Reliance Petroleum insider trading case gets murkier

Reliance Industries’ attempts to settle the Reliance Petroleum insider trading case through consent orders has once again been thwarted by market regulator Sebi, which has also issued a show-cause notice to RIL before giving its final order in the case.

The case deals with allegations against certain entities who short-sold shares of Reliance Power on behalf of RIL, ahead of its merger. Short selling is a process where an entity or trader sells shares in the market without owning them with expectations that prices will fall, to buy them at a later date and thereby earn a profit.

Sebi is probing the sale of Reliance Petroleum stock futures in the first week of November 2007. According to a report in the Economic Times, RIL made a profit of Rs 500 crore from the sale of Reliance Petroleum shares.

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[caption id=“attachment_565821” align=“alignleft” width=“380”]  According to Sebi, while the merger process between RPL with RIL was on, RIL was involved in short selling of RPL shares through its entities.[/caption]

“RIL has been trying to settle the case through consent orders but its proposals have been rejected twice by the regulator, which felt the amount put up by the company was inadequate. In the first consent application, RIL offered to pay a penalty of Rs 3 crore while on the second occasion it offered to pay less than Rs 10 crore as penalty, which was unacceptable to the regulator,” the ET report said.

Consent order is an out-of-court settlement wherein parties agree to a sum of amount as fine by the aggregator, while the regulator drops all charges of wrongdoing.

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Reliance Industries, meanwhile, has sought time until January 14 to file a reply in the dispute between market regulator Sebi and the Central Information Commission (CIC) at the Bombay High Court. The case will now be heard on January 23.

In November, the CIC had ordered Sebi to reveal the identities of the the entities that were involved in short selling of Reliance Petroleum shares to a Bangalore-based lawyer who had sought these details under the Right to Information (RTI) Act, along with details of the investigation report and consent order proceedings in this matter. But on 21 November, Sebi moved Bombay High Court against the CIC order saying CIC can’t force the regulator to disclose details of investigations before the final order has been issued.

The High Court on 4 December decided to make RIL a party to the case as it was involved in the settlement process.

While the battle continues, one wonders why Sebi took five years to investigate an insider trading case.