The Securities Appellate Tribunal (SAT) has dismissed Reliance Industries’ (RIL’s) plea challenging an order passed by the Securities and Exchange Board of India (Sebi) asking the company to return Rs 447 crore “unlawfully gained” by dealing in shares of erstwhile subsidiary Reliance Petroleum (RPL).
A majority of SAT’s three-member Bench upheld Sebi’s order dated March 24, 2017. Dismissing RIL’s appeal, SAT directed the company to pay Rs 447 crore, with a simple interest of 12 per cent from November 2007, within 60 days. The amount works out to about Rs 1,150 crore.
SAT said while the disgorgement amount is sizeable, the directions are not harsh. “It is only a remedial action and what is disgorged is only what has been gorged by contravention of the specified laws. Nothing has been taken out of the appellant’s own funds/assets in the process. Since it is only an equitable remedy there is no question of that being harsh or a penal action,” the SAT Bench said.
RIL said it plans to challenge the order passed by SAT— an appeals court, whose orders can be further challenged before the Supreme Court.
“The company reiterates that it has not violated any law or regulation while selling shares of RPL in November 2007. The company, under proper legal advice, will prefer an appeal to the Supreme Court of India and is confident of vindicating its position,” RIL said in a statement.
In 2007, RIL’s board approved sale of 5 per cent stake in RPL in the open market. Anticipating a fall in RPL’s stock price, RIL mounted aggressive short positions in RPL’s derivatives counter. These trades were carried out through 12 entities to circumvent certain restrictions, Sebi had alleged.
An investigation showed that each of the 12 entities had undertaken the trade on behalf of RIL and the profits were shown as ‘other income’ in RIL’s profit and loss account for the financial year ended March 31, 2008. RIL had defended the move saying the short positions were created as a hedging strategy.
On argument that the trades were part of hedging strategy, SAT said “if the appellant was a responsible promoter, the appellant would have spread its sales, of the 5 per cent equity of RPL they were planning to offload, across a much longer period.”
The tribunal pulled up RIL for selling huge quantity of shares in the cash segment 10 minutes before the market close that, too, on the day of derivatives expiry.
“All trades carried out by the company were genuine and bonafide. No irregularity can be attached to these transactions,” RIL said on Thursday.
Offering a minority view, Justice Tarun Agarwala, presiding officer, SAT, held that Sebi had failed to establish manipulation.
RIL had moved SAT in May 2017.