SAT rejects RIL plea in insider trading case

Tags: News

Appellate body slams Sebi too, Ambani firm likely to move SC

The Securities Appellate Tribunal (SAT) on Monday dismissed an appeal by Reliance Industries against a Sebi decision to reject its application to settle an insider trading case through the consent mechanism.

The three-member tribunal, headed by presiding officer JP Devdhar, said it could not entertain the appeal, as the new consent mechanism barred appeal against any order passed in consent proceedings.

Sebi issued the revised consent rules on May 25, 2012 with retrospective effect from April 20, 2007. “Since Section 15JB(4) of the Sebi Act bars appeal against any order passed in consent proceedings, we have no option but to dismiss the appeal,” SAT said in its 26-page order.

RIL has the option to move the Supreme Court against the ruling. Sebi last year fined Relia­nce Petro­inves­t­­ments Rs 11 crore.

An RIL spokesperson said, “In our opinion, Paragraph 40 of the order makes it clear that Sebi changed the rules of the game midway through ordinances leaving no option to SAT but to dismiss the appeal as not maintainable. We are still studying the order.”

The case relates to RIL making a Rs 513 crore profit by using price-sensitive information about Reliance Petroleum (RPL) shares in 2007.

Sebi in its show-cause notice dated April 29, 2009 alleged that in November 2007, RIL along with other related entities took short positions in RPL shares in the futures & options segment of NSE and simultaneously sold approximately 20 crore RPL shares in the cash market with a view to depressing the settlement price in the F&O segment, thereby, making an illegal gain of Rs 513.12 crore on the short positions.

On receiving the show-cause notice, Reliance Industries through a letter dated October 12, 2009 sought inspection of documents. Since there was a delay in receiving the inspection of documents, the company filed its reply to the show-cause notice under protest.

Reliance Industries then filed a consent application on November 5, 2009, seeking settlement of the dispute raised in the show-cause notice. The consent mechanism allows entities to settle cases with the regulator by paying a penalty without admitting guilt.

However, Sebi rejected the consent application on March 8, 2010. Later RIL filed another consent application against a fresh show-cause notice issued by Sebi, which the regulator rejected in January 2, 2013 on the ground that the serious violations that RIL was charged with could not be settled under the revised consent settlement process.

The revised rules, issued on May 25, 2012 with retrospective effect from April 20, 2007, excluded from the consent settlement procedure major offences such as insider trading, serious fraudulent and unfair trade practices that cause substantial loss to investors.

This meant RIL would have to face the ongoing adjudication procedure of Sebi, which could lead to a huge penalty for the alleged violation of rules and fraudulent and unfair trade practices in RIL-Reliance Petroleum merger.

On Monday, SAT said: “We make it clear that we are not expressing any opinion on the merits of the consent application filed by the appellant. Whether the terms offered by the appellant deserve to be accepted or not is a question left entirely to the discretion of Sebi.”

It further said, “We are only finding fault with Sebi for keeping the consent application pending for years even after holding that the request for inspection of documents is untenable and thereafter giving inspection in installments but disposing of the consent application before giving full inspection, thereby, not giving reasonable time to the appellant to go through the voluminous documents that Sebi furnished belatedly.”

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