The market regulator has served a show-cause notice to RIL on why action should not be taken against it in the matter of the conversion of the warrants that increased the promoters’ stake in the company from 22.17 to 38.8 per cent in March 2000.

Sebi is looking into possible violation of the Takeover Code norms, which among other things, specifies the rules for promoters hiking their stake in the company.
The notice issued by the adjudicating officer on February 24, 2011, states that 12 crore shares RIL issued in the year 2000 to 38 entities related to the promoters of the company, violates the norm of creeping acquisition.

These shares were allotted at a price of Rs 75 per share on the exercise of warrants attached with non-convertible debentures (NCDs), aggregating to Rs 300 crore. In 2002, RIL informed the Bombay Stock Exchange that the 38 entities were persons acting in concert (PAC), meaning they were affiliated to the promoter group.

The latest run-in with Sebi comes at a time when the country’s largest private sector company is already battling charges of violation of insider trading rules in Reliance Petroleum shares. RIL has 14 days to respond to the show-cause notice.

The company officials declined to comment on the adjudication proceedings by Sebi.
If found guilty, Sebi could impose monetary penalty against RIL promoters, while industry observers maintain the company has an option to go in for consent proceeding, under which it can settle the charges by paying a fine, without admission of any wrongdoing.

Under the Sebi takeover rules, promoters are allowed to increase their holding in the company by 5 per cent annually. Since RIL promoters had hiked their stake above the prescribed limit of 5 per cent, they were obliged to make a public announcement under the Regulation 11 (1) of the Sebi (Substantial Acquisition of Shares & Takeover) Regulations.