In one of its biggest penalties for non-disclosure of a key earnings ratio, Sebi on Friday imposed a penalty of Rs. 13 crore on corporate behemoth Reliance Industries Ltd (RIL) for violation of the Listing Agreement.
The order follows a probe by the capital markets regulator in an over seven-year old case involving alleged irregularities in issuance of 12 crore warrants by Mukesh Ambani-led RIL to its promoters entitling its holders to subscribe to equivalent number of equity shares of RIL.
It was alleged that this issuance in April 2007 had resulted in diluting the pre-issue paid-up equity share capital of RIL, but the company repeatedly failed to disclose a key earnings ratio for as many as six quarters.
Subsequently, Sebi began adjudication proceedings to probe the alleged violation of relevant clauses of the Listing Agreement and the Securities Contracts (Regulation) Act (SCRA) for not disclosing to stock exchanges the Diluted Earnings
Per Share (DEPS) as prescribed for the quarterly and annual disclosures, the regulator said in its 15-page order.
A show-cause notice was served on RIL in February last year, listing out allegations levelled against the company.
After looking into the company’s reply and further probe into the matter, Sebi said that “EPS (Basic or Diluted) is a vital factor or one of the fundamental tools for the investors while arriving at decision to continue or invest in the shares of a particular company.
The regulator said further that RIL “under an obligation to disclose separately the DEPS for the quarters ended June 2007, September 2007, December 2007, March 2008, June 2008 and September 2008, which the noticee had failed to do so”.
“In view of aforesaid observations, facts and records of the case”, Sebi said, the company was in violation of the relevant provisions of the Listing Agreement and the SCRA and therefore it was liable to a penalty.
Noting that a specific quantum of any direct or indirect unfair gain made by RIL and the loss caused to the investors were not available on records, Sebi said that “the fact cannot be ignored that millions of shareholders/investors were deprived of correct disclosures about DEPS.”
“As regards to the repetitive nature of default, as observed above that the Noticee had failed to disclose the DEPS repetitively for the six quarters. Hence, an appropriate penalty needs to be imposed upon the Noticee, taking into account the aforesaid gravity of the violations committed,” Sebi said.
Accordingly, the regulator has decided to impose a penalty of Rs one crore for violation of Listing Agreement and of another Rs. 12 crore for violating the SCRA provision.
RIL has been asked to pay the total amount of Rs. 13 crore within 45 days through a demand draft in favour of ‘SEBI – Penalties Remittable to Government of India’.