Will Securities Tribunal finally make a decision on Reliance?

It's high time the tribunal, which has already heard the RIL insider trading case 15 times, gives its order

The honourable gentlemen at the Securities Appellate Tribunal (SAT) will have to take some time off tomorrow (Wednesday) from their super-busy schedule. For, it will be the 16th time in exactly 15 months that the tribunal will hear Reliance Industries’ appeal against the market regulator in the 2007 insider trading case. 
 

Going by the track record, however, it will be a huge surprise if the final ruling in the high profile case comes on Wednesday, as the hearings have been adjourned many times in the past for not-so-important reasons. The inordinate delay is unfortunate as SAT itself has in the past wanted to close it latest by the end of last year and expressed concern on the frequent adjournments in the case. Though SAT Presiding Officer J.P. Devadhar blamed both the parties for this, one of the main reasons was RIL’s penchant for frequently demanding different sets of documents from Sebi. 
 

 

For proof, listen to what Devadhar told the RIL counsel in one of the hearings. “You cannot keep changing your demands. This case has been oscillating from here and there from June 2010, when Sebi had first issued the showcase notice to your clients. It can’t go on and on like this for ever,” SAT’s presiding officer had said, adding “We don’t want investors to be left in the lurch because of such indecision.”
 

For comparison, look at what happened in the US. Just a phone call made by Rajat Gupta landed him in jail and a penalty of $5 million. Investigations in the insider trading investigation pertaining to trades in September and October 2008 were completed in 2009-10.
 

SAT itself has been prone to indecisions. On January 6, 2014 – that is exactly a year after RIL went to SAT -- the tribunal had reserved the case for order. But nine days later, it said it wanted to hear the case further.  
 

Sources familiar with the developments say the case could have been sorted out by now but for a confusion over Sebi’s new regulation for settling violations through the so-called 'consent mechanism'. While Sebi notified the Settlement of Administrative and Civil Proceedings (SACP) Regulations, 2014, for settling disputes under the consent mechanism on January 9 this year, what added to the confusion was that the regulations were implemented with retrospective effect from April 20, 2007. This led SAT to seek clarifications from both Sebi and RIL on the implications of the new consent norms on the appeal. 
 

The insider trading case dates backs to 2007. RIL, prior to the merger of Reliance Petroleum with itself, allegedly short-sold a 4.1 per cent stake in RPL valued at Rs 4,023 crore to prevent a slump in the stock. RIL allegedly sold RPL shares first in the futures market and later in the spot market, covering the share sale in the futures market. In 2008, Sebi initiated a probe into the matter and in 2010 initiated quasi-judicial proceedings and said it had found that RIL had booked a profit of Rs 513 crore in the futures segment through this deal.
 

Sebi argued that the company was aware of the sale of shares and sold futures ahead of that, amounting to insider trading, and sent a show-cause notice to the company. RIL had challenged the Sebi show-cause notice in December 2010.

Following this, Sebi ordered a probe and found that RIL had violated insider-trading norms. Though RIL moved Sebi for a consent settlement (it allows companies and individuals to settle disputes with Sebi by paying a sum without admission or denial of the alleged wrongdoing and by repaying any ill-gotten gains), the regulator did not entertain the application, forcing RIL to move the SAT.
 

Sebi’s decision not to allow consent settlement was because of a May 2012 circular through which Sebi had issued a circular, tightening the norms for consent settlement to exclude serious offences such as insider trading, front-running, violations of listing disclosure norms and illegal pooling of money, among others. The consent mechanism secured legal standing in October 2013 after an Ordinance was promulgated to give Sebi more powers. Subsequently, the May circular was transformed into a regulation.
 

RIL’s argument is that Sebi was wrong in saying that its application could not be dealt with under the new consent mechanism as the company was clearly told on April 15, 2011 that it could apply for a settlement via consent. Sebi’s response has been that the regulator can’t be compelled to settle a case through consent as the norms do not give an entity the right to ask Sebi to take up its case for settlement.
 

Whichever way it swings, it’s high time that the case is brought to its logical end as any further delay would only lend credence to the view that insider trading cases are solved only in cases of small companies while the dispute lingers on with big names.
 

We all will wait for Wednesday.