RIL case: SAT says Sebi order for disgorging over Rs 447 crore 'equitable remedy'

Dismissing Reliance Industries Ltd's appeal against a Sebi ruling back in 2017, the Securities Appellate Tribunal on Thursday said there was no question of the regulator's direction to disgorge over Rs 447 crore being "harsh or a penal action" as it was an equitable remedy.

Sebi's order, passed on March 24, 2017, pertained to sale of Reliance Petroleum Ltd (RPL) shares by RIL in November 2007.

In a 204-page order, which was passed with a 2:1 majority on Thursday, the tribunal emphasised that the disgorgement amount of Rs 447.27 crore plus interest being a sizeable sum does not make Sebi's direction harsh because it is only a "remedial action" and that what is disgorged is only what has been gorged by contravention of the specified laws.

"Nothing has been taken out of the appellant's own funds/assets in the process. Since it is only an equitable remedy there is no question of that being harsh or a penal action," the majority order by the two members -- C K G Nair and M T Joshi -- said.

On Thursday, RIL said it would challenge the tribunal's order in the Supreme Court.

"The company, under proper legal advice, will prefer an appeal to the Hon'ble Supreme Court of India and is confident of vindicating its position," it said in a filing to the stock exchanges.

"All trades carried out by the company were genuine and bona fide. No irregularity can be attached to these transactions," the filing said.

The company also said that it has not violated any law or regulation while selling shares of RPL in November 2007.

The tribunal's order was reserved on February 6, 2020, and the final decision was made on Thursday. With 2:1 majority, the tribunal's Presiding Office Justice Tarun Agarwala ruled that Sebi order should be set aside.

RIL has been directed to "make payment of the disgorged amount of Rs 447.27 crore along with simple interest calculated at the rate of 12 per cent per annum with effect from November 29, 2007, till the actual date of payment to Sebi within 60 days from the date of this order," as per the majority order.

RIL had sold 20.29 crore of RPL shares in the cash segment over a period of 11 days and short positions were taken by 12 of the company's agents. Out of them, two agents squared off their positions before November 29, 2007, while rest of the 10 closed their positions on November 29, 2007.

The agents squared off short positions for 2.25 crore RPL shares by purchases in the November 2007 RPL Futures between November 7 and 28, 2007.

In March 2007, RIL decided to sell 4.1 per cent stake in RPL, a listed subsidiary that was later merged with RIL in 2009.

"... the entire argument of the need to compress the disposal of 5 per cent shares to the month of November 2007 alone and therefore the need for 'aggregation' of short sell position in the futures segment, again only in November 2007 contract, is devoid of any merit and does not gel with any real explanation of the facts and applicable law.

"Therefore, finding in the impugned order that submissions of the appellants such as the need for 'hedging' and 'needing funds now' etc are afterthoughts cannot be faulted," the tribunal said.

Sebi's order was challenged by RIL and the 12 agents.

In their order, the tribunal's two members noted that preparing and finalising the order took some time due to various factors including "differences of views within the three-member bench".

The unexpected closure of the office of the tribunal and "other major disruptions on account of the Covid-19 pandemic, voluminous documents, including extensive written submissions," were also cited.