SAT directs Sebi to launch a fresh probe in RIL's Network 18 buy

Tribunal raps market regulator for not following instructions in April 2016 order; issue is whether RIL violated listing norms while taking control of Network 18

The Securities Appellate Tribunal(SAT) has directed market regulator Sebi to conduct a fresh probe into the acquisition of Network 18 Media & Investments by Reliance Industries (RIL) through its subsidiary Independent Media Trust (IMT). In a 19-page order released on Friday, the tribunal pulled up the Securities and Exchange Board of India (Sebi) for not following the instructions given by it in the matter through an order dated April 13, 2016.

The matter of contention is whether Reliance Industries (RIL) violated the listing norms while taking control of Network 18. Petitioners have alleged that RIL took indirect control of Network 18 by subscribing to so-called zero coupon, optionally and fully convertible debentures (ZOCDs) on February 27, 2012. It has been accused that RIL delayed the disclosure to shareholders.

The issue was previously taken up by the tribunal two years ago, when it passed an order asking Sebi to conduct a fresh probe. 

“While considering the approval given by Sebi to the open offer price of NW18 (Network 18), it was noticed that the open offer price was based on the clauses contained in the ZOCD Agreement dated February 27, 2012. Accordingly, this tribunal perused the clauses contained in the ZOCD agreement and arrived at a prima facie conclusion that on execution of the ZOCD Agreement, control over NW18 indirectly stood divested in favour of IMT,” said Justice JP Devadhar in the order.

Accordingly, SAT asked Sebi to conduct a fresh probe and pass an order on the same. However, Sebi had rejected the plea of the petitioners on the grounds that the transaction did not contribute to a violation in the listing norms since IMT was not a material subsidiary of RIL. Sebi did not pass an order in the matter but informed its decision to SAT through a signed affidavit. 

“Sustaining such patently erroneous decision of Sebi would be detrimental to the interests of investors in the securities market and would encourage listed companies to acquire indirect control over other companies through a Trust or some other entity without making disclosures under Clause 36 of the Listing Agreement,” SAT noted.