Sebi bans Reliance industries from equity derivatives market for 1 year

The Securities and Exchange Board of India (Sebi) has banned Reliance Industries Ltd (RIL) from trading in equity derivatives market for a year.

Reliance industries have reportedly made unlawful gains of a whopping Rs 513 crore. Reliance sold a major stake to erstwhile unit Reliance Petroleum  Ltd (RPL) in 2007. It is reported that Reliance made unfair profits via this transaction.

RIL has been asked to disgorge a whopping Rs 447.27 crore along with an annual interest of 12% with retrospective effect from 29 November 2007. If you calculate, the total amount to be disgorged is near-around  Rs1,300 crore. RIL is required to pay the requisite amount in 45 days of the order.

Sebi’s whole-time member G. Mahalingam passed an order which said that RIL had made “unlawful gains” of Rs 513 crore. The report also claimed that such profits could not have been made in normal business but for the fraudulent and manipulative strategy/pattern adopted by them.

Reliance Industries

Sebi calculated an unlawful gain of Rs 513 crore by taking into account the net short (Selling) position that RIL and 12 other entities maintained stock, while trading in the RPL stock. This dates back to 2007, before RPL was in talks for amalgamation with RIL.

The other 12 entities named in the order have also been barred from trading in the futures & options segment for one full year.

In 2007, RIL ‘put’ a 4.1% stake in RPL. In order to avoid a slump in the RPL stock, the company devised an unlawful strategy.

RIL sold RPL shares in the futures market first and later they were sold in the spot market. This would cover the share sales in the future market.

RIL and the other entities were allegedly involved in the short sale of RPL shares ahead of the amalgamation. A short sale involves selling borrowed shares with plans to buy them back later at a lower price.

“The trades in RPL shares which were examined by Sebi were genuine and bona fide transactions. These were carried out keeping the best interests of the company and its shareholders in view. Sebi appears to have misconstrued the true nature of the transaction and imposed unjustifiable sanctions,” the RIL spokesperson said in an email.

Market regulator SEBI initiated an in-depth investigation into 2008. However, RIL subsided the case under Consent mechanism. Sebi rejected the consent application in 2012. Thereafter, RIL filed an appeal before SAT challenging the Sebi order.

Securities Appellate Tribunal (SAT) presiding officer J.P. Devadhar on 30 June 2014 said the dispute was rejected as it was not “consentable and maintainable”.

Sebi wrapped up it’s  investigation in 2015. As a consequent effect, Sebi issued a showcause notice to RIL.

RIL will appeal and challenge the order in the Securities Appellate Tribunal (SAT), a company spokesperson said.