The Securities and Exchange Board India (SEBI) has issued a notice to Reliance Industries for allegedly violating norms governing the manner in which promoters can raise their stake in Indian companies. The transaction under scrutiny took place 11 years ago.
In 2000, the promoters of RIL did not make a public announcement after they increased their stake by more than 5% by converting warrants attached to non-convertible debentures (NCDs). The NCDs are of even more ancient vintage, having been issued in 1994.
The SEBI officer dealing with the case, Piyoosh Gupta, issued the notice, asking RIL to take part in adjudication proceedings, on February 24. RIL, which has the opportunity to explain its point of view in the adjudication proceedings, also has the option of filing a consent application. In consent process, the entity accused of irregularities can settle the charges by paying a fee without admitting or denying guilt.
" adjudication proceedings would be continued and appropriate order would be issued after conclusion or rejection of consent proceedings," the notice says. "We would not offer any comment," an RIL spokesperson said.
If the outcome is adverse for RIL, SEBI could impose a monetary penalty on its promoters. The notice says that the manner in which 12 crore shares that were allotted in 2000 to 38 entities related to the promoters of the company, violated rules regulating creeping acquisition.
Ranjit Kapadia, vice-president, institutional research, HDFC Securities, said: "The news that SEBI has begun adjudication proceedings against RIL in the case relating to the issue of non-convertible debentures with warrants attached, will not have a major impact on the stock on Wednesday as the information is a known fact and already factored into the current stock price."
Deven Choksey, MD, KR Choksey Securities, said, "This news did not have a major impact on the RIL stock on Tuesday and neither will it influence the company's stock movement on Wednesday as this fact is known."
According to SEBI, the shareholding of RIL promoters and 38 entities described as persons acting in concert increased by 16.16% from 22.17% as on March 31, 1999, to 38.33% as on March 31, 2000, after the shares were allotted.
The shares were issued under preferential allotment which was exempt from the takeover rules but the acquirer was required to file a post-acquisition report. But RIL promoters or the related entities neither filed the report nor made any application for exemption from takeover rules.
The 12 crore shares were issued to 38 entities in January 2000 at a price of 75. These share were allotted on the exercise of warrants attached with NCDs, aggregating to 300 crore.
"There was an elaborate scheme to route money from Reliance Industries and Reliance Petroleum to 34 private companies to enable them to subscribe to the equity shares on conversion of warrants," according to a SEBI report. The report also claims that these companies were dummies registered at common addresses with hardly any net worth.
SEBI had last year sent the report to the ministry of corporate affairs after taking an opinion from Justice BN Srikrishna because the activities described in the report involved violations of the Companies Act.
ET was unable to ascertain the status of this part of the investigation.