Reliance Industries : Postal Ballot Notice - Communication to Proxy Advisory Firms

September 29, 2021
BSE Limited	National Stock Exchange of India Limited
Phiroze Jeejeebhoy Towers,	Exchange Plaza, Plot No. C/1, G Block,
Dalal Street,	Bandra-Kurla Complex, Bandra (East),
Mumbai 400 001	Mumbai 400 051
Scrip Code: 500325 / 890147	Trading Symbol: RELIANCE / RELIANCEP1
Dear Sirs,

Sub.: Disclosure under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

The adjudicating officer of SEBI, vide his order number BS/2021-2022/13447 dated September 20, 2021, has passed an order and disposed off the Show Cause Notice dated 5th April, 2016 issued against the Company for failure to disclose the correct Diluted Earnings Per Share during the quarters June 2007- September 2008, without any levy of penalty. The said order of SEBI is attached.

Kindly take the same on record.

Thanking you,

Yours faithfully,

For Reliance Industries Limited

Savithri Parekh

Joint Company Secretary

and Compliance Officer

Copy to:
The Luxembourg Stock Exchange	Singapore Stock Exchange
35A Boulevard, Joseph II	2 Shenton Way,
L-1840 Luxembourg	#19- 00 SGX Centre 1,
	Singapore 068804

Regd. Office: 3rd Floor, Maker Chambers IV, 222, Nariman Point, Mumbai- 400 021, India

Phone #: [phone], Telefax: [phone]. E-mail: [e-mail], Website: www.ril.com

CIN- L17110MH1973PLC019786

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. ORDER/BS/2021-22/13447]

___________________________________________________________________

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992, READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES) RULES, 1995

___________________________________________________________________

In respect of

Reliance Industries Limited

1. Adjudication proceedings have been initiated against Reliance Industries Ltd

(hereinafter referred to as "RIL/Noticee") for its alleged failure to make correct disclosure of diluted Earnings Per Share in its Quarterly Financial Results for the quarters ended June 2007, September 2007, December 2007, March 2008, June 2008 and September 2008 in violation of Clause 41 of the Listing Agreement read with Sections 21, 23A and 23E of Securities Contracts (Regulation) Act, 1956 (SCR Act, 1956).

APPOINTMENT OF ADJUDICATING OFFICER

2. Initially, Shri S.V. Krishnamohan, Chief General Manager was appointed as Adjudicating Officer (AO) vide order dated January 19, 2016 to inquire into and adjudge the alleged violations of provisions of Clause 41 of the Listing Agreement read with Sections 21, 23A and 23E of SCR Act, 1956, by the Noticee for its failure to disclose correct diluted Earnings per Share (EPS) in quarterly Financial Results for the quarters ended June 2007 to September 2008 despite the existence of share warrants. Subsequently, the undersigned was appointed as the Adjudicating Officer vide SEBI's order

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dated September 15, 2017 in the place of Shri S. V. Krishnamohan in the present matter.

BRIEF FACTS OF THE CASE

3. It was observed that RIL had issued 12 crore warrants to its promoters on April 12, 2007 which were convertible within a period of 18 months with an exercise price of Rs. 1402/- per warrant entitling its holders to subscribe to equivalent number of equity shares of RIL, and subsequently on October 03, 2008, the Board of Directors of RIL allotted 12 crores equity shares of Rs.10/- each to the allottees, upon exercise of warrants at the exercise price. Since the warrants were outstanding during the period April 2007 to September 2008 and the fair value of the underlying shares during the period was more than the exercise price, the warrants had dilutive impact on the EPS and RIL should have disclosed diluted EPS computed as per the provisions of AS-20. However, the Quarterly Financial Statements of RIL filed with National Stock Exchange of India Ltd. for the quarters ended June 2007 to September 2008, contained the same figures for Basic as well as Diluted EPS ("DEPS") despite the existence of share warrants. In view of the aforesaid, it was alleged that the Noticee did not disclose correct DEPS in its Quarterly Financial Statements to stock exchange for six consecutive quarters ended June 2007, September 2007, December 2007, March 2008, June 2008 and September 2008 despite the existence of share warrants and thereby violated the provisions of Clause 41 of the Listing Agreement read with Sections 21, 23A and 23E of SCR Act, 1956.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

4. A Show Cause Notice dated April 05, 2016 (hereinafter referred to as 'SCN') was issued to the Noticee in terms of Section 23I of the SCR Act, 1956 read with Rule 4 of Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 2005

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(hereinafter referred to as "Rules") for the violations as specified in the

SCN.

5. The Noticee submitted its reply to the SCN vide letter dated May 02, 2016, and following are the main submissions made therein -

7. Computation of DEPS by RIL

1. On 12th April 2007, the Board of Directors of RIL issued 12 crore warrants on preferential basis exercisable into equal number of equity shares of Rs. 10/- each of RIL.
2. The said warrants were exercisable at any time during 18 months from the date of issue i.e. 12th April 2007 at an exercise price of Rs. 1,402/- per share.
3. These warrants were issued and priced in accordance with the DIP Guidelines. The exercise price of Rs. 1402/- per share was fixed in accordance with the DIP Guidelines at the higher of (i) The average of the weekly high and low of the closing prices of RIL shares during the six months preceding the relevant date and (ii) The average of the weekly high and low of the closing prices of RIL shares during the two weeks preceding the relevant date.
4. Such average of the share price of RIL during six months preceding the relevant date was Rs. 1252/69 per share and during two weeks preceding the relevant date was Rs. 1401/98 per share.
5. Thus, it can be observed that the exercise price of Rs. 1402/- was higher than the fair value of the RIL shares at the time of issuance.
6. Once the exercise price is fixed higher than the fair value (Rs. 1402/- per share as against Rs. 1252/69 per share), there cannot be any dilutive potential equity shares out of the 12 crore potential equity shares. The calculations in accordance with paragraph 37 of AS 20 is given below:
7. 1. Proceeds from issue of 12 crore shares at Rs. 1402 per share = Rs. 16,824 crores
   2. Number of shares that could have been issued for Rs. 16,824 crores at the fair value of Rs. 1252/69 = 16,824 divided by 1252/69 = 13.43 crore shares
   3. Dilutive Potential equity shares = 12 less13.43 = -1.43 - to be considered as zero
8. Accordingly, RIL determined and disclosed the DEPS as per the following table:

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Quarter	No. of	Net	No, of	Dilutive	Number	Diluted EPS
	equity	profit	potential	Potential	of	after
	shares	during	equity shares	Shares	Equity	providing
	outstanding	the	warrants		Shares	for
	during the	period	outstanding			potential
	quarter	(Crore)	during the			equity
	(in crore)		period (in			considered
			crore)			for shares
(A)	(B)	(C)	(D)	(E)	(F) = (B)	(G) = (C)/(F)
					+ (E)
June 2007	139.4	3264	12	0	139.4	23.4
Sep 2007	145.4	3837	12	0	145.4	26.4
Dec 2007	145.4	8079	12	0	145.4	55.6

8. Interpretation of AS 20 according to the SCN

(a) According to the SCN :

1. At every reporting period, simple average of the weekly closing prices of the previous six months of RIL shares should be determined. The average so determined becomes the fair value for the relevant reporting period.
2. The fair value so arrived at should be compared against the exercise

price.

(iii)If in a particular reporting period the fair value is more than the exercise price, then it would mean the existence of dilutive potential equity shares for the reporting period.

1. If in a particular reporting period the fair value is less than the exercise price, then there is no dilutive potential equity shares for the reporting period.
2. Thus, the same potential equity shares either (i) will have a component of "dilutive potential equity shares" in some reporting periods or (ii) will not have a component of "dilutive potential equity shares" in some reporting periods.
3. As per the table in the SCN, it has been shown that at the end of every quarter, during the reporting periods June 2007 to September 2008 based on the fair value of RIL shares, determined in accordance with point (i) above, part of the 12 crore potential equity shares were dilutive since at the end of every reporting period, the fair value was more than the exercise price of Rs. 1402/-.
4. On this basis, SEBI has determined that the dilutive potential equity shares has varied from 0.72 crore shares in the quarter June 2007 to 4.63 crore shares in September 2008 touching a maximum of 5.63 crore shares in the reporting period ended March 2008.
5. 1. Accordingly SCN has determined that the figures in column (I) of

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