SAT Stays SEBI’s Penalty Order in Reliance Industries-Facebook  Case
Moneylife Digital Team 28 September 2022
The securities appellate tribunal (SAT) has stayed the Securities and Exchange Board of India’s (SEBI’s) order that had imposed a penalty of Rs30 lakh on Reliance Industries Ltd (RIL) and two of its compliance officers, Savithri Parekh and K Sethuraman, for not promptly disclosing the stake sales in its subsidiary company, Jio Platforms to Facebook, Silver Lake and Vista Equity Partners in 2020.
“We stay the effect and operation of SEBI’s 20 June order and list it for final disposal on 12th December," said a SAT bench led by justice Tarun Agarwala.
It may be recalled that on 20 June 2022, SEBI had imposed a penalty on Reliance and two of its officers for not properly disclosing Facebook’s US$5.7bn (billion) investment in Jio Platforms in April 2020.
The market regulator had said in its order that media had reported about the then-impending deal in March 2020 itself, which prompted the shares of the group company to rise. The Financial Times, London, dated 24 March 2020, carried a report detailing the expected investment from the big global internet company. SEBI was of the view that it was “incumbent” on Reliance to provide “due clarification on its own” through the stock exchanges—or other means—when it learned that the information was about to be published.
“One of the issues is that information that the company wanted to keep enveloped in secrecy until made public, clearly failed in that objective,” the market regulator said. “Further, when the bits of UPSI (unpublished price-sensitive information) that then became selectively available the company abdicated its responsibility to verify and come clean on the unverified information that was floating around.”
Reliance did not comment to Financial Times and other media publications at the time. SEBI held that Mr Parekh and Mr Sethuraman should have clarified to the exchanges on the news item. It was observed that RIL, Mr Parekh and Mr Sethuraman did not comply with the provision of principles of fair disclosure of UPSI, which states that there should be prompt dissemination of unpublished price sensitive information that gets disclosed selectively, inadvertently or otherwise, to make such information generally available. They were also alleged to have not issued LODR (Listing Obligations and Disclosure Requirements).
RIL maintained that as stock exchanges did not request clarification, it was not obligated to provide one. However, SEBI said it is not persuaded that the business may abdicate its responsibility to confirm a news story that has appeared in the newspaper.
 In June 2022, SEBI in its order imposed the penalty jointly on RIL and its two compliance officers, K Sethuraman and Savithri Parekh, for alleged violation of Prohibition of Insider Trading (PIT) regulations.
“The other predicament the noticees present are that they could not have clarified the rumour on its own too because the agreement was yet to signed, yet to be approved by the Board of the Company and that it was not yet final. However, here too it is hard to be convinced that the company would respond to rumours only after finality of transactions,”SEBI said. “On a mere perusal of the announcements made by companies on the stock exchanges there are plethora of announcements where only the MoU has been entered, or where term sheets have been signed, or other acquisition are being scouted,” SEBI added.
Although the penalty on Reliance and its compliance officers is a relatively small sum, the regulator has revealed in its notice that Reliance and its officers had denied the allegations.
According to the details included in the SEBI notice, Facebook and Reliance began “initial discussion to explore a potential transaction” on 1 September 2019. In late-October, Facebook’s corporate development team visited Reliance’s offices. A month later, Reliance executives visited Facebook’s Menlo Park headquarters. Law firm Davis Polk got looped in on 26 November 2019, Morgan Stanley arrived on the scene in January 2020. Negotiation on terms of the deal began in February 2020.
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