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The Securities and Exchange Board of India (Sebi) will settle a pending case against Reliance Industries Ltd (RIL) over alleged violation of its rules at the earliest, said two people directly familiar with the developments.

“The Sebi board on 11 February had discussed the cases that have been pending a settlement under the consent mechanism for more than two years. Settlement proceedings in the matter of RIL have been pending for more six years. The case is in advanced stages of being consented though settlement terms have not been finalized yet," said the first person.

A PTI report said the regulator plans to dispose of the settlement application in the coming 2-3 months.

The case dates back to 1994 when RIL issued non-convertible debentures (NCDs) with convertible warrants attached. Sebi initiated adjudication and prosecution proceedings in the matter in 2010, and issued show-cause notices the next year. In the same year, settlement applications were filed before the regulator.

In 1994, RIL had raised 300 crore by issuing 60 million NCDs to 38 entities. The NCDs had 120 million warrants attached to them, which were converted into shares in early 2000. The 120 million shares were issued to the 38 entities in January 2000 at 75 each, upon the exercise of the warrants attached with the NCDs.

“The allottees paid 900 crore to RIL towards subscription amount for conversion of warrants to underlying equity shares," according to the first person quoted above. This was the information tabled before the Sebi board, he added.

In 2002, RIL informed BSE that the 38 entities were persons acting in concert (PAC), which means they were associated with RIL’s promoters.

Sebi deemed this to be a violation of takeover code regulations and issue of capital and disclosure regulations (ICDR). A Sebi investigative report prepared in the matter alleged that the 38 entities were dummies with a common address.

“The case has been split into four parts. A settlement through consent mechanism is being discussed for dealing with the allegations that pertain to ICDR norms. The part related to this allegation was moved from scope of adjudication to the scope of consent mechanism a little more than a month back. More than 200 entities have been issued show cause notices in the overall matter. The terms of consent may be decided this week or next," said the second of the people cited earlier.

Another part of the allegation is that RIL had issued similar NCDs with non-detachable warrants to erstwhile Unit Trust of India at a much higher price. RIL had denied the charge at that time.

In 2011, Sebi had sent a show cause notice to RIL asking why action should not be taken against it in the matter of the conversion of the warrants, which increased the promoters’ stake in the company by 16% from 22.17% to 38.8% in March 2000.

Under the creeping acquisition norms which were in force at the time, promoters were not allowed to increase their holding in the company by more than 5% annually without making an open offer; so, Sebi is examining possible violations of the takeover code.

A spokesperson for RIL declined to comment and an email sent to Sebi was not answered.

The consent or settlement process was introduced in 2007 by Sebi with the idea of reducing the regulatory time spent on minor violations. However, relatively serious violations, such as insider trading, fraudulent and unfair trade practices, among others, cannot be settled via consent. The consent process was tweaked in May last year when the regulator said that only those infractions that have market-wide impact and where the losses to investors are significant can’t be settled under the mechanism.

PTI contributed to this story.

ABOUT THE AUTHOR
Jayshree P Upadhyay
Jayshree heads a team of reporters focussing on legal, regulatory, investigative stories. She has worked for over a decade, reporting on financial scams, legal stories and the intersection of corporate and regulatory issues. She is based in Mumbai and has previously worked with Business Standard, Mint, The Morning Context and Bloomberg TV India.
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