MUMBAI: Market watchdog the Securities and Exchange Board of India (SEBI) has issued a fresh and amended show-cause notice to Mukesh Ambani-led petrochemical giant, Reliance Industries Ltd (RIL) under the Fraudulent and Unfair Trade Practices (FUTP) sections of SEBI Regulation on charges of alleged insider trading into erstwhile Reliance Petroleum Ltd (RPL) and has asked RIL, why it should not be prohibited from accessing the stock markets, why legal action should not be initiated to recover the windfall it made by indulging into malpractices.
The case goes back to November 2007 (before RPL was merged with RIL) when the parent company raised Rs 40.23 billion by selling shares of RPL, which RIL claimed was a sale conducted by transactions through the stock exchanges which had helped further broad base the shareholding pattern.
The matter became public in March 2008, when the former minister of state for finance, Pawan Kumar Bansal, in a written reply to the Rajya Sabha, admitted that SEBI had initiated an examination into the matter of alleged insider trading in shares of RPL. Subsequently SEBI issued a show-cause notice to RIL on April 29, 2009. SEBI detailed its observation in which it said that RIL arranged for a cleverly plotted manipulative operation aided by 12 related entities, which eared it Rs 513 crore in manipulative activities.
SEBI listed the transactions which were made between Nov 1-5, 2007, some 12 entities acting on behalf of RIL created short position of around 7.65 crore shares at Rs 290 per share which had risen to 9.92 crore shares on Nov 6, and the 12 entities accounted for as much as 93.63 per cent of the total permissible open interest in RPL for the expiry of the contracts on Nov 29.
According to SEBI’s observation which were also made in the notice it served to RIL, the short sale of the contract was so large that the derivative contracts of the scrip reached the market-wide position limit on Nov 6 itself, inviting the mandatory restriction of no further open interest, after which these 12 entities started selling the RPL shares to the tune of 4.01 per cent of its equity in the cash segment which resulted in the price falling to Rs 210. SEBI has now also asked RIL, as to why the gains to the tune of Rs 513 crore which was earned by indulging in manipulative activities should not be disgorged.
Subsequent to the first showcause notice, sources said that RIL did not respond to the hearings which were held between April and October, and SEBI was forced to issue a fresh notice which was served to RIL on October 8, 2009 under Section 11 and 11B of the SEBI Act and Regulation 11 of FUTP.
The company on its part has said that they have always abided by the rules and regulations and had not violated insider trading provisions and added that RIL has not acted in a manner to attract violations under Section 11 and 11B, further adding that a detailed reply had been sent to SEBI.