Rel Infra, RNRL close to deal with Sebi

TO SETTLE CHARGE OF SECURITIES NORMS BREACH

RELIANCE Infrastructure and Reliance Natural Resources are close to reaching a settlement with market regulator Sebi by paying consent fees, ending a long-running investigation into alleged violations of foreign portfolio investment regulations.
    The companies, part of the Anil Dhirubhai Ambani Group, and their top executives have also agreed to abide by conditions set out by Sebi, four persons with knowledge of the development told ET.
    The move will remove a persistent source of uncertainty that has dogged the companies for years. "The move is positive for Reliance Infra because the company will be able to access the capital markets without this shadow of regulatory uncertainty. The company could have litigated all the way to the Supreme Court but that could have dragged on for years and simply made no sense," said one of the four people. RNRL is in the process of being merged into Reliance Power, another ADAG company. So the proposed settlement is not particularly consequential for it. Conditions are mainly pledges for R-Infra, RNRL
THESE conditions are mainly pledges to tighten internal processes and are not particularly onerous, the people said. They are a standard part of any consent agreement.
    The settlement, which will involve a total payment of close to `50 crore by the two companies, is close to being concluded after the consent terms were accepted by a three-member internal Sebi committee headed by retired Mumbai High Court judge Hosbet Suresh.
    The panel's conclusions are likely to be endorsed by two whole-time members of the Sebi board, three of the four persons mentioned earlier said. The ruling of the two board members is final. ADAG officials declined comment for the story.
    Reliance Infrastructure, which distributes electricity in the suburbs of Mumbai and in parts of Delhi, is one of the flagship companies of the Anil Ambani Group. It also owns close to 45% of Reliance Power, which is implementing 25,000 mw of projects.
    If the final figure endorsed by the regulator is close to 50 crore, it will be among the highest fees to be paid since it was introduced in 2007. These negotiated settlements are common in the US where the Securities & Exchange Commission, or SEC, approves a large number of consent orders every year. In India, a firm or person facing a probe can submit an application seeking a consent order, without admission of guilt and without denial of liability. Sebi has the right to refuse to enter into consent proceedings if the violations are be particularly egregious.
    If the regulator agrees, the entity facing the probe has to finalise the terms with Sebi officials. These terms then go through a two-stage vetting.
    First, they have to be endorsed by a panel headed by a retired high court judge, currently Hosbet Suresh. The panel's conclusion then has to be endorsed by two full-time members of the Sebi board. Full-time members are officials in charge of executive functions as distinct from part-time board members.
COMPLEX CASE
At the heart of this case is a showcause notice issued on June 7, 2010, by Sebi to the two companies and their top executives.
    The notice came in the wake of a probe by the regulator and government agencies into dealings of Pluri Emerging Companies, an obscure foreign portfolio investor, which purchased participatory notes with stocks such as RNRL and Reliance Infrastructure as the underlying.
    Participatory notes are derivative instruments that allow offshore entities to trade in Indian stocks anonymously.
    Pluri had bought the participatory notes from Hythe Securities, another FII, which in turn had bought them from Barclays Bank, a British bank.
    At that point, the Enforcement Directorate was probing Pluri for a series of allegedly fraudulent transactions involving the siphoning off of funds from the accounts of two Anil Ambani-promoted firms in the London branch of UBS and the use of these funds to buy shares in India. The proceeds of foreign loans raised by the ADAG firms were parked in these accounts.
    Sebi had also pulled up Societe Generale, the French financial services group, and Barclays in connection with the dealings with Pluri. Both foreign banks were exonerated by Sebi after they strengthened internal processes. They did not have to pay any penalty.
    Sandeep Parekh, Founder, Finsec Law Advisors, and a former executive director of Sebi said consent proceedings provide a wide range of options to the regulator to fashion a remedy.
    "In a given case where the severity of the crime is high, the regulator is free to adopt measures beyond the usual penalty. For instance, there could be consent bar from raising capital, consent bar from acting as a director of a listed company, consent disgorgement or consent freezing of voting rights, to name a few," he said.
    However, such conditions are not part of the consent order in case of the two ADAG entities, the people with knowledge of the proceedings said.

UNCERTAINTY ENDS: Anil Ambani