Supreme Court Dismisses Reliance Industries Ltd's Appeal Against SAT Penalty For Delayed Disclosure Of Jio-Facebook Deal

The Supreme Court on Tuesday dismissed the appeal filed by Reliance Industries Ltd against the penalty of the Securities Appellate Tribunal for the delayed disclosure of the investment by Facebook in RIL's subsidiary Jio Platforms in 2020.A bench comprising Chief Justice of India Surya Kant and Justice Joymalya Bagchi dismissed the appeal jointly filed by RIL and its compliance officers Savithri Parekh, and K Sethuraman, challenging the SAT's order passed in May. The SAT dismissed their appeals against the order passed by the Securities and Exchange Board of India in June 2022 imposing a monetary penalty of Rs. 30 lakhs under Section 15I of the SEBI Act upon the appellants for violation of principle No. 4 of Regulation 8(1) of SEBI (PIT) Regulations, 2015 read with Regulation 30(11) of SEBI (LODR) Regulations, 2015.As per Principle 4 of the PIT Regulation, listed companies have the obligation to make "Prompt dissemination of unpublished price sensitive information that gets disclosed selectively, inadvertently or otherwise to make such information generally available”.Rejecting the RIL's appeal, the bench observed in the order :"In our considered view, the conclusion drawn by SEBI with respect to the violation of the 2015 regulation, whereby there is a statutory embargo on insider trading, we are satisfied that there is no case made out for interference. That apart, the issue dealt with by the SEBI and SAT are substantially issues of fact giving rise to no substantial question of law for consideration by this Court."BackgroundIn March 2020, the Financial Times published a news report about the possible Facebook-Jio deal which was reportedly under discussion since 2019. The reports were later carried by many Indian media outlets as well, adding that Reliance declined to comment on the development. It was in April 2020 that RIL informed the stock exchanges about the Jio-Facebook deal. SAT found that RIL violated the Prohibition of Insider Trading (PIT) Regulations for failing to promptly disclose unpublished price-sensitive information (UPSI) when news of the deal leaked to the media.Arguments in Supreme CourtBefore the Supreme Court, Senior Advocate Ritin Rai, for RIL, submitted that they had complied with the regulations and there was no insider training or unlawful gains. The prior selective news leaks about the Facebook-Jio deal should not be a ground to impose liability on the company, the counsel argued. It was argued that there was no obligation on any listed entity to verify, confirm or deny such market rumours under Regulation 30(11) of the Listing Obligations and Disclosure Regulations."On media speculation, how a listed company is supposed to react? Should the company be held liable for not responding to media speculations? Can the listed company confirm the speculations when the deal is non-binding and in a discussion stage? That is the issue arising,"Rai submitted. He submitted that RIL was not contesting the penalty as such, which has been deposited, and was on the point of law. He emphasised that there is no allegation of any insider trading having taken place or anyone having made unlawful gains. If the SAT view is upheld, it would mean that there is a mandate to disclose any preliminary discussion on deals at a non-binding stage.When the counsel said that the deal was not final when the news appeared in the media, Justice Bagchi observed, "the fact that the deal has not attained finality is also a price-sensitive information.""Bigger the company, greater the responsibility. You must meticulously comply with the regulations," CJI Kant observed."The moment this news came that Facebook is making such a huge investment, if it was not correct, you should have immediately denied. If everybody knows that such a huge investment is coming, the market price will rise on speculation. You are the best person to say if it is correct or not," CJI Kant said. When the counsel replied that the RIL could not have unilaterally commented since there was another party also involved, CJI said that the company could have issued a statement that the deal was under discussion. "Had you been subjected to penalty for the format or content of the disclosure, then it would have been a different matter. But the very fact that you remained silent..."CJI Kant said."All said and done, the view taken is one which is plausible and possible, based on sound reasonable principles. Why should we interfere?" CJI asked. The counsel responded that the SAT's judgment is contrary to the Prohibition of Insider Trading (PIT) Regulations.It was argued that as per the show-cause notice, the Unpublished Price Sensitive Information regarding Jio-Facebook deal became "generally available" when it came in the news outlets. However, the SAT took a view that the UPSI becomes "generally available" only when it is officially authenticated by the company. Hence, the SAT was going against the show-cause notice. The bench then observed that the...

Supreme Court Dismisses Reliance Industries Ltd's Appeal Against SAT Penalty For Delayed Disclosure Of Jio-Facebook Deal

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"Bigger the company, greater the responsibility," CJI Surya Kant observed during the hearing.

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