Reliance Industries has moved the Supreme Court seeking a direction to the Securities and Exchange Board of India (Sebi) to give it access to certain documents that it thinks will exonerate it and its promoters from criminal prosecution by the regulator in a case related to the acquisition of RIL shares between 1994-2000.
Sebi had alleged that RIL along with Reliance Petroleum had “circuitously funded the acquisition of its own shares” in violation of the Sections 77 and 77A of the Companies Act, 1956 and the market regulator’s then takeover code, among various other regulations.
An SC Bench led by Chief Justice NV Ramana sought response from Sebi on the RIL appeal against the Bombay High Court’s March 28 order that refused to grant any relief for production of material gathered by the regulator. The high court had said it will hear Sebi’s appeal against a Sebi Special Court decision along with RIL’s plea raising objections to the criminal case.
The apex court will hear the case next in May.
RIL not only wants Sebi’s records but also the opinions given by former SC judge BN Srikrishna and former ICAI president YH Malegam’s report which examined the irregularities on Sebi’s request.
Sebi had, in January 2019, rejected RIL’s request for documents on the grounds that under the Sebi (Settlement Proceedings) Regulations, the accused company had no right to seek information from it.
The case chronology is as follows: Noted chartered accountant S Gurumurthy had filed a complaint with Sebi in 2002 alleging fraud and irregularities by RIL, its associate companies and their directors/promoters including Mukesh Ambani and his wife Nita, Anil Ambani and his wife Tina and 98 others in the issue of two preferential placement of Non-Convertible Debentures (NCDs) in 1994.
The complaint was about the attached warrants convertible into shares to entities associated with these promoters and directors of RIL and the Unit Trust of India. These warrants allegedly entitled the warrant holders to acquire 12 crore equity shares of RIL at a predetermined price. After investigations, the SEBI found that warrants issued in 1994 were converted into equity shares carrying voting rights in 2000.
According to the complaint, RIL directors negotiated the placement of NCDs with warrants with the UTI , but no entitlement of ‘free ‘bonus was given to UTI.
Yet the directors also granted a conversion price to the NCDs allotted to the accused allottees which was much less than the conversion price given to UTI, the complaint stated.
However, a probe by the Ministry of Corporate Affairs in January 2002 had concluded that there was no violation of the Companies Act as no funds were given by RIL to entities which were alotted NCDs.
However, the SEBI had, in February 2011, issued a show-cause notice to RIL’s promoters alleging violation of the then SEBI Takeover Regulations.
RIL believes that these documents would negate the allegations of wrong doing in the acquisition of shares and this would have a vital bearing on the criminal case being filed by SEBI. The company also told the apex court that it was entitled to disclosure of all the material that would help it to resist the restoration of a criminal complaint by Sebi.
“It cannot be gainsaid that a criminal complaint by a regulator is an extreme step and has a far reaching consequences on the reputation of the party (RIL), particularly where action is being taken against a listed entity. It is obvious that the regulator must act with utmost transparency and therefore the very fact that it resists the production of an exculpatory report is important,” the petition stated.
Sebi had filed the application for restoration of the case before the HC after the Sebi Special Court had on September 30, 2020 dismissed its July 10, 2020 complaint related to RIL transactions. The special court had dismissed Sebi plea for being barred by limitation as there was a delay of more than 15 years.
According to RIL, there was no attempt by Sebi to explain the delay and on the contrary the market regulator had contended before the HC that the offences are “continuing offences”.
