The Securities Appellate Tribunal (SAT) on Monday dismissed an appeal by Reliance Industries Ltd (RIL) against stock market regulator Securities and Exchange Board of India (Sebi) in a seven-year-old case.

The company had moved the tribunal after its application to settle charges of "illegal trading gains" through the consent mechanism was rejected by Sebi.

The market regulator had declined to settle charges against the company through monetary settlement, under the so-called consent mechanism, following an investigation into its activities dating back to 2007. Reliance can now choose to move the Supreme Court, while Sebi can continue with its adjudication proceedings in the case, according to experts.

Under the Fraudulent and Unfair Trade Practices (FUTP) regulations, Sebi can charge Rs 25 crore or up to three times the illegal gains as penalty, if the proceedings go against the firm. This potentially works out to a penalty in excess of Rs 1,500 crore.

The tribunal said a section granting additional powers to Sebi through the ordinance route did not provide for appeals against consent applications.

"Since Section 15JB(4) bars appeal against any order passed in consent proceedings, we have no option but to dismiss the appeal," it said.

The tribunal noted this section was with retrospective effect from April 20, 2007, and was, therefore, applicable to the current case.

In November 2007, RIL and other related entities took short positions in the derivative segment in the Reliance Petroleum Ltd (RPL) stock, even as they sold a large block of shares in the cash segment. This caused the price to dip in the derivative segment as well and RIL made illegal gains of Rs 513.12 crore, suggested the tribunal's order.

Sebi issued a showcause notice in the matter in 2009. Reliance sought to settle the matter through the consent route even while the notice was pending, which Sebi rejected in 2010. Sebi issued a fresh showcause notice in December 2010 in the same matter but with certain changes, including dropping the charge related to insider trading.

RIL sought to settle the matter through the consent route once again, filing an application in April 2011. It also sought inspection of documents related to the case. The regulator declined to allow inspection initially but later allowed it in November 2012. Reliance said it required more time to study the documents and that its lawyer was not available to meet the regulator and decide on the consent application. The regulator declined to provide an extension and subsequently turned down the second consent application.

Reliance subsequently moved SAT early last year.

Emails sent to Sebi and RIL did not elicit any response. The RIL shares on Monday underperformed the broader market to close 0.16 per cent higher on the BSE.

The tribunal, however, noted Sebi should not have kept the matter pending for so long. "We are only finding fault with Sebi in keeping the consent application pending for years, even after holding that request for inspection of documents is untenable and thereafter giving inspection in instalments but disposing of the consent application before giving full inspection, thereby not giving reasonable time to the appellant to go through the voluminous documents furnished by Sebi belatedly."



Governance experts, too, said such a delay should be avoided. "Once anything is extended for seven years, it is very difficult to separate the wheat from the chaff… (such cases) should be settled in a time-bound manner," said Amit Tandon, founder & managing director of Institutional Investor Advisory Services India Ltd.

"In view of the comments by SAT for a delay at the level of Sebi, probably the market regulator would do its best to repair the damage done to its reputation by moving fast in this case," said J N Gupta, managing director of Stakeholders Empowerment Services.

THE QUESTION OF GAINS

The case dates back to 2007. According to a Sebi probe, RIL made illegal gains of Rs 513 crore by dealing in shares of its erstwhile arm Reliance Petroleum ahead of its merging with it. RIL allegedly sold about 200 million shares of RPL in the derivative segment and simultaneously sold a similar amount in the cash segment to depress the settlement price in the F&O segmentSebi can go ahead with the adjudication proceedings and pass a final order in the matterUnder FUTP regulations, experts say, Sebi can levy a penalty of Rs 25 crore or three times the unlawful gains, whichever is higher. In this case, the penalty could go up to Rs 1,500 crore. Sebi can also take further action like a market ban or suspension in trading of securities. However, these couldn't be confirmed with Sebi.

What can RIL do next?

RIL can move SC against the SAT ruling or again move SAT if Sebi passes an adverse final order





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