SAT asks RIL to pay Rs 447 crore plus interest
On March 24, 2017, Sebi had barred RIL and 12 other entities from dealing in equity derivatives in the futures and options segment for a period of one year, directly or indirectly, for allegedly indulging in fraudulent trades in Reliance Petroleum...
By Reena Zachariah, ET Bureau | Updated:
Mumbai: The Securities Appellate Tribunal (SAT) has directed Reliance Industries Ltd (RIL) to pay Rs 447.27 crore, along with 12% interest, while dismissing an appeal filed by the company against the Securities and Exchange Board of India (Sebi). RIL said it would appeal to the Supreme Court against the order. The tribunal has directed RIL to pay the amount along with interest from November 2007 within 60 days of the SAT order.
On March 24, 2017, Sebi had barred RIL and 12 other entities from dealing in equity derivatives in the futures and options segment for a period of one year, directly or indirectly, for allegedly indulging in fraudulent trades in Reliance Petroleum Ltd (RPL) in 2007. The regulator had also directed RIL to disgorge the amount.
“The period of restraint has already run its course and thus the present appeal is confined to the question as to whether the imposition of disgorgement in the facts of the present case was justified or not,” SAT said.
The tribunal, in a two-one majority order, upheld Sebi’s directions to the company. Members CKG Nair and justice MT Joshi upheld the Sebi order while presiding officer justice Tarun Agarwala ruled against it.
“All trades carried out by the company were genuine and bona fide. No irregularity can be attached to these transactions. The company reiterates that it has not violated any law or regulation while selling shares of RPL in November 2007,” RIL said in a statement Thursday.
ADVERTISEMENTThe core question raised in the appeal was over the principal-agent model adopted by RIL and implemented with the help of the other entities. Sebi alleged they had dumped shares in the last 10 minutes of trading on November 29, 2007, the settlement day.
This was allegedly with an intention to artificially depress the price in the cash segment to make larger gains in futures contracts and was violative of Sebi regulations, the market regulator alleged. On November 6, 2007, open position in the single-stock futures contracts of RPL reached 95% of the market-wide position limit on the NSE. As per the rules, on November 7, 2007, any further increase in open position was banned by the NSE. This had alerted Sebi and an investigation was directed.
In the process, RIL had sold a total of 202.9 million shares of RPL for about Rs 4,500 crore in the cash segment and made a profit in the F&O segment to the tune of Rs 513 crore.
Sebi’s investigation revealed that the agency agreements separately entered into by RIL with the 12 entities were identical. These entities opened trading accounts with different brokers between October and early November 2007. Except for one entity, Dharti Investment and Holding Pvt. Ltd, the other 11 had no record of experience.
ADVERTISEMENTDarius Khambata, senior counsel for Sebi, told SAT that in the last eight minutes and 15 seconds of trading, RIL placed 17 sell orders for 24.3 million shares. Of these, 12 were placed at levels lower than the last traded price (LTP). Khambata said dumping of a huge quantity of shares in the last 10 minutes was manipulative and a fraud on the market as it clearly influenced the settlement price in the futures segment.
The Sebi counsel said RIL’s contention that these were hedge transactions since it expected RPL prices to fall when shares were sold in the cash segment was nothing but an afterthought. If the quantities in the futures market exceeded the quantity of shares actually exposed to market fluctuations, then the transaction would not be a genuine hedge, the Sebi counsel told the tribunal.
ADVERTISEMENT“We have no doubt in our mind that the route taken by the appellant RIL with the help of other appellants/noticees who perpetuated the scheme in cornering a substantive portion of the market-wide position limit in the range of 62% to 93% (depending on the dates) in the November RPL futures contract is manipulation of market, unknown to the players therein,” SAT said. “Such a manipulative scheme… cannot be camouflaged in the garb of ‘hedging’.”
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