RIL gets Sebi notice for alleged breach of norms

The Securities and Exchange Board of India (Sebi) has sent a show-cause notice to Reliance Industries (RIL) in a matter related to conversion of non-convertible debentures (NCDs) into equity shares by various promoter-entities, allegedly breaching the rules on creeping acquisition.

The case goes back to 1994, when RIL raised Rs 300 crore through 60 million NCDs issued to 38 entities acting in consort with the promoters. Further, the NCDs came attached with 120 million warrants that were converted into equity shares in 2000.

After the warrants’ conversion into equity shares, the collective stake held by promoter-entities and persons acting in concert (PACs) went up from 22.17 per cent to 38.33 per cent. Sebi guidelines clearly say promoters need to come out with a public announcement if the stake is increased by more than five per cent annually. RIL, however, made no such announcement, though the conversion led to a 16 per cent rise in promoter stake.

An RIL spokesperson declined to comment on the matter.

Industry sources said in 2002, two years after the actual conversion, RIL did make the disclosures to the stock exchanges. In the past, preferential allotments were kept outside the purview of the Takeover Code, but alleged misuse led to its subsequent removal.

According to people in the know, after a prolonged investigation into the matter, the adjudicating officer of Sebi had sent a notice to RIL on February 24, saying the conversion of 120 million shares to 38 entities violated the regulatory norms on creeping acquisition. RIL is expected to respond within a fortnight.

Sebi’s reaction after almost a decade has raised eyebrows, especially since the development comes in the midst of another regulatory probe related to insider trading on the country's largest listed private sector entity. In November 2007, stock futures of

Reliance Petroleum (RPL) were sold just days ahead of parent RIL bringing down its stake in the company. Some of the sellers were allegedly located at the same address as that of RIL group companies. The Sebi probe was initiated after some anonymous complaints were made to the regulator.

RPL was merged with RIL in 2009 and subsequently delisted from the stock market. Sebi first issued show-cause notices to RIL in this matter in May 2009, while the initial probe began in early 2008.