In a significant ruling for corporate governance, the Supreme Court of India on Tuesday firmly endorsed a penalty imposed on Reliance Industries Limited (RIL). The court dismissed RIL's appeal, thereby upholding a ₹30 lakh fine levied by the Securities and Exchange Board of India (SEBI). The penalty was for the conglomerate's failure to make prompt disclosures regarding the monumental ₹43,000 crore Reliance Jio-Facebook deal in 2020, even after it was reported in the international media.
The Court's Stern Message on Litigation Burden
A bench comprising Chief Justice of India Surya Kant and Justice Joymalya Bagchi conveyed a clear message to RIL's counsel. The justices pointed out that for a corporation of RIL's stature, contesting a ₹30 lakh fine through multiple judicial forums amounted to burdening the court with unnecessary litigation. Representing RIL, Senior Advocate Ritin Rai clarified that the financial penalty itself was not the primary concern for the petitioner. Instead, the appeal was driven by the broader impact of the Securities Appellate Tribunal's (SAT) finding on all listed companies and the precedent it sets for disclosure norms.
Rai argued the core legal question: should a listed company be obligated to report ongoing negotiations to SEBI, or only upon the final fructification of an agreement? He contended that it is impractical for companies to respond to every speculative media report in today's fast-paced news environment.
SC Clarifies Duty Under PIT Regulations
The Supreme Court bench, however, provided unequivocal clarity on the matter. It emphasized that under the SEBI Prohibition of Insider Trading (PIT) Regulations, it becomes a mandatory duty for listed entities to respond with correct particulars when unverified reports appear in the media, especially those that can influence stock prices.
The bench highlighted the factual sequence that demonstrated market impact. When the London-based Financial Times first reported on the Jio-Facebook negotiations on March 24, 2020, RIL's share price saw a substantial 15% increase. Later, when RIL officially announced the deal on April 22, 2020, the shares surged by another 10%. This volatility, triggered by media reports, underscored the need for timely clarification from the company.
Bigger Entity, Bigger Responsibility
The court firmly stated that the PIT Regulations represent a set of ethical norms where compliance cannot be treated with leniency. It pronounced that "the bigger the entity, the bigger the responsibility to scrupulously adhere to PIT Regulation." The bench identified RIL's choice to remain silent after the Financial Times report as a clear breach of these regulations.
"The moment such news appears in the media, speculative trade is bound to happen given the magnitude of the deal," the court observed. It ruled that RIL should have clarified that the agreement was merely in the negotiation stage. This action would have helped "clear the air" and curb unfounded speculation in the stock market, which is a mandatory requirement for listed entities.
While Rai noted there was no specific allegation of insider trading by any individual, the bench focused on the regulatory breach of disclosure duties. Ultimately, the Supreme Court found no grounds to interfere with the conclusions drawn by SEBI and upheld by the SAT regarding the violation of PIT regulations. It also noted that the issue was substantially factual and did not raise a broader question of law requiring the top court's reconsideration.
The dismissal of RIL's appeal against the SAT order dated May 2 brings finality to this case, reinforcing SEBI's authority and setting a clear benchmark for disclosure ethics for all large listed companies in India.
