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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA
(ADJUDICATION ORDER NO: EAD-3/AO/DRK/JP/ 573/117 of 2014)
__________________________________________________________
UNDER SECTION 23-I OF THE SECURITIES CONTRACTS
(REGULATION) ACT, 1956 READ WITH RULE 5 OF THE SECURITIES
CONTRACTS (REGULATION) (PROCEDURE FOR HOLDING INQUIRY
AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES,
2005.
In respect of:
Reliance Industries Ltd.
(PAN: AAACR5055K)
Regd. Office:- 3rd Floor, Maker Chamber IV,
222, Nariman Point, Mumbai 400 021

In the matter of:
(Non Disclosure of Diluted Earnings Per Share)
----------------------------------------------------------------------------------------------------
Background:
1. Securities and Exchange Board of India (hereinafter referred to as SEBI) had
received complaints against Reliance Industries Limited (hereinafter referred
to as the Noticee / RIL / Company') alleging that RIL had issued 12 crores
warrants to its promoters entitling its holders to subscribe to equivalent
number of equity shares of RIL and as of October 2008, RIL had issued 12
crores equity shares against the said warrants which resulted in diluting the
pre-issue paid up equity share capital of RIL.

Appointment of Adjudicating Officer:
2. Subsequent to the transfer of erstwhile Adjudicating Officer, the undersigned
was appointed as Adjudicating Officer vide order dated October 21, 2013 in
this matter under Section 23-I of the Securities Contracts (Regulation) Act,
1956 (hereinafter known as 'SCRA') read with rule 3 of the Securities
Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties
by Adjudicating Officer) Rules, 2005 (hereinafter referred to as SCR
Adjudication Rules) to inquire into and adjudge under section 23 A and 23 E
of the SCRA, the alleged violations of Clause 41 of the Listing Agreement
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read with Section 21 of the SCRA, by the Noticee for not disclosing to stock
exchanges the Diluted Earnings Per Share (DEPS) as prescribed for the
quarterly and annual disclosures.

Show Cause Notice, Reply and Hearing:
3. A Show Cause Notice dated February 07, 2013 (herein after referred to as
(SCN) was served on the Noticee under rule 4 of the SCR Adjudication
Rules, to show cause as to why an inquiry be not held against the Noticee and
penalty be not imposed under section 23 A (a) and 23 E of the SCRA for the
alleged violations of Clause 41 of the Listing Agreement read with Section 21
of the SCRA. The allegations levelled against the Noticee in the SCN are as
under;
(a) That the Annual report of RIL for the year 2008-09 contained a disclosure in
Schedule A to the Balance sheet regarding issue of 12 crores warrants on
preferential basis on April 12, 2007 to entities in the promoter group
entitling them to acquire equivalent number of fully paid up equity shares.
RIL also disclosed that the warrant holders had applied for and were
allotted 12 crores shares during the year 2008-09. It was also observed that
RIL had outstanding share warrants issued on April 2007 which got
converted to equity shares only during the third quarter ended December
2008 of Financial Year 2008-09. Corresponding to the conversion of the
warrants into shares, it was observed that there was increase in the paid
up share capital of RIL. The Relevant pages of the Annual report of RIL for
the year 2008-09 were provided along with the SCN.

(b) In terms of Clause 41 of the listing agreement, the Companies are required
to disclose both Basic and DEPS in the quarterly financial statements filed
with Stock Exchanges. As the RIL had outstanding share warrants issued in
April 2007 which got converted into equity shares only during the third
quarter of Financial Year 2008-09, the RIL should have disclosed Basic and
DEPS in the filings for the quarters ended June 2007, September 2007,
December 2007, March 2008, June 2008 and September 2008. However,
on scrutiny of the Quarterly Financial Statements of RIL filed with National
Stock Exchange of India Ltd. (hereinafter referred to as NSE) during the
quarter ended June 2007 to September 2008, it was observed that RIL did
not disclose separately DEPS in the Quarterly Financial Statements for the
aforesaid period and contained the same figures for Basic and DEPS.
Copies of Quarterly financial statements of RIL filed with NSE were
provided with the SCN.

(c) It was alleged that the RIL did not disclose the DEPS in Quarterly Financial
Results despite the existence of share warrants and therefore has violated
Clause 41 of the Listing Agreement (the relevant portion was provided to
the Noticee along with SCN) read with Section 21 of the SCR Act. The
provision alleged to have been violated are reproduced hereunder;

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SCRA

Conditions for listing.
21. Where securities are listed on the application of any person in any recognised
stock exchange, such person shall comply with the conditions of the listing
agreement with that stock exchange.


4. In respect of the SCN, the Noticee vide letter dated February 25, 2013 sought
certain information / documents viz. (1) whether an investigation was
conducted prior to the issuance of the Notice, (2) Basis of conducting
investigation against the Noticee and (3) Internal Notes and Legal opinion, if
any, received by SEBI in the matter. The Noticee also desired an inspection of
the documents. Vide communiqu dated March 07, 2013, Noticee was
informed that all relevant documents relied upon to issue the SCN, were
already provided and it was also stated that a copy of complaint on the basis
of which the allegations are levelled, has been forwarded to the Chairman,
Audit Committee of the Noticee. In the said communiqu, it was also intimated
to the Noticee that the inspection of documents relied upon in the SCN can be
carried out by the Noticee. Thereafter, the Noticee submitted a reply dated
May 04, 2013 and desired a personal hearing. An inspection of documents
was carried out by the Noticee on May 29, 2013 as the same is admitted by it
vide its letter dated June 03, 2013. Although, the Noticee vide said letter
stated that none of the information/documents, as desired vide its letter dated
February 25, 2013 has been provided under the inspection.

5. Upon transfer of case to the undersigned, an opportunity of hearing was
provided to the Noticee on November 27, 2013 (at SEBI Bhavan at 11:00
a.m.) vide Notice of hearing dated November 11, 2013. In respect to said
notice of hearing, the Noticee vide letter dated November 22, 2011 sought
adjournment of hearing on the ground that the inspection of all documents as
sought earlier have not been provided and requested for further inspection of
documents. Considering the principle of natural justice, another opportunity of
inspection was granted to the Noticee and vide communiqu dated December
11, 2013, the Noticee was advised to avail the inspection on or before
December 26, 2013. It was clearly mentioned in aforesaid communiqu that
this is the last opportunity of inspection and additional reply if any, may be
filed by the Noticee within a week from the date of inspection. Vide said
communiqu, Noticee was also provided with a final opportunity of hearing on
January 09, 2014 in the matter. The Minutes of Inspection dated January 03,
2014 was brought on record which shows that extracts of the complaint
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alleging non disclosure of DEPS was provided to the authorized
representative of the Noticee during the inspection. As regards to the request
of inspection and a copy of an internal Official Noting of the SEBI, it appears
from the said Minutes that it was intimated to the Noticee that same would be
examined internally by SEBI and decision would be informed to Noticee
accordingly. It is brought on records that SEBI vide letter dated February 03,
2014 provided to the Noticee the copies of relevant extracts of said internal
Official Noting as well. Hence, the issue of inspection is completed and not
raised thereafter by the Noticee.

6. Thereafter, vide notice of hearing dated February 05, 2014 the Noticee was
again provided last opportunity of hearing and advised to appear on February
17, 2014 (at SEBI Bhavan at 11:00 a.m.) for the hearing. The hearing on
February 17, 2014 was attended by the authorized representatives of the
Noticee viz. Mr. K. Sethuraman (chief compliance officer of Noticee), Mr.
Ramesh Kumar Damani (vice president corporate finance of Noticee), Mr.
Mandal Suva Advocate from AZB & Partners, Advocates & Solicitors and Mr.
Mahesh Sahasranahan S. Advocate. Additional reply dated February 14, 2014
was filed by the authorized representatives on the day of hearing. During the
hearing, it was submitted by them that they have engaged Senior Counsel Mr.
Janak Dwarkadas to argue the case and requested to adjourn the hearing for
another date.

7. Vide e-mail dated February 21, 2014, the Noticee was again called upon to
appear for hearing on March 07, 2014 at SEBI Bhavan at 11:00 a.m. The
hearing on March 07, 2014 was attended by authorized representative of the
Noticee viz. Mr. Janak Dwarkadas (Senior Counsel), Mr. P N Modi (Senior
Advocate), Mr. Ankit Lohia Advocate, Mr. Mahesh Sahasranahan Advocate,
Mr. Neiville Lakshari Advocate, Mr. K. Sethuraman (chief compliance officer of
the Noticee), Mr. K. R. Raja (Sr. Vice President of the Noticee) and Mr.
Ramesh Kumar Damani (Vice President of the Noticee). The submissions
made during the hearing were recorded. A certificate dated March 28, 2013
from Auditors namely- Chaturvedi & Shah Chartered Accountants, Deloitte
Haskins & Sells Chartered Accountants and Rajendra & Co. Chartered
Accountants, regarding the Basic EPS and DEPS was submitted by the
Noticee during hearing and same was taken on records.

8. The core submissions made by the Noticee vide its aforesaid replies and
during the personal hearings, are produced hereunder:
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(a) Pursuant to the Special Resolution passed by the members of RIL on 12
th

April 2007, the Board of Directors of RIL allotted 12 crores warrants on
preferential basis exercisable into equal number of equity shares of ` 10/-
each of RIL to the entities belonging to the Promoter Group (Allottees) of
RIL.

(b) The said warrants were exercisable at any time during 18 months from the
date of issue i.e. 12
th
April 2007 at an exercise price of ` 1,402/- per share
(Exercise Price).

(c) On 3
rd
October, 2008, the Board of Directors of RIL allotted 12 crores equity
shares of ` 10/- each to the allottees, upon exercise of warrants at the
Exercise Price.

(d) As per paragraph 35 of the Accounting Standard 20 Earnings Per Share of
the Companies (Accounting Standards) Rules, 2006 (AS-20), there will be
no dilutive effect in the Earning Per Share (EPS) if the proceeds from the
issue are not less than the fair value of the shares issued. Fair value is
defined in paragraph 36 of the said AS.

(e) As per paragraph 37 of AS-20, the options and other share purchase
arrangements are dilutive when they would result in issue of equity shares
for less than their fair value.

(f) Further, Clause 41 of the Listing Agreement requires compliance by the
reporting entity with the provisions of the Accounting Standards prescribed
under the AS Rules. It is submitted that calculation of EPS (including DEPS)
has to be in accordance with Accounting Standard 20 (dealing with Earning
Per Share) of the Accounting Standard Rules. Paragraph 27 of AS 20
provides as under:-

(a) In calculating diluted earnings per share, effect is given to all dilutive
potential equity shares that were outstanding during the period.
(b) the weighted average number of equity shares outstanding during
the period is increased by the weighted average number of
additional equity shares which would have been outstanding
assuming the conversation of all dilutive potential equity shares.

(g) Hence, it is submitted that in calculating DEPS, effect is required to be given
only to those outstanding Potential Equity Share (PES) which are dilutive
and not otherwise. Paragraph 4.4 of AS 20 defines a PES as a financial
instrument or other contract that entitle or may entitle, its holder to equity
shares. Further, Paragraph 4.5 of AS 20 states that share warrants or
options are financial instruments that give the holder the right to acquire
equity shares. Hence, in view of the above, it is submitted that a PES
includes warrants exercisable into equity shares.

(h) 12 crores warrants issued to the promoters group entitling them to acquire 12
crores equity shares of RIL was issued at the price as determined by the
method stipulated by SEBI in the then prevailing SEBI (Disclosure and
Investment Protection) Guidelines, 2000. The price as determined under
these guidelines cannot but be the fair value per share or more than the fair
value per share as SEBI would have taken into account the interest of the
public shareholders into account while prescribing the above method.

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(i) We humbly submit that according to AS-20 the fair value per share can be
the simple average of last six months weekly closing price. As against this,
the preferential issue price under the then prevailing SEBI (Disclosure and
Investor Protection) Guidelines, 2000 is the higher of (a) and (b) below:

(a)Average of weekly high and low of the closing prices of the equity
shares during the six months preceding the relevant date;

(b)Average of weekly high and low of the closing prices of the equity
shares during the two weeks preceding the relevant date.

(j) From Annexure 1 (auditor's report dated March 28, 2013), it is evident that
price as per (a) above is ` 1252.69 per share and as per (b) the price is `
1401.98 per share. RIL issued the warrants at exercise price of the higher of
the two above which was ` 1402/- per share.

(k) In view of the fact that the exercise Price per share of Rs. 1402/- is more
than the fair value of Rs. 1252.69 per share, the potential equity shares due
to exercise of warrants are not dilutive potential equity shares but are non-
dilutive potential equity shares.

(l) Therefore, as explained in the preceding paragraphs, under the method
prescribed in AS 20, the number of equity shares to be considered for
computing the Basic EPS and DEPS will remain the same which is the
existing paid up equity shares. Consequently, the Basic EPS and the DEPS
will be the same number.


Consideration of Issues and Finding:
9. After taking into account the allegations, replies of the Noticee, hearings in the
matter and other evidences / material available on records, I hereby, proceed
further to decide the case.

10. It is admitted case of the Noticee that it had issued 12 crores warrants in April
12, 2007 and the same were converted into equity shares on October 03,
2008. It is not disputed by RIL that the disclosures made during the quarter
ended June 2007 to quarter ended September 2008 contained the same
figures for DEPS as well as for Basic EPS and no separate DEPS was
disclosed.

11. The main contention / defence of the Noticee is that there is no requirement to
disclose the DEPS separately as the warrants were exercised at the fair value
and no dilution in EPS took place and therefore, no separate disclosures of
DEPS is required. The Noticee contended that for the purpose of calculation
of DEPS, the fair value to be taken into account is the simple average of last
six months weekly closing prices and in the present case, the fair value of the
shares i.e. the average of weekly high and low of the closing price of the
equity shares preceding the relevant date was ` 1252.69 per share which was
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lower than the exercise price of ` 1402 per share. According to the Noticee,
the exercise price was more than the fair value and hence, no question of
DEPS arises. Paragraph 35, 36, 37 of AS 20 as referred by the Noticee are
reproduced as under;

35. For the purpose of calculating diluted earnings per share, an enterprise should assume the
exercise of dilutive options and other dilutive potential equity shares of the enterprise. The assumed
proceeds from these issues should be considered to have been received from the issue of shares at fair
value. The difference between the number of shares issuable and the number of shares that would have
been issued at fair value should be treated as an issue of equity shares for no consideration.

36. Fair value for this purpose is the average price of the equity shares during the period.
Theoretically, every market transaction for an enterprises equity shares could be included in
determining the average price. As a practical matter, however, a simple average of last six months
weekly closing prices are usually adequate for use in computing the average price.

37. Options and other share purchase arrangements are dilutive when they would result in the issue of
equity shares for less than fair value. The amount of the dilution is fair value less the issue price.
Therefore, in order to calculate diluted earnings per share, each such arrangement is treated as
consisting of:

(a) a contract to issue a certain number of equity shares at their average fair value during the
period. The shares to be so issued are fairly priced and are assumed to be neither dilutive nor
anti-dilutive. They are ignored in the computation of diluted earnings per share; and

(b) a contract to issue the remaining equity shares for no consideration. Such equity shares
generate no proceeds and have no effect on the net profit attributable to equity shares
outstanding. Therefore, such shares are dilutive and are added to the number of equity shares
outstanding in the computation of diluted earnings per share. Appendix VI illustrates the effects
of share options on diluted earnings per share".


12. Before going to examine the case, it may be added / clarified that
determination of exercise price (for such warrants) is to be carried out as per
the pricing formula as mentioned in the SEBI DIP Guidelines / ICDR
Regulations which the Noticee has done. However, for the purpose of
determining the disclosures of DEPS in the quarterly financial statements
during the relevant reporting periods, the same needs to be carried out as per
the AS 20. Here, the issue that arise for consideration is that whether the
Noticee had rightly disclosed the DEPS in the relevant quarterly financial
statements taking into account the fair value as per AS 20.

13. In order to examine the issue, the following Paras of AS 20 are also observed
to be relevant to decide as to when the dilutive effect of EPS take place and
the same are being discussed as under;
Para 8 of AS 20 -
An enterprise should present basic and diluted earnings per share on the face of the statement of
profit and loss for each class of equity shares that has a different right to share in the net profit for the
period. An enterprise should present basic and diluted earnings per share with equal prominence
for all periods presented.

Para 39 of AS 20

Potential equity shares should be treated as dilutive when and only when their conversion to equity
shares would decrease net profit per share from continuing ordinary operations.
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14. Here, it is necessary to add that conversion of warrants into equity shares
would necessarily result in reduction in net profit per share of the Company as
the same amount of profit needs to be distributed to additional equity shares
as well upon such conversion. Therefore, by virtue of aforesaid Para 39 of AS
20, it is clear that the potential equity shares would certainly be dilutive upon
conversion into equity shares and would reduce net profit per share.

15. Further, Para 26 - 28 of AS 20 also provides as under;

26. "For the purpose of calculating diluted earnings per share, the net profit or loss for the period
attributable to equity shareholders and the weighted average number of shares outstanding during the
period should be adjusted for the effects of all dilutive potential equity shares".

27 (b) "the weighted average number of equity shares outstanding during the period is increased by the
weighted average number of additional equity shares which would have been outstanding assuming the
conversion of all dilutive potential equity shares".

28 For the purpose of this standard, shares application money pending allotment or any advance
shares application money as at the balance sheet date, which is not statutorily required to be kept
separately and is being utilized in the business of the enterprise, is treated in the same manner as
dilutive potential equity shares for the purpose of calculation of diluted earnings per share.


16. It is worth to mention here that in the instant case, admittedly ` 1682.40
Crores was paid upfront by the warrant holders, which in essence, is in the
nature of advance shares application money and there is no doubt about
utilization of such funds by RIL for its business as the Noticee failed to
establish that such application money / capital was kept separately as
statutorily required and was not utilized in its business. Therefore, it is
categorically required under aforesaid Para 28 of AS 20 that if the application
money pending allotment, or any advance shares application money, is being
utilized in the business of the enterprise, then the same is treated as dilutive
potential equity shares for the purpose of calculation of diluted earnings per
share.

17. Further, the fact that the said advance shares application money becomes the
capital of Company is also clearly explained in Clause 13.1.2.3 (c) of the SEBI
DIP Guidelines 2000 or Regulation 77 (4) of the SEBI ICDR Regulations, 2008
which requires the Companies to forfeit the amount paid by the warrant holder
in case they fail to convert the warrants into equity shares within the stipulated
period. In both circumstances, the initial amount paid by the warrant holders
and the remaining amount paid by them during the exercise of such warrants /
allotment of equity shares, was with the Company and the Company was free
to use the same in its business. In view of aforesaid, the application money
pending allotment or any advance shares application money, being utilized in
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the business of the Company, undoubtedly, the same has effect on dilutive
potential equity shares for the purpose of calculation of DEPS and attracts the
requirement of disclosure of DEPS to the Stock Exchanges by the Company
under Annexure I of Clause 41 of Listing Agreement.

18. I also note that following provisions/paragraph of AS 20 are advancing
concern on the aspect of DEPS which are referred below;

32. For the purpose of calculating diluted earnings per share, the number of equity shares should
be the aggregate of the weighted average number of equity shares calculated in accordance with
paragraphs 15 and 22, and the weighted average number of equity shares which would be issued
on the conversion of all the dilutive potential equity shares into equity shares. Dilutive potential
equity shares should be deemed to have been converted into equity shares at the beginning of
the period or, if issued later, the date of the issue of the potential equity shares.

43. Potential equity shares are weighted for the period they were outstanding. Potential equity
shares that were cancelled or allowed to lapse during the reporting period are included in the
computation of diluted earnings per share only for the portion of the period during which they
were outstanding. Potential equity shares that have been converted into equity shares during the
reporting period are included in the calculation of diluted earnings per share from the
beginning of the period to the date of conversion; from the date of conversion, the resulting
equity shares are included in computing both basic and diluted earnings per share.

19. From bare and combined perusal of aforesaid Para 32 & 43 of AS 20, it is very
much clear that upon conversion of potential equity shares into equity shares
during the reporting periods, the same becomes dilutive in nature for the
purpose of calculation of the DEPS. Upon simple reading of said Paras itself,
there appears to be no ambiguity on the aspect of DEPS as and when such
conversion takes place. Therefore, for the period till the warrants remain
outstanding before converting into equity shares, the same are considered as
dilutive in nature and hence, the disclosure of DEPS becomes compulsory
under AS 20.

20. Therefore, the reliance placed by the Noticee only on Para 27, 35, 36 and 37
of the AS 20 cannot be ignored over Para 8, 26, 28, 32, 39 & 43 of AS 20 and
Clause 13.1.2.3 (c) of the DIP Guidelines or Regulation 77 (4) of the ICDR
Regulations, in the given facts and circumstance of the case, rather, the same
needs to be read into true spirit of AS/DEPS for which they are so enacted.

21. Taking into account the principle of harmonious interpretation, it is required
that the legislation should be read as whole and needs to be considered to
find out the true / most immediate objective behind its enactment. Therefore, I
am inclined to refer certain case laws as under.
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Reserve Bank of I ndia Vs. Peerless General Finance & I nvestment Co. Ltd. - AI R 1987
SC 1023 & 1987 (1) SCC 424:- Interpretation must depend on the text and the context. They
are the bases of interpretation. One may well say if the text is the texture, context is what
gives the colour. Neither can be ignored. Both are important. That interpretation is best
which makes the textual interpretation match the contextual. A statute is best interpreted
when we know why it was enacted. With this knowledge, the statute must be read, first as a
whole and then section by section, clause by clause, phrase by phrase and word by word.
No part of a statute and no word of a statute can be construed in isolation. Statutes have to
be construed so that every word has a place and everything is in its place.

Kesho Ram & Co. & Ors. Etc vs Union Of I ndia & Ors 1989 SCR (2)1005, 1989 SCC (3)
151:- It is a settled rule of harmonious construction of statutes that a construction which
would advance the object and purpose of the legislation should be followed and a
construction which would result in reducing a provision of the Act to a dead letter or to
defeat the object' and purpose of the statute should be avoided without doing any violence to
the language.

Union of I ndia Vs. Filip Tiago De Gama of Vadem Vasco- 1990 AI R 981 or 1990 (1) SCC
277 :-The paramount object in statutory interpretation is to discover what the legislature
intended. This intention is primarily to be ascertained from the text of enactment in question.
That does not mean the text is to be construed merely as a piece of prose, without reference
to its nature or purpose. A statute is neither a literary text nor a divine revelation . If there is
obvious anomaly in the application of law, the Court could shape the law to remove the
anomaly. If the strict grammatical interpretation gives rise to absurdity or inconsistency, the
Court could discard such interpretation and adopt an interpretation which will give effect to
the purpose of the legislature.

22. Therefore, the entire AS 20 " Earnings Per Share" needs to be considered
holistically to meet its objective / rationale for which they are so constructed.
Here, apparently, the intention of AS 20 is to bring into place those situations
where the DEPS take place and thereafter, it becomes necessary for a
Company to disclose the DEPS to the Stock Exchange. If there are several
Paras under AS 20 (as discussed above) which convey sense of "what the
DEPS is" and if it is so defined, then, undoubtedly, an obligation lies upon a
Company to disclose the same. Therefore, the Para 36 and 37 of AS -20
cannot be read in isolation over the entire AS-20 and necessarily be read in
consonance with other Paras to meet its true objective / mandate for DEPS.

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23. Since, the circumstances where the effect of DEPS take place, have already
been discussed, now, I proceed further to decide the main issue as
mentioned in pre para 12 above.


24. It is observed that AS are meant for certain disclosures of financial reporting
during relevant reporting periods and in order to examine the dilutive effect of
EPS during the relevant reporting periods after determining the exercise
price at the time of allotment of warrants as done in this case (` 1402/-) the
method for 'fair value' as mentioned in Para 36 of AS 20. Further, it is
important to mention here that for the purpose of disclosures of DEPS if any,
in relevant reporting periods/quarters, if the fair value arrived at as per the AS
20 is higher than the exercise price (already calculated), then the same would
have dilutive effect on EPS which needs to be disclosed in the relevant
reporting periods as per Format in clause 41 of the listing agreement.


25. The Noticee in its additional reply dated February 14, 2014, shown a table and
provided certain Annexures of Unaudited Financial Results (Media Release)
etc. for the quarters ended from June 2007 to quarter ended September 2008.
In the said financial results / Annexures, no difference was shown in the Basic
and DEPS. To determine the DEPS during such reporting periods for the
purpose of disclosure, the methods as per para 36 of AS 20 i.e. the volume
weighted average price (theoretical) and the average weekly closing price
during the last six months (practical) is to be considered. For this purpose, it is
observed from the available records that the volume weighted average price
for various quarters during which the warrants were outstanding, the fair value
of RIL shares during these periods so arrived at, were higher than the
exercise price of ` 1402 per share. Further, as per method of para 36 of AS 20
(simple average of last six months weekly closing prices) the calculation of
these periods were also observed to have been higher than the exercise price
of ` 1402 /-. As per transaction records of NSE (source of NSE Website), the
fair value for these reporting periods are shown quarter wise in the below
mentioned tables.

Statement showing fair value of shares of RIL during the quarters ended June
2007 to September 2008.



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Method A - (Based on volume weighted average price)

Period
Turnover (In
` Lakhs)
Traded quantity
Fair value (in `) of
the shares during
the period (Volume
weighted average
price)


Closing
prices on
last
trading
day of
the
period
(`)
Exercise
price of
the shares
(``)
as
calculated
by Noticee
From To

A B C=(A*100000)/B
12-Apr 07 30-Jun-07 2223573.1 135207857 1644.56 1700.55
1402
1-Jul-07 30-Sep-07 3428654.07 179074791 1914.65 2298.05
1-Oct-07 31-Dec-07 6620621.8 245210980 2699.97 2882.7
1-Jan-08 31-Mar-08 5591112.19 218838484 2554.90 2265.8
1-Apr-08 30-Jun-08 5000454.88 209455631 2387.36 2095.15
1-Jul-08 30-Sep-08 5277762.75 252326472 2091.64 1949.35

Method- B:- (Based on average weekly closing prices during last six months)

Quarter ended
Preceding Six month Period
Average weekly
closing prices during
the preceding six
months period (`)

Exercise price of
the shares (``)
as calculated by
Noticee
From To
30-Jun-07 1-Jan-07 30-Jun-07 1491.79
1402
30-Sep-07 1-Apr-07 30-Sep-07 1764.04
31-Dec-07 1-Jul-07 31-Dec-07 2325.99
31-Mar-08 1-Oct-07 31-Mar-08 2639.83
30-Jun-08 1-Jan-08 30-Jun-08 2492.52
30-Sep-08 1-Apr-08 30-Sep-08 2282.30


26. Hence, it is clear that taking into account both the methods under para 36 of
AS 20, the fair value in the relevant reporting periods were much higher than
the exercise price of ` 1402/- and certainly this has the dilutive effect on EPS.
Therefore, disclosures about such DEPS should have been separately shown
by the Noticee in the Format as prescribed in clause 41 of the Listing
Agreement, which the Noticee has failed to do so for six quarters. The
relevant provisions of clause 41 is produced as under;
Clause 41 of Listing Agreement

I :-Preparation and Submission of Financial Results
(b) The company shall submit its quarterly, year to date and annual financial results to
the stock exchange in the manner prescribed in this clause.

V:- Formats
The quarterly financial results shall be in the format given in Annexure I for the
companies other than banks and that given in Annexure II for banks.
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Page 13 of 15

27. From the above observations, it is pertinent to mention that the method
adopted by the Noticee for calculation of DEPS is incorrect since it has
considered the fair value as per pricing formula of SEBI DIP Guidelines / ICDR
which is only used for arriving the exercise price i.e. Rs. 1402/- instead of
adopting the methods as per the provisions of AS 20.

28. It can be seen from the aforesaid two tables that there was huge variance in
"fair value" for the subsequent reporting periods as against the exercise price
calculated by the Noticee and hence, the submission made by the Noticee
that exercise value was not less than the fair value and hence no disclosure of
separate DEPS is required in view of para 36 and 37 of AS 20, is not
maintainable.

29. Further, as per the calculation / observation the difference between the Basic
EPS and the DEPS is around 8% negative in each quarters (except for the
quarter ended September 2007) which the Noticee was required to disclose
such difference separately in equal prominence in its quarterly financial
statements as per the AS 20. Certainly, this is a considerable difference and
would have significant impact on the investor's decision while investing in the
shares of the Noticee Company. Such differences are illustrated as under;


Period Net profit for
the period (`)
Total shares
outstanding
during the
period
including
potential
equity
shares
DEPS after
providing for
potential
equity
shares
pursuant to
share
warrants
Basic and
DEPS as
disclosed
in RIL
books
Differ
ence
in (`)
Differ
ence
in (%)
Qrtr ended June 2007 32,64,00,00,000 1513508041
21.6 23.4 1.8 8.3
Qrtr ended Sep. 2007 38,37,00,00,000 1513508041
25.4 26.4 1.0 3.9
Qrtr ended Dec. 2007 80,79,00,00,000 1565804180
51.6 55.6 4.0 7.8
Qrtr ended Mar.
2008 39,12,00,00,000 1573648601
24.9 26.9 2.0 8.0
Qrtr ended June 2008 41,10,00,00,000 1573648601
26.1 28.3 2.2 8.4
Qrtr ended Sep. 2008 412,20,00,0000 1573709925
26.2 28.4 2.2 8.4


30. It is not out of place to mention that EPS (Basic or Diluted) is a vital factor or
one of the fundamental tools for the investors while arriving at decision to
continue or invest in the shares of a particular company. EPS is considered as
single most important vehicle in determining a share's price. It is key driver of
share price and used as a barometer to gauge a company's profitability per
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Page 14 of 15

unit of shareholder ownership. It is not out of place to mention that the Noticee
company has millions of shareholders and the prospective investors who were
also deprived of the correct disclosures in relation to DEPS in the respective
quarterly financial results as per AS 20.

31. Therefore, in light of aforesaid observations, I am of the view that the Noticee
was under an obligation to disclose separately the DEPS for the quarters
ended June 2007, September 2007, December 2007, March 2008, June 2008
and September 2008, which the Noticee had failed to do so.

32. In view of aforesaid observations, facts and records of the case, I am of the
opinion that aforesaid failure by the Noticee, is in violation of Annexure I of
Clause 41 of the Listing Agreement read with Section 21 of the SCRA. The
aforesaid violations make the Noticee liable to penalty under Section 23 A (a)
and 23 E of SCRA which are produced as under;
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 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 twenty-
five crore rupees.

33. While determining the quantum of penalty under section 23 A (a) and 23 E of
SCRA, it is important to consider the factors stipulated in section 23 J of the
SCRA, which reads as under:-
23 J - Factors to be taken into account by the adjudicating officer

While 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.

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Page 15 of 15

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.

Order:
35. In view of the above, after considering all the facts and circumstances of the
case and exercising the powers conferred upon me under Section 23 I of the
SCRA and Rule 5 of the SCR Adjudication Rules, I hereby impose a penalty
of ` 1,00,00,000/- (Rupees One Crore only) upon the Noticee for violation of
Section 23 A (a) and ` 12,00,00,000/- (Rupees Twelve Crores only) for the
violation of Section 23 E of the Securities Contracts (Regulation) Act, 1956.
Therefore, a total penalty of ` 13,00,00,000/- (Rupees Thirteen Crores only)
is imposed upon Reliance Industries Ltd. (Noticee). I am of the view that the
said penalty is commensurate with the violations committed by the Noticee.

36. The Noticee shall pay the said amount of penalty by way of demand draft in
favour of SEBI - Penalties Remittable to Government of India, payable at
Mumbai, within 45 days of receipt of this order. The demand draft shall be
forwarded to the Chief General Manager, Corporate Finance Department,
Securities and Exchange Board of India, SEBI Bhavan, Plot No.C4-A, G
Block, Bandra Kurla Complex, Bandra (East), Mumbai400 051.

37. Copy of this order is being sent to Reliance Industries Ltd.- 3rd Floor, Maker
Chamber IV, 222, Nariman Point, Mumbai 400 021and also to Securities
and Exchange Board of India in terms of rule 6 of the SCR Adjudication Rules.



Place: Mumbai D. RAVI KUMAR
Date: 08/08/2014 CHIEF GENERAL MANAGER &
ADJUDICATING OFFICER

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