered into three incompatible answers:respondeat superior, collective scienter, and the high managerial approach— each either under-deterrent, wherein corporations escape by keeping information dispersed, or over-deterrent, wherein liability attaches to “knowledge” and no single person ever held.

Secondly, Plaintiffs remain bound to a standard the Court itself won’t define even globally. The practical bite of an unresolved standard surfaced in NVIDIA Corp. v. Öhman. Plaintiffs alleged NVIDIA misstated the extent of GPU revenue attributable to crypto mining, relying on internal records they could not specify and an expert’s reconstruction rather than the documents themselves. Under the landmark case of Tellabs, a “strong inference” of scienter must be at least as compelling as a contradicting inference — a comparative test with no operational content. The Ninth Circuit found scienter plausible because NVIDIA’s CEO was a meticulous manager likely to have seen the real numbers; the Supreme Court granted certiorari to resolve how much particularity such inferences require, then dismissed the case as improvidently granted, leaving the question open. Plaintiffs remain bound to a standard the Court itself won’t define.

Thirdly, recent work on AI trading suggests that the assumption can simply fail. It shows that independent reinforcement-learning algorithms can converge on sustained, supra-competitive collusive trading profits purely through price-trigger strategies, without requiring any agreement, communication, or pre-programmed intent. A second mechanism, “artificial stupidity” — produces identical collusion through an asymmetric learning bias that has minimal relation with strategy. No individual decided to collude; no aggregate of employees holds the relevant knowledge; and the algorithm need not even be negligently designed. If a system can produce every harm scienter doctrine exists to prevent while containing no mind anywhere to interrogate, a liability framework built entirely around proving intent has no work left to do in such cases.

Fourthly, India’s experience compounds the problem rather than escaping it. SEBI v. Kanaiyalal Baldevbhai Patel held that PFUTP “fraud” requires no dishonest intent at all, in tension with N. Narayanan v. SEBI, which assumed some culpable awareness based on the applicant’s actions. This tension has not been resolved by the RIL judgement. And in a scenario where the final judgement arrives after about – years, adding one more layer of requirement does not act as a panacea; rather, the definition itself needs an overhaul, and there is a need to create deterrence by identifying the fraud in its earlier stage, rather than taking a reverse engineering approach which will support the larger aim of securities legislation to prevent fraud.

CONCLUSION

In a modern derivatives market where harm is structurally diffuse, where thousands of counterparties and retail investors suffer losses too small to prove yet significant in aggregate individually, and where the most sophisticated forms of market misconduct leave no identifiable victim, the Court has simultaneously created a standard in Indian securities enforcement law and left its most critical terms undefined. What does it mean to “cogently establish” wrongful intention? What quantum and quality of circumstantial evidence suffices? When does an unexplained trading pattern shade into blatant misconduct? The judgment answers none of these questions.

This silence raises concerns that extend well beyond the facts of RIL. Securities markets are dynamic. New instruments, new participants, and new methods of exploitation emerge continuously, often faster than regulation can respond. If “cogent establishment” of intent remains a judicially undefined standard to be assessed case-by-case, the practical consequence may not be a more disciplined enforcement regime; it may be a more paralysed one involving discretion, where the regulator, uncertain of what evidence suffices, either over-charges and loses on appeal, or under-charges and leaves sophisticated misconduct unaddressed.