Reliance Industries Limited has been fined rs.13 crores by SEBI for incorrectly reporting the diluted earnings per share in its quarterly financials during the period 2007-08. The copy of the judgment can be found here.
Without going into the merits or demerits of the case as to whether the company has or has not incorrectly reported the diluted earnings per share, if one looks at the quantum of fine levied as to whether it is proportionate or disproportionate to the crime committed. Section 23J of the Securities Contracts Regulation Act says as under
23 J - Factors to be taken into account by the adjudicating officerWhile adjudging quantum of penalty under section 23-I, the adjudicating officer
shall have due regard to the following factors, namely:-
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the default;
(c) the repetitive nature of the default.
Para 34 of the Judgment says as under:
34.Specific quantum of any direct or indirect unfair gain made by the Noticee and the loss caused to the investor or group of investors, are not available on records. However, as observed above, 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.
The sections relied upon for levying penalty is section 23A(a) and 23E of SCRA, which is reproduced hereunder:
Penalty for failure to furnish information, return, etc.23A. Any person, who is required under this Act or any rules made thereunder,—
(a) to furnish any information, document, books, returns or report to a recognised stock exchange, fails to furnish the same within the time specified therefor in the listing agreement or conditions or bye-laws of the recognised stock exchange, shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less for each such failure;
Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds
23E. If a company or any person managing a collective investment scheme or mutual fund fails to comply with the listing conditions or delisting conditions or grounds or commits a breach thereof it or he shall be liable to a penalty not exceeding Rs.25 crores.
Without going into the merits or demerits of the case as to whether the company has or has not incorrectly reported the diluted earnings per share, if one looks at the quantum of fine levied as to whether it is proportionate or disproportionate to the crime committed. Section 23J of the Securities Contracts Regulation Act says as under
23 J - Factors to be taken into account by the adjudicating officerWhile adjudging quantum of penalty under section 23-I, the adjudicating officer
shall have due regard to the following factors, namely:-
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the default;
(c) the repetitive nature of the default.
Para 34 of the Judgment says as under:
34.Specific quantum of any direct or indirect unfair gain made by the Noticee and the loss caused to the investor or group of investors, are not available on records. However, as observed above, 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.
The sections relied upon for levying penalty is section 23A(a) and 23E of SCRA, which is reproduced hereunder:
Penalty for failure to furnish information, return, etc.23A. Any person, who is required under this Act or any rules made thereunder,—
(a) to furnish any information, document, books, returns or report to a recognised stock exchange, fails to furnish the same within the time specified therefor in the listing agreement or conditions or bye-laws of the recognised stock exchange, shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less for each such failure;
Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds
23E. If a company or any person managing a collective investment scheme or mutual fund fails to comply with the listing conditions or delisting conditions or grounds or commits a breach thereof it or he shall be liable to a penalty not exceeding Rs.25 crores.
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