RIL loses insider trading case, may face fine up to Rs1,500 crore

The Securities Appellate Tribunal (SAT) today upheld a decision by market regulator Securities and Exchange Board of India (Sebi) that Reliance Industries cannot use the consent mechanism to settle violations of Sebi norms in the RIL-Reliance Petroleum merger case.

RIL violations involved serious fraudulent and unfair trading practices and the company might have to pay fine of over Rs1,500 crore, according to media reports.

Reliance's application is not maintainable because the new consent mechanism became applicable with retrospective effect, the tribunal said while upholding Sebi's decision to reject Reliance Industries' application to settle alleged violation of norms.

A full bench of the SAT headed by presiding officer, Justicde JP Devdhar, said the consent mechanism norms in the Sebi Act were amended with retrospective effect from April 2010.

Reliance has been contesting a show-cause notice from Sebi in the case since December 2010 and, from last year, the regulator's exclusion of the company from the new consent mechanism.

Sebi had initiated the case of insider trading against RIL in 2008. The case pertained to alleged trading of shares in Reliance Petroleum by RIL ahead of their merger with RIL, allegedly to profit from price-sensitive information.

According to Sebi, prior to the merger of Reliance Petroleum with itself, RIL had, in 2007, short-sold 4.1-per cent stake in Reliance Petroleum valued at Rs4,023 crore to prevent a slump in the stock.

Reliance Petroleum shares were sold first in the futures market and later in the spot market, covering the share sales in the futures market, and thus making a profit of Rs513 crore in the deal, it was alleged.

RIL had approached Sebi to settle the case through the consent route, thereby allowing it to settle the case by paying settlement charges without admitting to guilt. However, Sebi turned down the consent application.

RIL appealed against Sebi's decision to reject its application for a consent settlement with SAT.

In 2012, Sebi stiffened its consent norms by excluding offences such as insider-trading, as a result of which RIL's second attempt to settle the case was again turned down.

Under the new norms, Sebi has excluded cases involving larger amounts / fines from the settlement process.

Though the new norms were issued only in January 2013, Sebi said its provisions were applicable with retrospective effect from April 2010, which RIL termed as arbitrary.