Market regulator Securities and Exchange Board of India (Sebi) has asked the government to consider appropriate action against Reliance Industries (RIL) for allegedly routing funds to dummy companies for buying large quantity of its shares in the year 2000.
Based on Retired Justice B N Srikrishna's opinion on the issue after its own investigation, Sebi in a communication to the Corporate Affairs Ministry earlier this month said the matters of "irregular issue of privately placed debenture (PPD) IV and V by RIL" are being referred for "consideration and appropriate action".
"Justice Srikrishna has also opined that the manner, in which RIL has managed to fund the buying of its own securities, is really a matter for action by the authorities enforcing the provisions of the Companies Act viz. MCA," the communication said.
While no response could be obtained from the Ministry, Sebi officials declined to comment. Even RIL spokesperson did not give any comment immediately on the issue.
The Sebi probe relates to a complaint by S Gurumurthy alleging that the core of the fraud was the criminal misappropriation amounting to virtual smuggling out of RIL (through non-convertible debentures) of 12 crore shares of the company in 2000 representing 11.38 per cent of the equity capital.
This, according to the complaint, had caused loss of at least Rs 2,700 crore to RIL and its investors.
The complainant had alleged that while shares (on conversion of warrants) were issued to UTI at Rs 401 a piece, 34 dummy companies received them at Rs 75 per share.
The matter referred to allotment of 12 crore equity shares at a price of Rs 75 each on conversion of warrants attached with non-convertible debentures aggregating Rs 300 crore during 2000.
Justice Srikrishna has opined that the "evidence on record strongly suggests that there was an elaborate scheme to route the money from RIL and Reliance Petroleum to the 34 private companies to enable them to subscribe to the equity shares on conversion of PPD IV.
"The investigating officer's conclusion on this aspect of the matter is justified as it appears that the 34 companies were dummies registered at common addresses with hardly any net worth and could not have afforded to buy large quantities of shares on the same day."
The regulator had referred the matter to Justice Srikrishna after the investigation officer submitted its report to the Sebi Chairman on February 4, 2005.
Seeking cancellation of shares issues by RIL in January 2000, the complainant had alleged that as per the resolution of the Annual General Meeting on PPDs in 1992 no allotment could have been made to persons connected with the directors of RIL, the allottees were connected with and were in fact "controlled by promoters of RIL".
