SAT directs RIL to pay disgorged amount of Rs 447 cr within 60 days to SEBI

New Delhi, Nov 5 (SocialNews.XYZ) The Securities and Appellate Tribunal (SAT) has directed Reliance Industries Limited (RIL) to make payment of the disgorged amount of Rs 447.27 Crore along with simple interest within 60 days.

The order said simple interest calculated at the rate of 12 per cent p.a. with effect from November 29, 2007 till the actual date of payment to SEBI within 60 days from the date of this Order.

The order passed by Justice Tarun Agarwala Presiding Officer, C.K.G Nair, Member Justice and M.T. Joshi, Judicial Member of SAT said "Appeal lacks any merit and is hereby dismissed".

"Therefore, both the contentions that disgorgement is a penalty and SEBI does not have the power to impose disgorgement under section 11B of SEBI Act are contrary to the expressly stated provisions of the SEBI Act and therefore have no merit and are rejected forthwith," SAT said.

The SAT has by a 2:1 majority order on Thursday dismissed Reliance Industries Limited (RIL's) appeal against SEBI order dated March 24, 2017, in the matter relating to the sale of Reliance Petroleum Limited (RPL) shares by the Company in November 2007.

"The Company will examine the order passed by the SAT. All trades carried out by the Company were genuine and bona fide. No irregularity can be attached to these transactions," RIL said in a filing.

"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.

SAT said that in the Securities Laws (Amendment) Act, 2014 effective from July 18, 2013, it is clearly stated that power of disgorgement, an amount equivalent to the wrongful gain made or loss averted by such contravention? was always with SEBI.

SAT said that In the instant matter, therefore, when it was held that the position limit violation had been achieved through a dubious, manipulative scheme or a device, such an act would squarely fall within the provisions of SEBI Act and PFUTP Regulations.

"We, therefore, find no error or mistake on the part of the WTM in invoking the relevant provisions of SCRA, SEBI Act and the PFUTP Regulations, 2003 and in passing the Order under section 11 and 11B of SEBI Act accordingly," the 203 page order said.

The order said that it is a known fact that large transactions themselves would move the market (supply and demand) and the market prices. Therefore, on the basis of assumptions we cannot predict market movements with certainty.

"In any event those actions would not have erased the first leg of manipulation; that of taking a huge net short sell position of 9.92 crore shares of RPL by using a scheme of engaging 12 front entities masquerading as independent participants in the derivatives market. Similarly there is no merit in appellants' alternative contention and calculation of actual profits made on November 29, at a small sum following a methodology they only invented," SAT said.

It was also contended before us that Appellants' holding of the net short sale position in the November Futures segment increased from 62 per cent to 93 per cent because other investors squared off their position and therefore, relative share of the appellants increased.

"We agree; but the question of why did the appellants kept a short sell position of 7.97 crore shares intact to be expired on November 29 when their 'hedging' requirement was only that for 4.45 crore shares from November 16?," SAT said.

"Such an act cannot escape the inevitable conclusion as held in the impugned order, that the appellants were involved in a manipulative, devious scheme. On an observation made by the WTM in the impugned order that appellant No 1 did not have a hedging policy/strategy in response to the appellant's submission on hedging we are told that compulsory hedging policy was introduced only in 2016 and as such the WTM is even ignorant of facts. However, we note that the statement is not on a legal requirement, but a practical business sense for a big Company who tries to enter the market to sell huge stakes of a subsidiary and deciding to hedge ought to have a well-documented hedging strategy, irrespective of whether there is a mandating law or not," it said.

"In none of the arguments/submissions the appellant No 1 has clarified to us on why it was in a tearing hurry to do everything relating to sale of the 5 per cent of their equity holding in one trading month i.e. November 2007, though according to it the decision to sell shares was taken long back in March 2007, and the sale could have been spread for several months, except stating that share price of RPL was overvalued in the findings by three analysts," the order said.

Therefore, there was a window of at least four months available after the analysts reports, when reasonable price was ruling. Further, as per the Board decision of RIL dated March 29, 2007 funds were needed to be raised only within two years.

"For the next seven months appellant no. 1 did nothing as regards the disposal of shares of RPL. All of a sudden, they decided to act in a hurry in the month of November 2007, and only in November, lock, stock and barrel. They decided to sell the entire 22.5 crore shares (5 per cent) and to take a short sell position, in the name of hedge, in the futures segment, all in November itself as if there was not even a December, 2007 for RPL," the order said.

"Even if it was assessed, based on outside analysts' reports, that there would be no spring, a long winter was still available. Therefore, the entire argument of the need to compress the disposal of 5 per cent shares to the month of November 2007 alone and therefore the need for 'aggregation' of short sell position in the futures segment, again only in November 2007 contract, is devoid of any merit and does not gel with any realistic explanation of the facts and applicable law. Therefore, finding in the impugned order that submissions of the appellants such as need for 'hedging' and 'needing funds now' etc. are afterthoughts cannot be faulted," SAT said.

Reliance Industries Ltd (RIL) resolved in its Board meeting on March 29, 2007 to generate funds for completion of various projects to the extent of Rs 87,000 crore. Reliance Petroleum Ltd. (RPL) was a listed subsidiary of RIL and was holding approximately 75 per cent of shares in RPL. Appellants No. 2 to 13 are agents of RIL under an agreement, who took an aggregate net short positions of 9.92 crore shares in Nov, 2007 in RPL Futures on the Stock Exchange as a hedge against the proposed sale by RIL in the cash segment.

Source: IANS