The penalty includes a fine of Rs 1 crore for violation of Listing Agreement and another Rs 12 crore for violation of the Securities Contracts (Regulation) Act in relation to non-disclosure of the Diluted Earnings Per Share (DEPS) in the quarterly and annual disclosures.
The order follows a probe by the capital markets regulator in an over seven-year old case involving alleged irregularities in issuance of 12 crore warrants by Mukesh Ambani-led RIL to its promoters entitling its holders to subscribe to equivalent number of equity shares of RIL.
It was alleged that this issuance in April 2007 had resulted in diluting the pre-issue paid-up equity share capital of RIL, but the company repeatedly failed to disclose such dilution in earnings for as many as six quarters.
While Reliance Industries Ltd (RIL) did not reply to queries related to Sebi fine, the regulator said in its 15-page order that the company had submitted before it that there would "be no dilutive effect in the Earning Per Share (EPS) if the proceeds from the issue are not less than the fair value of the shares issued".
Sebi, however, ruled that "conversion of warrants into equity shares would necessarily result in reduction in net profit per share of the company as the same amount of profit needs to be distributed to additional equity shares as well upon such conversion".
The latest penalty comes over one year after another fine of Rs 11 crore slapped by Sebi in May 2013 on Reliance Petroinvestments, an RIL subsidiary, in an insider trading case. That case was related to charge that Reliance Petroinvestments bought shares of erstwhile IPCL (Indian Petrochemicals Corp Ltd) in early 2007 just before it declared an interim dividend and announced the merger of IPCL with RIL.
Also, the Securities Appellate Tribunal dismissed a plea by RIL on June 30 this year against Sebi, which had rejected the company's consent application on an alleged irregularities in relation to trading in shares of Reliance Petroleum Ltd, then a separately listed group company, in November, 2007.
In the present case, a show-cause notice was served on RIL in February last year, listing out allegations levelled against the company.
After looking into the company's reply and further probe into the matter, Sebi said that "EPS (Basic or Diluted) is a vital factor or one of the fundamental tools for the investors while arriving at decision to continue or invest in the shares of a particular company.
The regulator said further that RIL "under an obligation to disclose separately the DEPS for the quarters ended June 2007, September 2007, December 2007, March 2008, June 2008 and September 2008, which the noticee had failed to do so".
"In view of aforesaid observations, facts and records of the case", Sebi said, the company was in violation of the relevant provisions of the Listing Agreement and the SCRA and therefore it was liable to a penalty.
Noting that a specific quantum of any direct or indirect unfair gain made by RIL and the loss caused to the investors were not available on records, Sebi said that "the fact cannot be ignored that millions of shareholders/investors were deprived of correct disclosures about DEPS."
"As regards to the repetitive nature of default, as observed above that the Noticee had failed to disclose the DEPS repetitively for the six quarters. Hence, an appropriate penalty needs to be imposed upon the Noticee, taking into account the aforesaid gravity of the violations committed," Sebi said.
Accordingly, the regulator has decided to impose a penalty of Rs one crore for violation of Listing Agreement and of another Rs 12 crore for violating the SCRA provision.
RIL has been asked to pay the total amount of Rs 13 crore within 45 days through a demand draft in favour of 'SEBI - Penalties Remittable to Government of India'.
Sebi said that "EPS is considered as the single most important vehicle in determining a share's price.
"It is key driver of share price and used as a barometer to gauge a company's profitability per unit of shareholder ownership. It is not out of place to mention that the noticee company has millions of shareholders and the prospective investors who were also deprived of correct disclosures in relation to DEPS in respective quarterly financial results..."
The regulator further said RIL's Annual report for the year 2008-09 contained a disclosure regarding issue of 12 crores warrants on preferential basis on April 12, 2007 to entities in the promoter group entitling them to acquire equivalent number of fully paid up equity shares.
RIL had also disclosed that the warrant holders had applied for and were allotted 12 crores shares during the year 2008-09. It was also observed that RIL had outstanding share warrants issued on April 2007 which got converted to equity shares only during the third quarter ended December 2008 of Financial Year 2008-09.
In terms of Clause 41 of the listing agreement, the listed companies are required to disclose both Basic and DEPS in the quarterly financial statements filed with exchanges.
Sebi further said that the warrant holders in this case had paid Rs 1,682.4 crore "which in essence, is in the nature of advance shares application money and there is no doubt about utilization of such funds by RIL for its business, as the Noticee failed to establish that such application money/ capital was kept separately as statutorily required and was not utilized in its business."
Sebi also said that the method adopted by RIL for calculation of DEPS was "incorrect" and there was huge variance in 'fair value' for the subsequent reporting periods as against the exercise price calculated by the firm.