A 25-year-old case of market manipulation from the Dhirubhai Ambani-era is still proving to be an irritant for Reliance Industries (RIL).

On SEBI’s direction last month, chartered accountant YH Malegam visited RIL’s office here to examine the company’s records relating to the non-convertible debentures (NCDs) issued by it in 1994.

RIL, which has long sought ‘settlement’ of the matter with SEBI, asked to see Malegam’s report, a request which the regulator declined.

Subsequently, the Bombay High Court, too, rejected RIL’s petition seeking the Malegam report at this juncture and directed it to wait for the documents till “adjudicatory proceedings took place”.

The RIL NCDs that had the “crucial 120 million warrants” attached to it were then subscribed for a whopping ₹300 crore by 38 entities. On conversion of these warrants into equity shares in 2000, some of the entities stood to gain as their stake in the company rose sharply at a substantially lower cost of acquisition.

S Gurumurthy, current RBI board member who was then a journalist, complained of fraud by RIL’s promoters and called the warrant issue “virtual smuggling of shares out of the company”. Also, it was alleged that the entities that subscribed to the warrants along with the NCDs were dummies for RIL’s promoters, who were said to have received subscription money from the company itself.

SEBI probed the allegations against RIL and the entities linked to the case on October 21, 2002. S Ramesh, a SEBI official then, was the investigating authority and Piyush Gupta was adjudicating the case.

Violation of laws

Subsequently, RIL informed the BSE that the 38 entities were persons acting in concert, which meant they were associated with RIL’s promoters. SEBI deemed this to be a violation of the takeover code and issue of capital and disclosure regulations. Its investigation report also alleged that the 38 entities were ‘dummies’ with a common address.

In 2010, SEBI sent a show-cause notice to RIL asking why action should not be taken against it over the conversion of the warrants, which increased the promoters’ stake in the company from 22 per cent to 38.8 per cent, in March 2000. Following this, RIL approached the regulator for a consent settlement. It is this settlement for which SEBI’s internal committee sought the Malegam report.

“As and when adjudicatory proceedings take place, the petitioner may ask for copies of such documents in accordance with the procedure. There is no merit in petition,” the High Court’s recent order on the RIL plea said.

“The court did not grant request for certain documents at this stage in the context of newly notified regulations. The court preserved our ability to apply for these documents at an appropriate time,” said an RIL spokesperson.

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