The Securities Appellate Tribunal (SAT) today admitted Reliance Industries’ (RIL) appeal against a ban on trading in the equity derivatives market for a year imposed by the Securities and Exchange Board of India.

In March, SEBI had ordered RIL to give up the Rs. 447.27 crore of illegal gains it made through the network on trades in 2007 and pay an additional penal interest of 12 per cent per annum from November 29, 2007. RIL and the 12 front entities are also banned from accessing the equity derivatives market for a year.

Counsel for Reliance Industries Harish Salve appealed against the SEBI order at SAT. The next hearing in the case has been posted for early August.

Meanwhile, Salve asked SAT to allow RIL to continue to invest the company’s surplus cash in mutual funds. Some of these funds, he argued, may trade in equity derivatives and this should not be construed as going against the SEBI order.

In its response, counsel for SEBI asked RIL to submit an application to the regulator in this regard with the names of the fund houses that RIL invests in.

Salve added that the company does not have any current F&O positions in equity.

In March, SEBI, under its new chief Ajay Tyagi, had found Reliance Industries guilty of unfair trade practices and “perpetrating fraud in the securities market”, which resulted in “illegal gains” for the company.

The case dates back to March 2007 when the Mukesh Ambani-led Reliance Industries decided to sell five per cent stake in a subsidiary listed company Reliance Petroleum.

However, instead of directly selling shares in the cash market and risking a fall in the price, RIL chose to bet against its subsidiary’s shares in the derivatives market through 12 front entities, according to SEBI’s investigations.

These front entities executed trades in the cash market below the last traded price of the stock, hence triggering a fall in the share price of Reliance Petroleum. This fall in share price allowed them to profit from their own short positions in the derivatives segment to the tune of Rs. 447.27 crore, SEBI found.

According to SEBI’s findings, RIL made illegal gains of Rs. 60.28 a share on 7.42 crore shares.

Reliance Petroleum had merged with RIL in 2009.

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