Mumbai: The Securities and Exchange Board of India (Sebi) on Friday banned Reliance Industries Ltd (RIL) from accessing the equity derivatives market for a year, and directed the company to disgorge the profits made by violating the rules on unfair trade practices when it sold a stake in its erstwhile unit Reliance Petroleum Ltd (RPL).

RIL will appeal and challenge the order in the Securities Appellate Tribunal (SAT), a company spokesperson said.

RIL has been asked to pay Rs447.27 crore along with an annual interest of 12% dating back to 29 November 2007, which translates into a penalty of around Rs1,300 crore. The order, passed by Sebi’s whole-time member G. Mahalingam, said that RIL had made “unlawful gains" of Rs513 crore, “which could not have been made but for the fraudulent and manipulative strategy/pattern adopted by them".

Sebi arrived at the unlawful gain of Rs513 crore by considering the net short position that RIL and 12 other entities maintained while trading in the RPL stock in November 2007, ahead of a planned amalgamation of the firm with RIL. In 2007, RIL sold a 4.1% stake in RPL, but to prevent a slump in the RPL stock, the shares were sold first in the futures market and later in the spot market, covering the share sales in the futures market.

RIL and the other entities were allegedly involved in the short sale of RPL shares ahead of the amalgamation. A short sale involves selling borrowed shares with plans to buy them back later at a lower price.

“The trades in RPL shares which were examined by Sebi were genuine and bona fide transactions. These were carried out keeping the best interests of the company and its shareholders in view. Sebi appears to have misconstrued the true nature of the transaction and imposed unjustifiable sanctions," the RIL spokesperson said in an email.

The regulator had, in 2008, launched investigations into the matter and initiated quasi-judicial proceedings in 2010. That year, RIL had applied to settle the case through the consent mechanism. Sebi rejected the consent application in 2012. RIL then filed an appeal before SAT challenging the Sebi order. SAT presiding officer J.P. Devadhar on 30 June 2014 said the dispute was rejected as it was not “consentable and maintainable".

Sebi completed investigation in the matter in 2015 and subsequently issued a showcause notice to RIL.

The other 12 entities named in the order have also been barred from trading in the futures & options segment for one year. RIL has been asked to pay up within 45 days of the order.

Anirudh Laskar and Kalpana Pathak contributed to this story.

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