BackSebi imposes Rs13 crore penalty on RIL for non-disclosure of diluted earnings
Sebi acted on complaint that RIL issued warrants to promoters entitling its holders to subscribe to same number of shares
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Mumbai: The Securities and Exchange Board of India (Sebi) has imposed a penalty of ₹ 13 crore on Reliance Industries Ltd (RIL) for alleged non-disclosure of diluted earnings per share (DEPS) after the promoters were allotted warrants in April 2007.
“I am of the view that the noticee (RIL) was under an obligation to disclose separately the DEPS for the quarters ended June 2007, September 2007, December 2007, March 2008, June 2008 and September 2008, which the noticee had failed to do so," said a 15-page order by Sebi’s chief general manager D. Ravi Kumar.
The capital market watchdog initiated a probe after receiving complaints against RIL alleging the company had issued 120 million warrants to its promoters entitling holders to subscribe to an equivalent number of equity shares.
Further, as of October 2008, RIL had issued 120 million equity shares against the warrants, which resulted in diluting the pre-issue paid up equity share capital of RIL.
According to a show-cause notice issued by Sebi to RIL, the warrants that were issued in April 2007 got converted into equity shares only during the third quarter of the fiscal year 2008-09.
“RIL should have disclosed basic and DEPS in the filings for the quarters ended June 2007, September 2007, December 2007, March 2008, June 2008 and September 2008. However, on scrutiny of the quarterly financial statements of RIL filed with National Stock Exchange of India Ltd during the quarter ended June 2007 to September 2008, it was observed that RIL did not disclose separately DEPS," said the Sebi notice.
The Sebi order added RIL’s view was “there is no requirement to disclose the DEPS separately as the warrants were exercised at the fair value and no dilution in EPS took place and therefore no separate disclosures of DEPS is required".
Reliance, in a statement on Friday, said: “The issue relates to the method of calculation of diluted EPS under accounting standards. The issue is not of non-disclosure."
The company said that in its arguments and written submission it “has brought out all relevant clauses of accounting standards to substantiate why basic EPS and diluted EPS were same in all the quarters."
“We are now studying the order as to the interpretation Sebi has taken and would take appropriate action based on legal advise," the note added.
J.N. Gupta, managing director of SES Governance, a corporate governance advisory, said Sebi had sent a strong signal through this order that any kind of non-compliance will be closely watched.
“On the face of it, one may find it a minor violation but Sebi has sent a strong message through this order that any kind of non-compliance will be watched and action will be taken. Sebi has also demonstrated that the company’s size is immaterial and the law is one and the same for all," said Gupta, a former Sebi official.
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