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Business News/ Companies / News/  SAT dismisses RIL’s appeal against Sebi in 2007 consent ruling
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SAT dismisses RIL’s appeal against Sebi in 2007 consent ruling

SAT went to on say that an administrative procedure cannot be challenged at the tribunal

The dispute relates to alleged contravention of the Fraudulent and Unfair Trade Practices regulations ahead of the 2007 merger between Reliance Petroleum and RIL. Photo: Priyanka Parashar/MintPremium
The dispute relates to alleged contravention of the Fraudulent and Unfair Trade Practices regulations ahead of the 2007 merger between Reliance Petroleum and RIL. Photo: Priyanka Parashar/Mint

Mumbai: Reliance Industries Ltd (RIL) faced a setback in its six-year-old fight with the capital markets regulator over violations of insider trading norms, with the Securities Appellate Tribunal (SAT) on Monday dismissing the company’s appeal challenging the regulator’s refusal to settle the case under the consent process. The tribunal, however, criticized the way in which the regulator has handled the case.

The dispute relates to alleged contravention of the Fraudulent and Unfair Trade Practices regulations ahead of the 2007 merger between Reliance Petroleum Ltd and RIL.

The consent process allows companies and individuals to settle disputes by paying a sum of money without admission or denial of wrongdoing.

SAT dismissed RIL’s appeal on the grounds that it is not maintainable. “Since section 15T(2) is deleted and section 15JB(4) is inserted in the Securities and Exchange Board of India (Sebi) Act with retrospective effect from 22 April 2007 by ordinance number 2 of 2014, which bars appeal against any order passed in consent proceedings, we have no option but to dismiss the appeal," said SAT presiding officer J.P. Devadhar.

The securities tribunal came down heavily on Sebi, saying the regulator “was not justified in rejecting the consent application without giving an opportunity to the appellant to present its case for settlement of the dispute".

In response to an emailed query, a spokesman for RIL said that SAT has highlighted the fact that its appeal was “maintainable as per SEBI Act (ie. before retrospective amendment by the ordinance)". The spokesman further highlighted the part of the ruling that said that its “consent proposal was disposed of without giving an opportunity to present consent proposal before the Internal Committee".

Legal experts say that RIL can move the courts, by way of a writ petition, challenging Sebi’s consent process.

“If in a matter, a party has got an adverse order from the Securities Appellate Tribunal saying that tribunal will not go into question of policy then they can either go to high court under Article 226 or Supreme Court under Article 32, and argue that the process that Sebi is following is unconstitutional," said Vaneesa Abhishek, an advocate and a former legal officer with Sebi.

J.N. Gupta, a former Sebi executive director, said that the capital markets regulator can now pass an order against RIL.

“Technically, there is no bar on Sebi on passing an order unless and until something specifically has been stated in the SAT order. RIL has an option to challenge the order at the Supreme Court. However, in view of the grounds on which SAT has rejected the application, it seems that Supreme Court will also take a similar view unless applicability of the Ordinance is itself challenged," said Gupta, who is also the founder of Stakeholders Empowerment Services, a proxy advisory firm.

RIL’s appeal was on the grounds that Sebi had not given it a fair hearing under the consent process.

In May 2012, Sebi excluded serious offences such as insider trading, violations of listing disclosures and illegal pooling of money from the settlement process.

It also made the new norms apply with retrospective effect, for all cases from 20 April 2007 and said anyone (or any entity) filing for consent had to do so within 60 days of receiving a notice from it.

Sebi has maintained that the RIL case can’t be settled under the new norms because it relates to “serious fraudulent and unfair trade practice".

In 2007, RIL sold a 4.1% stake in Reliance Petroleum, but to prevent a slump in the latter’s stock, the shares were sold first in the futures market and later in the spot market, covering the share sales in the futures market.

In 2008, Sebi started an investigation into the matter and in 2010 initiated quasi-judicial proceedings.

Sebi’s claim is that because the company was aware of the sale of equity shares and sold futures ahead of that, its actions amounted to fraudulent and unfair trade practice.

Through the dealings, RIL received 4,023 crore and its profit from the transaction in the futures segment was 513 crore.

RIL challenged a show-cause notice issued by Sebi in December 2010.

Explaining the legal options available with RIL, Abhishek said that the company could also approach the ministry of finance.

“Legally, one may exercise two other options. Challenging the source of power exercised by Sebi itself or approaching the ministry of finance. Under section 16 of the Sebi Act, Sebi is bound by such directions on questions of policy as the central government may give in writing to Sebi. Of course, one has to carefully examine the wordings of the order before taking recourse to any option," she said.

The tribunal also criticized Sebi for “highhandedness" in handling the RIL case.

“...in respect of transaction that took place in the year 2007, it took nearly three years (2008 to 2010) for Sebi to investigate/reinvestigate and it took more than two years for appellant to convince Sebi to give inspection of documents demanded by appellant (RIL). It is unimaginable as to how many more years it would take for Sebi to pass a final order in regular proceedings and thereafter how many more years it would take in litigation," said the order.

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Published: 30 Jun 2014, 02:45 PM IST
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