New Delhi: Capital markets regulator Securities and Exchange Board of India (Sebi) has appealed the order of the chief information commissioner Satyananda Mishra asking it to disclose all details related to an insider trading case involving Reliance Petroleum Ltd in 2007.
The case relates to the merger of Reliance Petroleum with Reliance Industries Ltd and the short sale of shares in the former by entities related to the latter.
Sebi filed its appeal against the order in the Bombay high court last week. Mint has reviewed a copy of the petition.
In a 6 November order, Mishra had asked Sebi to disclose details of investigations or the consent order proceedings in the case, along with the identity of the entities involved in the short sale of Reliance Petroleum’s shares, Mint reported on 9 November.
Mishra had passed his directive on an appeal filed by Bangalore-based lawyer Arun Kumar Agrawal. Agrawal said the case is likely to be taken up by the high court on Tuesday.
“The entire stock market is watching what is happening right now,” Agrawal said on phone from Bangalore. “It is a test case whether the Indian regulator can prevent insider trading or not.”
In its petition before the high court, Sebi has argued that the fact that the order has been passed by Mishra and not the Central Information Commission (CIC) as a whole, makes it “bad in law” and therefore “null and void and of no effect”.
Apart from Mishra, the CIC has seven other members.
Sebi’s petition goes on to say that Mishra “wrongly appreciated the fact that since Sebi has taken cognizance of the breach of law, rules and regulations by the entities involved in the short sale of shares of Reliance Petroleum in 2007 for their unlawful gain, it is obliged to disseminate information in respect of such entities at this stage”.
The petition further says that Mishra “failed to appreciate that in the event of any exoneration of the charges disclosing their names at the initial stage before the conclusion of the proceedings may harm their reputation and public perception”. It said that such a disclosure would, therefore, be “premature” and “is likely to hamper the course of the proceedings”.
“Generally, the file notings and other supportive sensitive information is in the nature of commercial confidence, confidential on policy issues and strategic in nature. Its disclosure may lead to reveal the strategic mind of the regulator which may impact and compromise the competitive position of the regulated market and economy as a whole,” Sebi goes on to say in its petition.
Sebi says that Mishra “failed to appreciate that disclosure of file notings can seriously affect the safety of senior officers who have been involved in sensitive matters and their notings may invite uncalled for pressures, allurements and reprisals”. Agrawal had earlier sought from Sebi details of the case by applying under the right to information law.
However, Sebi had declined to disclose any information, stating that quasi-judicial proceedings were in progress and that the information sought was exempt under certain sections of the transparency law. Sebi’s appellate authority, too, endorsed its information officer’s view. Subsequently, the case moved to CIC.
Reliance Industries and Sebi have been trying to settle the case through a so-called consent process, in which the individual or entity being investigated pays a fine and the regulator drops the case and all charges of wrongdoing. A consent mechanism refers to a settlement of a case dealing with alleged infractions in securities laws without the individual or company involved either admitting or denying guilt.
In its 9 November report, Mint had said that the entities that short-sold Reliance Petroleum shares may have made profits in excess of Rs.500 crore.
In 2008, Sebi had begun probing the matter and subsequently initiated quasi-judicial proceedings in 2010.
In 2007, Reliance Industries had sold 4.1% of its stake in Reliance Petroleum, but to prevent a slump in the stock, the shares were sold first in the futures market and later in the spot market, covering the share sales in the futures market.
Sebi has said that as the company was aware of the sale of equity shares and sold futures ahead of that, its actions amount to insider trading.
Through the dealings, Reliance Industries received Rs.4,023 crore and its profit from the transaction in the futures segment was Rs.513 crore.
Reliance Industries has approached Sebi twice to settle the case, offering to pay Rs.2 crore in the first instance and Rs.10 crore in the second instance. The case has not been closed by Sebi.