Case pertains to fraudulent trading in erstwhile RPL shares
A recent order by the Bombay High Court has paved the way for the Securities and Exchange Board of India (SEBI) to re-start adjudication proceedings against Reliance Industries Ltd. (RIL) in a matter wherein it was alleged that the company made unlawful gains of nearly ₹500 crore in 2007 through fraudulent trading in the shares of the erstwhile Reliance Petroleum (RPL).
Earlier this month, the high court dismissed a petition by RIL that effectively put an end to the company’s attempts to settle the matter through the consent route. The company had moved the high court to get access to an internal SEBI report prepared by Y.H. Malegam, based on which the matter was being pursued at SEBI.
“As and when the adjudicatory proceedings take place, the petitioner [RIL] may ask for copies of such documents in accordance with the procedure established to conduct the proceedings,” a Bench comprising Chief Justice N.H. Patil and N.M. Jamdar said in the order, rejecting the petition.
The order assumes significance as the company, which was facing adjudication proceedings by SEBI, filed for consent based on which the adjudication process was held in abeyance.
While the matter was under investigation, SEBI had asked Mr. Malegam, a well-known chartered accountant, to prepare a report on the alleged irregularities at RIL under probe and submit it to the internal committee based on which the regulator could levy a monetary penalty on the listed entity.
While RIL wanted access to the report, SEBI declined it on the ground that it was an internal report. RIL, thereafter, moved the high court challenging SEBI’s refusal. According to RIL, the report would would have helped it “formulate its stand during the negotiation proceedings/settlement proceedings.” Incidentally, SEBI had already passed a disgorgement order against RIL in March 2017, wherein the company was ordered to disgorge nearly ₹1,000 crore. SEBI had said that RIL had to disgorge ₹447.27 crore along with interest at 12% per annum from November 29, 2007, till the date of payment. “Increasingly, internal committee for settlement is taking trial-ready posture, and reaching the settlement terms by the rule book. There is no sign of let-up for even minor infractions, or low-level, even non-fraud, securities law violations,” Sumit Agrawal, founder, RegStreet Law Advisors, said.
“There is no sign of let-up for even minor infractions, or low-level, even non-fraud, securities law violations. While the new settlement regulations have increased the discretion, face adjudication or settle on SEBI’s demands are the only two options the committee provides, and the discretion is rarely used even in a fit case.” Mr. Agrawal added.
The case dates back to March 2007, when RIL decided to raise resources by selling about 5% of its holdings in RPL. While RIL was dealing in the shares of RPL in the cash segment, it enlisted 12 entities as agents to operate on its behalf in the derivatives segment.
These entities took substantial short positions in the derivatives segment. As per the SEBI probe, the trades in the cash and derivatives segments were done so as to “bring down the price in the cash segment and consequently the derivatives segment of the RPL scrip” and make undue extraordinary profits.”
“The High Court did not grant the request for certain documents at this stage in the context of the newly notified regulations. High Court has preserved our ability to apply for these documents at an appropriate time. It needs to be clarified that we have not been penalised by SEBI,” an RIL spokesperson said in response to an email query by The Hindu.
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