New Delhi: The Supreme Court on Friday overturned a directive requiring Reliance Industries Ltd (RIL) to disgorge Rs 447.27 crore in connection with the trading of Reliance Petroleum Ltd (RPL) shares in 2007, partly allowing RIL's appeal against a Securities Appellate Tribunal (SAT) order.
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A bench of Justices JB Pardiwala and R Mahadevan, in a 136-page verdict, found that the SAT's 2:1 majority order had committed an "egregious error" in its finding of fraud under Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP).
The SAT had in November 2020 dismissed RIL's appeal against the Securities and Exchange Board of India's (SEBI) March 2017 order related to the sale of RPL shares in November 2007. The tribunal had found that RIL made an illegal and undue gain of Rs 447.27 crore by manipulating RPL share prices to profit in the futures segment. RPL was a 75 percent subsidiary of RIL at the time.
While setting aside the fraud finding, the bench agreed with the SAT's majority view on one count — that a penalty was warranted for RIL's violation of disclosure requirements under SEBI's 2001 circular on position limits.
"However, we concur with the SAT's observations in its majority judgment as regards the penalty to be levied on the appellant number 1 (RIL) for violating the disclosure requirements under the 2001 SEBI circular concerning position limits," the bench said.
The court said it had no option but to set aside the SAT's November 5, 2020 order on the fraud charge under the PFUTP Regulations. "In the result, the appeal partly succeeds and is hereby partly allowed. Accordingly, the order of disgorgement is also set aside," the apex court said.
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The bench also directed that Rs 250 crore deposited by RIL into the Investors' Protection Fund — pursuant to an interim order passed by the Supreme Court in December 2020 at the time of admitting the appeal — be refunded to the company. The recovery of the remaining amount, along with interest, had been held in abeyance pending the outcome of the appeal.
