By Reena Zachariah,
ET Bureau | Updated: Mar 25, 2017, 10.13 AM IST
MUMBAI:
The Securities and Exchange Board of India (Sebi) on Friday barred Reliance
Industries Ltd (RIL), the country's second most valued firm, and 12
other entities from dealing in equity derivatives futures and options segment
for a period of one year, directly or indirectly, for allegedly indulging in
fraudulent trades in Reliance Petroleum in 2007.
The
capital markets regulator has also directed RIL to disgorge Rs 447.27 crore
along with 12% interest from November 29, 2007 onwards till the date of
payment, within 45 days from the date of the order.
Sebi
has allowed RIL and the other entities to square off or close out their
existing open positions. Reacting to the decision, Reliance said it plans to
challenge the order in the Securities Appellate Tribunal. "Sebi appears to
have misconstrued the true nature of the transactions and imposed unjustifiable
sanctions,'' a Reliance spokesperson said in an emailed statement.
"We
remain confident of fully justifying the veracity of the transactions and
vindicating our stand. We have full confidence in the judicial process and we
propose to vigorously exercise all options available to us to challenge the
untenable findings in the order."
"In
view of the fact that Noticee No.1 (Reliance Industries has made unlawful gains of
Rs.513 Crore which would not have been made but for the fraudulent and
manipulative strategy/pattern adopted by them, I am inclined to direct
disgorgement of the unlawful gains made by Noticee No.1," Sebi whole-time
member G Mahalingam said in his order.
Sebi calculated Rs 513 crore by taking into
account the net short positions in derivatives for all the days the 12 entities
maintained during November 2007.
The
regulator said Reliance Industries, by employing 12 entities to take separate
position limits of open interest on its behalf, by executing separate
agreements with each one of them and cornering 93.63% of the November stock
futures of RPL, has acted in a fraudulent manner. It cannot be held to be a
mere breach of position limits by the clients attracting penalty under the
exchange circulars, Sebi said.
The regulator said on the basis of the analysis of the
trading strategy adopted by RIL in the cash market during the month of November
2007, and specifically on November 29, 2007 — the expiry day of the November
Futures of RPL — there has been a manipulation of the last half an hour
settlement price.
Reliance Industries had submitted before Sebi
that the liquidation of 5% stake was decided and there was no outer time fixed
for liquidation. Being guided by the analysts' reports and the price trends of
the scrip, it decided to start the sale in November 2007.
Before the sale in the cash segment started, RIL
booked positions in the F&O segment to the extent of 9.92 crore shares by
entering into agreements with 12 entities for a commission payment.
"Entrusting a common person to carry out the trades in
both cash and F&O segment was the other key factor in the whole operation.
Finally when the price dipped on November 29, the entire F&O open positions
to the extent of 7.97 crore shares was allowed to expire. In the meanwhile,
1.95 crore shares were also liquidated in the cash segment.
"This is not a normal case of price
manipulation or volume manipulation. This is a case of a unique strategy of per
se not manipulating the price or volume in a single market, but manipulating
the settlement price in one market to gain across the volumes accumulated in
the other market. The actual manipulation has happened with respect to the
convergence price of the spot with the futures," Sebi said.
Reliance Industries through its written and oral
submissions before Sebi referred to its actions as 'hedging' to justify its
scheme.
"The strategy of 'hedging', put forward as a
defence by Noticee No.1(RIL) is nothing but a mirage," Sebi member G
Mahalingam said. "While Noticee No.1 (RIL) has sought to depict a strategy
of hedging, when one takes a closer look at what was actually done or intended
to be done, the facade of hedge wanes off and exposes the hidden motive or
strategy of speculation... I find that Noticee No. 1 was not genuinely hedging
the risk but was aiming to reap huge speculative profits by cornering futures
positions and playing a fraud on the general investors and the market. This
would amount to a well-planned, fraudulent and manipulative trading scheme in
terms of the SEBI (PFUTP) Regulations, 2003."
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