“It is my business judgement to sell my shares (whenever I want).” This is what lawyers of Reliance Industries Ltd (RIL) told the Securities and Appellate Tribunal (SAT) in defence against allegations by SEBI in the matter involving market violation in derivative segment for trading in share of Reliance Petroleum (RPL).

SEBI had banned RIL, India’s largest private sector company in terms of market-cap, from trading in equity futures after it found in violations of Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulations. SEBI has even imposed disgorgement of gains on RIL that effectively comes to around ₹2,000 crore for manipulative traders in RPL in 2007.

Harish Salve, Supreme Court lawyer, has been appearing for RIL in SAT. RIL argument, which is now going on for the past three days, have been more on numbers, technical issues and figures mentioned in SEBI’s show cause notice.

Next hearing on February 3

RIL made several bold comments in SAT on SEBI allegations. The next hearing is scheduled on February 3.

“Yes I did earn money, stock exchange is a place where people come to earn money. If by my ‘legitimate’ sales the market is going down, I am allowed to do that...market runs that way,” RIL argued in SAT. But RIL has also told SAT that making money in F&O was not the object of this process.

“Did I gained by lowering the price? No. I gained by lowering the weighted average price and not the last trading price (LTP). I have been told that I sold shares below LTP but there were others as well who sold their shares below my LTP...May be it was the market sentiment.,” RIL argued.

SEBI said that RPL share price came under pressure and fell due to RIL selling. RIL told SAT that the dip in the shares was due to external factors and it was only hedging the risk. RIL countered SEBI allegations by saying that the regulator alleged that first heavy selling (in RPL shares) was on November 6 when a total of 7 crore shares were sold. This was not heaviest sale, RIL said, as after November 6 too there were sales of much higher number of RPL shares.

RIL told the tribunal that SEBI’s allegation that I (RIL) could have lost money in futures and options (F&O) and that’s why I (RIL) sold my shares is not correct. Different calculations were shown by the RIL the counsel on how his earnings in F&O.

SEBI SCN had also alleged benami transactions but RIL has argued that the five brokers were their agents and had contracts with 12 companies, earned profits and had business relations. RIL’s case is that there was nothing benami.

“The theory that we hired 12 agents to earn money, this theory is ridiculous,” RIL said.

RIL said there were no transactions undertaken by them to induce the investors. “If there is please show? Because of my selling there was drop of 99 paise in the price (of RPL shares). There were others who slid one crore shares at lower price as well.”

Reference to PwC judgment

Reference was made by RIL to recent PwC judgment passed by the SAT. “Pg 28, Pg 30 (of SAT’s PwC order) third line (meaning of fraudulent). It is going to be my case. Fraud is an interaction between A and B. If I am on live screen of the stock market, I am not making any false representation but a genuine offer. Whom I have induced by making a legitimate offer to sell?” RIL said.

RIL further argued, that it had placed sell orders (for RPL shares) below LTP but the same could not be sold.

“Figures are being relied upon for market manipulation. No direct evidence to show intent. Penalised me for ₹400 crore approx on the profit I have earned. However, I have five different figures which show different profits. Promoter discloser is post transaction and not pre-transaction. First show cause notice leaned heavily on last 8.40 mins, then the regulator rushed to advocate to strengthen their case. Then they stressed on the 12 agents which we had already mentioned. Twelve agents have taken position on behalf of myself (admitted fact),” RIL said.

SEBI had found that RIL and 12 of its promoter group entities violated provisions of Section 12A of the SEBI Act, 1992, and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the securities market) Regulations, 2003.

The markets regulator had on March 24, 2017, prohibited RIL and 12 of its promoter group entities from dealing in equity derivatives. Following this, RIL was directed to disgorge ₹447 crore plus interest, the total of which comes to ₹1,952 crore.

In the case, which dates back to March 2007, RIL sold a five per cent stake in Reliance Petroleum, which was merged with RIL later, in 2009. SEBI observed that RIL via a few alleged front entities, executed trades in the cash market below the last traded price and triggered a sharp fall in the price of shares of Reliance Petroleum.

This fall in the share price allowed RIL and the entities linked to it to profit from their own short positions in the derivatives. RIL allegedly made illegal gains of ₹60.28 per share on 7.42 crore shares, SEBI had observed.

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