SEBI pursues short-selling charges against RIL

An old controversy regarding the short-selling of shares in Reliance Petroleum Ltd – formerly a subsidiary of Reliance Industries Ltd - in order to boost the share price has lately come back to dog the Mukesh Ambani-controlled parent company.

The Securities and Exchange Board had issued a notice to RIL on 8 October charging it with rigging shares of RPL to make an undue profit of Rs513 crore. On 1 December, SEBI reportedly wrote to the ministry of corporate affairs (MCA) saying its investigations had unearthed evidence that RIL had ''funded'' the acquisition of its own shares in a series of transactions.

The market regulator has attached an opinion from Justice B N Srikrishna which upholds some of the findings of the capital market regulator. Justice Srikrishna has opined that that the manner in which RIL has managed to ''fund the buying of its own securities'' is a matter for action by the authorities under the provisions of the Companies Act.

In its 1 October notice to RIL, SEBI charged that in four trading sessions between 1 November and 5 November 2007, 12 group entities of RIL sold 7.56 crore RPL shares in the forward market without owning them. This kind of trading is known as short-selling of shares.

SEBI observed, "By artificially depressing the price in the cash market, and thereby lowering the settlement price of the futures on expiry, RIL gained on its short positions in the derivative market. The whole manipulative operation was arranged by RIL and it was aided by the 12 related entities. RIL earned Rs513 crore by indulging in these manipulative activities."

SEBI asked why RIL should not be debarred from accessing the capital markets to raise funds or associating with any listed entities. It also asked why the proceeds earned by RIL in the alleged transaction should not be disgorged.