 "Mukesh Ambani with Isha (inset)")
Markets regulator Sebi has let off Mukesh Ambani-led RIL Group's Reliance Petroinvestments Ltd (RPIL) in an almost 9-year-old alleged insider trading case involving shares of the erstwhile IPCL on lack of evidence to establish prior access to sensitive information.
Interestingly, Sebi had earlier in May 2013 imposed a penalty of Rs 11 crore on RPIL in the same case, but the order was later set aside by the Securities Appellate Tribunal in December last year and the regulator was asked to look afresh into the case and pass another order within three months.
After looking into the entire case all over again, Sebi in its latest order has said the entities under scanner were indeed related parties, but it could not conclude that Reliance Petroinvestments and its parent firm RIL were 'insider' "in absence of any evidence by the Investigating Authority to establish the access of UPSI (Unpublished Price Sensitive Information)... While trading in the scrip of IPCL".
As a result, "it can be concluded that the Noticee (RPIL) has not violated provisions of... Prevention of Insider Trading Regulations" and were not liable to any monetary penalty, Sebi said in its 50-page order.
Once a subsidiary of Reliance Industries Ltd (RIL), IPCL used to be a separately-listed entity of the group, but was later merged with RIL and delisted from the stock exchanges.
IPCL originally used to be a government-owned entity and was sold to RIL group during a disinvestment exercise.
Mukesh Ambani was Chairman of IPCL as well as Chairman and MD of RIL during the period under review, thus putting both the companies under the same management while RPIL held more than one-third of total voting power of IPCL at that time.
Also, RIL held the entire share capital of RPIL through two wholly-owned subsidiaries.
The investigation report has observed that RPIL had not dealt in the shares of IPCL during June 9, 2006 to February 26, 2007, but all of a sudden started buying the shares of IPCL from February 27, 2007 i.E. Just before both the announcements of merger of IPCL with RIL and declaration of dividend.
RPIL submitted that pursuant to a share purchase agreement and open offer, it held 46 per cent shares in IPCL. It has regularly done creeping acquisitions in the shares of IPCL post 2002 and purchased about 1.2 million shares of IPCL in May-June 2006.
Thereafter, the share prices started increasing and even touched Rs 325. It was only in the third week of February 2007, the price witnessed a fall to around Rs 250 and it was decided to purchase further quantity.
The acquisition of IPCL shares by RPIL was financed by RVL through an interest-free loan. RVL is a wholly-owned subsidiary of RIL.
However, "in absence of any evidence by the Investigating Authority to establish the access of UPSI to the noticee (RPIL), it can be concluded that the noticee did not have access to UPSI while trading in the scrip of IPCL. Hence, it can be concluded that the noticee and RIL are not insider," Sebi said in an order.
Accordingly, Sebi has disposed of the adjudication proceedings initiated against RPIL.
After Sebi's earlier order of 2013, RPIL had approached SAT, which ruled on December 7, 2015 that the regulator's order was "passed merely on the basis of presumption without considering the arguments advanced on behalf of the Appellant to rebut the presumption".
SAT had, therefore, quashed that order and directed Sebi to pass "a fresh order on merits and in accordance with law".
As the company had already deposited the amount of penalty with Sebi, SAT had said the amount would remain with Sebi subject to the result of the fresh order to be passed by Sebi.
Pronouncing Reliance Petroinvestments Ltd (RPIL) guilty of violating the insider trading regulations with regard to its dealings in shares of Indian Petrochemicals Corp Ltd (IPCL) in early 2007, Sebi had said in its earlier order that RPIL made profits of over Rs 3.82 crore through these trades.
After taking into account the quantum and nature of the violations, Sebi had imposed a penalty of Rs 11 crore on RPIL, which was listed as one of the promoter entities by IPCL itself in its regulatory filings as on March 31, 2006.
Sebi had said its investigations into charges of insider trading norm violations by RPIL showed that the company was having control over IPCL as "promoter having control over the company with a total shareholding of approximately 46 per cent".
Further, RIL was shown as a 'person(s) acting in concert' with RPIL with regard to the shareholding of IPCL, Sebi said.
It was held by Sebi that purchase of 21,32,953 shares of IPCL by the Appellant for over Rs 55 crore during the period from February 27, 2007 to March 2, 2007 was in violation of insider trading regulations.
SAT, however, said that apart from denying that it was an insider, the Appellant had placed on record various documents before Sebi to rebut the presumption of being in possession of UPSI at the time of purchasing shares.
The Appellant had also made submission to the effect that the price sensitive information itself came into existence after the shares were purchased by the Appellant, SAT said.
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