MUMBAI India's market regulator accused Reliance Industries on Friday of having committed a "fraud" in taking a short trading position at the time of selling a stake in a subsidiary in 2007, ordering it to surrender 4.5 billion rupees ($69 million) plus interest in "unlawful gains".
Reliance, the $64 billion conglomerate controlled by India's richest man, Mukesh Ambani, rejected the ruling by the Securities and Exchange Board of India and said it would appeal to the Securities Appellate Tribunal.
In its ruling SEBI alleged that before Reliance Industries sold a 5 percent stake in Reliance Petroleum in November 2007, when it was a separately listed company, it took derivative short positions through third parties in Reliance Petroleum shares, to profit from an ensuing fall in the price following the sale.
SEBI, in a 54-page ruling, said Reliance had as a result made a profit of 5.1 billion rupees and ordered it to forfeit 4.5 billion rupees plus interest within 45 days.
With the interest rate set by SEBI at 12 percent annually since Nov. 29, 2007, the total amount due to be paid could amount to more than 12 billion rupees, according to Reuters calculations.
Besides imposing the fine, SEBI said it would bar Reliance and the third parties involved from trading in derivatives for one year.
In imposing the penalty, SEBI said it rejected Reliance's claim that the transactions were for hedging purposes, and said the company had instead sought to "earn undue extra profit".
"I find that Noticee No. 1 (Reliance Industries) was not genuinely hedging the risk but was aiming at reaping huge speculative profits by cornering futures positions and playing a fraud on the general investors and the market," SEBI official G. Mahalingam said in its finding.
Reliance said on Friday in rejecting SEBI's finding that the trades in Reliance Petroleum shares which were examined by SEBI were "genuine and bona fide transactions".
"These were carried out keeping the best interest of the company and its shareholders, in view," Reliance said.
"SEBI appears to have misconstrued the true nature of the transactions and imposed unjustifiable sanctions."
Reliance's sale of a stake in unit Reliance Petroleum has sparked years of investigation from SEBI and embroiled the energy conglomerate in legal cases.
($1 = 65.4000 Indian rupees)
(Additional reporting by Sankalp Phartiyal and Abhirup Roy; Editing by Greg Mahlich)