 "Reliance gets SAT to swat again at Sebi")
There was a time in the early days of the Securities Appellate Tribunal (SAT), then headed by the late C Achuthan, when almost every order from the Securities and Exchange Board of India (Sebi) got struck down. Achuthan, himself part of Sebi before the SAT assignment, was critical of the former’s evidence gathering and market intelligence capabilities.
A July 2002 article in India Today by Vivek Law had noted “SAT has struck down 17 of the 22 Sebi orders on takeover code violations in the past four years, raising questions about the credibility of the market regulator.”
Other prominent verdicts included those on Videocon International and Sterlite Industries on price rigging and BSE president Anand Rathi.Years later, Sebi’s ability to pass the SAT test has again come under question. Within 10 days, two orders against stock market darling Reliance Industries (RIL) have been struck down by SAT, now headed by J P Devadhar. On December 16, SAT held Sebi’s inclusion of 120 million shares related to certain warrants in “computing the DEPS (diluted earnings per share) does not appear to be correct”. Sebi had fined RIL Rs 13 crore for alleged disclosure norm violations relating to DEPS.
On December 7, SAT had also set aside an order against Reliance Petroinve-stments. Sebi had taken a little over six years to pass this order, in 2013, of a Rs 11 crore penalty for alleged insider trading law violations, in purchase of 2.1 million Indian Petrochemicals Corporation shares worth Rs 55.5 crore in February-March 2007.
SAT said, “Since the impugned order is passed merely on the basis of presumption, without considering the arguments advanced on behalf of the appellant to rebut the presumption, the impugned order is quashed...and the matter restored to the file of adjudicating officer of Sebi for a fresh order on merits and in accordance with law.” It is not flattering for Sebi to be told it passed an order based on “presumption” and took six years to do so.
Also, these Sebi orders against Reliance came at a time when the regulator was under constant scrutiny and pressure, with journalists asking officials at every given opportunity about the 2007 transaction, in some 200 million Reliance Petroleum (RPL) shares, where gains of about Rs 500 crore were made.
In 2011, K M Abraham, a Sebi wholetime member, had alleged it was facing pressure from the finance ministry to go slow on several corporate cases, including on Reliance.
SAT also heard a Reliance appeal in the RPL shares case. In an order in June 2014, it had dismissed the appeal but also made clear that this was only because of a retrospective amendment in the Sebi Act, that barred appeal against “any order passed in consent proceedings”. It made several critical observations on the procedure followed by Sebi, including: “We hold that Sebi was not justified in rejecting the consent application.” Some commentators even interpreted this as a ‘moral victory’ for Reliance in a case it formally lost.
It is not only Reliance. DLF, another company that found a mention in Abraham’s letter, also won at SAT in March. Sebi has moved the Supreme Court against this. Sebi is said to have recently formed a cell dedicated to better handling of SAT cases. A good starting point but a lot of introspection and review of processes might also be in order.
