SEBI seeks 4 weeks to reply on RIL penalty case

Stock market regulator Securities and Exchange Board of India (SEBI) Friday sought four weeks to respond to Reliance Industries' (RIL) petition challenging its imposition of Rs.13 crore penalty on the company in a case related to disclosure of a key earnings ratio.

As per SEBI rules, companies have to disclose both their basic and diluted earnings per share (EPS) ratio in the quarterly financial statements filed with stock exchanges.

Reliance has filed a petition challenging the SEBI decision at the Securities Appellate Tribunal (SAT). The next hearing in the matter has been posted for Dec 11.

SEBI imposed the penalty on Aug 8 asking the RIL to pay it within 45 days of the order, while the company said it was a technical matter and not one of non-disclosure.

"As RIL (Reliance Industries Ltd) had outstanding share warrants issued in April 2007 which got converted into equity shares only during the third quarter of financial year 2008-09, the RIL should have disclosed Basic and DEPS in the filings for the quarters ended June 2007, September 2007, December 2007, March 2008, June 2008 and September 2008," SEBI said in its August order.

But RIL countered it, saying: "The issue relates to the method of calculation of diluted EPS under the accounting standards. The issue is not of non-disclosure."

Reliance added: "It can be observed from the results published by the company of all the quarters in question that both basic and diluted EPS have been disclosed."

As per SEBI's order document, the alleged violations dated back to 2007-09 when RIL had issued 120 million warrants to entities in the promoter group on preferential basis. According to the regulator, on the conversion of these warrants into shares, there was an increase in the paid-up share capital of RIL.

During a hearing in March, RIL argued that it did not disclose diluted EPS separately as the warrants were exercised at the fair value and there was no dilution of earnings, SEBI said.

The regulator's order stated that disclosure of EPS is "one of the important tools that investors use while making a decision regarding their investment in particular scrip".

Reliance said its arguments and written submission brought out all the relevant clauses of the accounting standards to substantiate why basic EPS and diluted EPS were same in all the quarters.

"We are now studying the order as to the interpretation SEBI has taken and would take appropriate action based on legal advice," RIL had said after the SEBI order.