SEBI’s disgorgement order against Reliance Industries (RIL) in an insider trading case has been upheld by the Securities Appellate Tribunal. SAT said RIL’s appeal lacks any merit. The company said it will challenge the SAT ruling in Supreme Court.

In 2017, SEBI had directed RIL to pay ₹447.27 crore along with 12 per cent interest for induling in insider trading in the shares of Reliance Petroleum (RPL) in 2007. The total disgorgement amount comes to around ₹2,000 crore.

SEBI’s internal surveillance team had spotted suspicious trades by RIL and some entities linked to it. SEBI said that RIL had enlisted the services of 12 companies as agents for taking “huge short positions” in the equity derivatives segment for RPL in 2007. SEBI found that RIL had executed separate agreements with each of them, under which they earned commission while all profits and losses were transferred to RIL.

On its part, Reliance said: “All trades carried out by the company were genuine and bona fide. No irregularity can be attached to these transactions”.

When these entities went short on RPL shares, RIL was offloading 5 per cent stake in the company, which put pressure on the market price at the same time, SEBI had observed.

‘Disgorgement is not penalty’

RIL had contended that disgorgement was a punishment/penalty, while powers granted to SEBI under Section 11B of SEBI Act are remedial in nature.

Therefore, no order for disgorgement could have been passed. “We do not agree with this contention at all. In the Securities Laws (Amendment) Act, 2014 effected from July 18, 2013, it is clearly stated that power of disgorgement, an amount equivalent to the wrongful gain made or loss averted by such contravention was always with SEBI,” SAT said. According to SAT, it is an equitable remedy; not a penal action.

RIL had argued that it was in a tearing hurry to sell 5 per cent stake in RPL in November 2007 as three analysts found the share price of RPL overvalued.

“It is an irony that outside analysts, who basically produce their reports for general investors, and not for promoters who are insiders, knew more than the insiders and the insiders placed their full bet on such analyst reports,” SAT said.

Deepak Sanchety, Ex Head of Surveillance, SEBI, said, “it is absolutely legitimate for any entity to first sell in futures and lock the price and then undertake sale of underlying shares. Further, agency trades are also not barred in Indian markets. The limit of open position for one entity is merely a risk management measure. I’m surprised that SAT could not be persuaded to see the trades in the correct perspective. This will have direct implication on other proceedings, if any, approved in the matter.”

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