Market regulator Securities and Exchange Board of India (Sebi) has issued a notice to India's largest corporate house, Reliance Industries (RIL), charging it with rigging share prices of its subsidiary Reliance Petroleum (RPL) to make a profit of Rs 513 crore in November 2007. RPL was later merged with RIL in 2009.
The notice was issued on October 8, and was to be replied to within 21 days. When contacted, RIL responded to The Times of India, "We have submitted our detailed reply to Sebi and have not received any further communication in this regard."
The company's spokesperson said RIL has always abided by all rules and regulations of Sebi and hence, "has neither violated any provisions of Insider Trading nor has acted in any manner so as to attract provisions under Section 11(i), 11 (B) and 11(4) of Sebi Act 1992."
In its notice, Sebi asked why RIL should not be debarred from accessing the capital markets to raise funds or associating with any listed entities. It also asked why the the proceeds earned by RIL in the alleged transaction should not be disgorged.
According to the Sebi notice, in the four trading sessions between November 1 and November 5, 2007, 12 group entities of RIL sold 7.56 crore RPL shares without owning them in the forward market. This kind of trading is known as short-selling of shares.
The total short sold position of RIL's group companies further increased to 9.92 crore shares on November 6. According to the notice, the share price of RPL fell to Rs 220.35 on November 6, 2007 from the closing price of the previous day of Rs 267.55 in the cash segment.
The price of the scrip closed at Rs 269.40 per share on November 2, 2007 after touching an intraday high of Rs 295 on November 1, 2007.
Later, RIL sold 18.04 crore shares in the cash markets during the period from November 6 2007 to November 23, 2007, which depressed the price further. Sebi, in the notice noted, "By artificially depressing the price in the cash market, and thereby lowering the settlement price of the futures on expiry, RIL gained on its short positions in the derivative market.
The whole manipulative operation was arranged by RIL and it was aided by the 12 related entities. RIL earned Rs 513 crore by indulging in these manipulative activities."