SEBI decided not to impose any penalty for the alleged violation.
Market watchdog SEBI has settled adjudication proceedings without imposing any penalty on Reliance Industries Ltd in a case related to alleged wrong disclosure of diluted earnings per share in its financial results more than 13 years ago.
SEBI decided not to impose any penalty for the alleged violations mainly on two grounds, with an amendment to the relevant law making mis-disclosure of information punishable by a listed company with effect from March 2019, potentially.
Apart from this, the regulator also mentioned about its pending appeal before the Supreme Court against the order of the Securities Appellate Tribunal (SAT).
According to SEBI, the quarterly financial statements submitted by Reliance Industries Limited to NSE for six consecutive quarters from June 2007 to September 2008 contained identical figures along with earnings per share (EPS) despite the existence of share warrants.
RIL had issued 12 crore warrants to its promoters on April 12, 2007, which were convertible within 18 months, with an exercise price of ₹ 1,402 per warrant entitle its holders to subscribe an equal number of equity shares.
On 3 October 2008, the Board of Directors of the Company, on exercise of warrant, allotted 12 crore equity shares of ₹10 each to the allottees.
In a 39-page order dated September 20, SEBI said amendments in respect of furnishing of false, incorrect or incomplete information, documents, books, returns or reports, are punishable under the provisions of section 23A of the SCR Act, 1956. The Finance Act, 2018 with effect from 8th March, 2019 came into force with prospective effect only.
SCRA refers to the Securities Contracts (Regulation) Act.
Further, Sebi’s Adjudicating Officer Biju S referred to the SAT order passed in May this year, which ruled that failure to comply with the listing agreement u/s 36 is under section 23A(a) of the SCRA. attracts penalty under section 23E and not under section 23E. of the act.
SEBI has filed an appeal in the Supreme Court in this matter but the court has not given any stay.
Against this background, Biju stated that he was of the view that “there is no penalty in terms of the said provisions in the present judgment proceeding. Therefore, the present judgment proceeding is disposed of without imposition of penalty”.
In terms of listing agreement, companies are required to disclose both basic and diluted EPS in the quarterly financial statements filed with the stock exchanges. This financial information needs to be prepared and disclosed after complying with all accounting standards.
As per the SEBI order, RIL has argued, inter alia, that even if it is assumed (without admitting) that the diluted EPS calculation is incorrect, the difference between the diluted EPS calculated by the regulator and that of the company is significant. is negligible and the difference ranged from 0.45% to 3.71%.
“In this connection I have noted that the Noticee (RIL) was disclosing identical figures for Diluted EPS and Basic EPS in its financial statements for six consecutive quarters between June 30, 2007 and September 30, 2008, essentially This indicates that there was no dilution in earnings per share, which in fact was not so,” the order said.
SAT in its May order had held that Section 23E has nothing to do with the violation of the provisions of the listing agreement, especially clause (36).
“Section 23E is applicable where a company fails to comply with or violates the listing/delisting conditions or grounds. Section 23E refers to the conditions that may be imposed at the time of making an application for listing of its shares on the stock exchange. imposed on the company.”
It had said, “Section 23E to be read under Rule 19 of the SCR Rules, which provides for certain requirements for listing of securities. Further, Rule 19A provides for the requirements of a company to maintain consistent listing requirements. provides for,” it said.
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