Dear Sir,

Subject: Investments by the financial institutions (UTI, LIC and GIC) in RIL shares in 1994 - baseless and misconceived reports in a section of press alleging loss - In reality, profits of Rs. 862 crores earned by UTI, LIC, GIC till date

We refer to the baseless and misconceived reports appearing in a section of press, once again questioning the investments made by the financial institutions (UTI, LIC and GIC) in RIL shares in 1994. This matter has already been discussed at great length, and has been the subject of considerable enquiries and investigations in the past by various Government agencies. The matter has also been discussed on the floor of the Rajya Sabha in August 1995.

It is a matter of record that the CBI, Mumbai, has already made investigations regarding the said private placement of RIL equity shares to UTI, LIC and GIC, for an aggregate value of Rs.945 crores. The CBI has placed all the facts on record before the Hon'ble Delhi High Court in an affidavit filed in Writ Petition 5823 of 1999, which is pending admission.

The investigations by the CBI were conducted in relation to Complaint No. 25/95 AC-Bom, wherein it had been alleged that the officials of UTI, LIC and GIC had conspired with RIL in making this investment at a premium, and with a lock-in-period.

A Note relating to the above allegations was sent by the CBI to the Ministry of Finance on 24.5.96, seeking concurrence of the Ministry of Finance to further investigate the matter. In response, after in depth examination of the issues raised in the note, the Ministry of Finance by its letter dated 24.12.96, informed the CBI that registration of a Case for further investigation was not warranted.

With their response, the Ministry of Finance forwarded all the relevant papers to CBI, including the Audit Report on RIL investments made by UTI, LIC and GIC, the comments of UTI on the Audit Report, SEBI's comments on the Audit Report, and the response of UTI and LIC-GIC to the allegations made in the Note.

The CBI re-examined the matter in light of the response it received from the Ministry of Finance, and the documents sent by the Ministry of Finance.

In addition, the CBI independently took up the matter with the concerned regulatory authorities, namely, SEBI and Department of Company Affairs (DCA). CBI was categorically informed, both by SEBI and DCA, that neither the SEBI Guidelines, nor any provisions of the Companies Act had been violated.

The CBI had also requested the Chief Vigilance Officer of UTI to look into the role of UTI officers, and advise CBI if there was any negligence or misrepresentation of facts during the decision making process leading to these investments.

After investigations, the Chief Vigilance Officer of UTI informed the CBI that the investment in RIL equity shares had been scrutinized by three independent Auditors, and all of them had reported that no adverse role of any official of UTI had come to notice, and that the decision had been taken at the highest level by Board of Trustees, after due process. LIC-GIC had followed the lead of the major investor, i.e. UTI.

Based on the above, it was considered that no further investigation in the matter by the CBI was necessary.

These facts are all on record before the Hon'ble Delhi High Court in an affidavit filed by the CBI in Writ Petition 5823 of 1999, which is pending admission.

These facts clearly establish that the matter has been examined in depth, by all relevant authorities, including:-

• Ministry of Finance,
• CBI,
• SEBI,
• DCA,
• Chief Vigilance Officer of UTI and
• Three independent Auditors.

Nevertheless, the factual position in respect of each of the said allegations, is detailed below:

Allegation No. 1.
The two tranche investment of Rs. 1,073 crores made by UTI in equity shares of RIL in 1994, has affected UTI's viability as early as 1995, and has plunged the institution into a crisis in 1998, and once again in 2001. The dramatic fall of UTI since 1995 was triggered by this investment, forcing UTI to cut dividends. This investment is the fundamental cause for the present state of affairs of UTI.

Comment::
At the outset, it may be pointed out that all equity investments, by their very nature, carry an inherent element of risk. The returns on equity investments, over any period of time, will always be dependent on prevailing market conditions. The attempt to link UTI's present crisis to an investment in RIL equity shares in 1994 i.e. more than 7 years old, is unjustifed, and seems to be an attempt to divert attention from the real issues affecting UTI.

It is also far fetched to suggest that UTI's present troubles are co-related to two transactions of investment in RIL shares, as far back as in 1994. It may be noted that the investment of Rs. 1073 crores in RIL shares made by UTI in 1994 represented less than 2% of UTI's corpus at that time. In any case, the fact is that the said investments in RIL shares have generated huge profits for UTI, rather than causing any losses.

The factual position is as under:

• Based even on current depressed market prices, UTI has made a profit of Rs. 862 crores, on its investments of Rs. 1,073 crores in RIL shares in 1994 (Annexure 1).
• UTI has made profits of nearly Rs. 3,000 crores in the last 7 years, on its aggregate investments in RIL and RPL shares (Annexure 2).
• But for the profit on these investments, the deficits in UTI's reserves would have been even larger to that extent, and its problems would have been further compounded.
• A similar investment of Rs. 1,073 crores by UTI in 1994, in a basket of stocks representing the Sensex would have resulted in a loss of at least Rs. 206 crores, as compared to the gain of Rs. 862 crores generated by the investments in RIL shares.
• The investments in RIL have generated profits, but UTI has suffered losses of nearly Rs. 200 crores in a few other private placements made in 1994 (Annexure 3), in terms of decline in the original value of investments. Further, UTI has suffered by virtue of not generating any income on these amounts for the past 7 years, let alone any returns it may have earned through alternative investments.
• UTI's performance has been adversely affected, not by RIL shares, but by the price performance of several leading Indian stocks (including private and public sector companies), where it has held significant investments. Large numbers of these other stocks have registered declines of upto even 98% in value (Annexure 4), contributing to substantial erosion in the value of NAVs of UTI's respective schemes.

Allegation No. 2:
UTI made an outright cash loss of Rs. 900-Rs. 1,000 crores in 1994 by paying an excessive price of Rs. 1,073 crores for acquiring RIL shares, as compared to the price paid by promoters for acquiring shares from the company at the same time. The promoters obtained shares at a discount to market price, while UTI paid a premium to obtain shares. The promoters paid Rs. 30.50 per share at 1994 values, compared to the average price of Rs. 389 per share paid by UTI. The placements to promoters and to UTI in March 1994 were under the same AGM resolution, but at widely differing prices.

Comment:
The comparison attempted for pricing in the UTI transactions in 1994, with an earlier transaction of issuance of equity warrants by RIL in 1993, is incorrect and misconceived.

Firstly, it is a matter of record that the earlier warrants had been issued in accordance with all applicable rules, regulations and procedures, and had transparently been disclosed to all domestic and institutional investors, and other appropriate authorities, right from 1993 onwards, as detailed below:

• * RIL's Offering Memorandum furnished in November, 1993 to international investors for the issue of Foreign Currency Convertible Bonds (FCCBs) of US$ 140 million (approx. 450 crores), copies of which were also provided to SEBI and the stock exchanges in India
• * RIL's Offering Memorandum furnished in February 1994 to international investors for US$ 300 million (Rs. 950 crores), copies of which were provided to SEBI and the stock exchanges.
• * RIL's Annual Reports as on March 31, 1994, and 5 subsequent Balance Sheets for the years from 1994-95 to 1998-99.

There is accordingly no basis to use the same, after 7 long years, to question the pricing of investments made by UTI in RIL shares in 1994.

Secondly, there was a substantial timing gap of over 13 to 20 months i.e. nearly 1 to 2 years in the pricing of the different transactions, one in 1993 and the others in 1994. It is self-evident that pricing in equity transactions separated by such length of time would be quite dissimilar.

The allegation that the transactions were completed under the same resolutions, incidentally, is also incorrect, as there were separate shareholders' resolutions for each of these transactions.

Thirdly, there were several events in the interim (as detailed hereinafter) which impacted pricing of the different transactions, and which resulted in a different price for UTI's investments in RIL shares in 1994. These were:

• * Foreign Institutional Investors (FIIs) were permitted to invest in the Indian stock markets from end 1993, and they pumped in a huge amount of Rs. 6,800 crores into equity shares of Indian companies in the year 1994. This was accompanied by huge investments by foreigners in GDRs of Indian companies. These infusions of funds by foreign investors created surplus liquidity in the sytem, leading to an upsurge in share prices of all leading Indian companies, including RIL.
• * RIL completed its Foreign Currency Convertible Bonds (FCCBs) Offering to international investors for US$ 140 million (approx. 450 crores) in November 1993, at a higher price of Rs. 288 per share.
• * RIL completed a GDR Offering of US$ 300 million (Rs. 950 crores) to international investors in February 1994, at an even higher price of Rs. 369 per share. This independent transaction obviously set a much higher price for RIL shares, as compared to the exercise price of Rs. 150 per share as per the earlier warrants.
• * The RIL share price increased from Rs. 250 price levels in 1993 to over Rs. 400 levels in 1994, in line with the broad uptrend in the Indian stock markets, which saw the Sensex more than doubling in the same time, from below 2000 to over 4600.
• * Strong BUY research reports on RIL shares were published in 1994, by reputed international broking firms, such as Morgan Stanley, Merrill Lynch, Jardine Fleming, etc., recommending investment in RIL shares at prices even above Rs. 400 per share.
• * The SEBI Guidelines dated 4th August, 1994 prescribing a minimum price for preferential allotments came into force - as per these guidelines, the minimum price for the private placement to UTI in October 1994 came to Rs. 377 per share.

The comparison attempted between the pricing for investments by UTI in RIL shares in 1994, with the pricing of warrants issued earlier, is thus clearly misconceived.

In any case, for the record, the detailed rationale for pricing of RIL shares in the different transactions is set out below:
Justification for the price of Rs. 401 per share for first tranche in March 1994:

• * UTI invested Rs. 300 crores in March 1994 in debentures, which, as per the original terms of the issue, were compulsorily converted into equity shares at a price of Rs. 401 per share.
• * The net price to UTI for this tranche in March 1994 was Rs. 337 per share. This was derived on the basis of the stated price of Rs. 401 per share, less interest of 16% earned for 1 year by UTI on the investment i.e. Rs. 64 per share.
• * The net price of Rs. 337 per share represented a discount of 4% to the prevailing price of Rs. 352 per share, at the time of the transaction.
• * As stated above, the net price to UTI was also significantly lower than the price of Rs. 369 per share paid by sophisticated international investors in RIL's much larger GDR Offering of US$ 300 million (Rs. 950 crores) in February 1994.

• * The SEBI guidelines governing preferential allotments came into force on 4th August, 1994. The minimum price for UTI's investment of Rs. 773 crores in RIL shares in October 1994, as per the SEBI prescribed formula, came to Rs. 377 per share.
• * The market price of RIL shares at the time of the transaction was between Rs. 410-415 per share.
• * The transaction was priced at Rs. 385, representing a discount of 6% to the prevailing market price of RIL shares at that time.

It may be noted that in both these transactions, UTI received large quantities of RIL shares at a discount to the prevailing market price, even though the normal practice in the markets was for a premium to be paid for big lots.

Basis for earlier issuance of equity warrants at Rs. 150 per share:

• * RIL issued NCDs, with equity warrants exercisable at a price of Rs. 150 per share.
• * This issuance was in accordance with RIL's AGM resolution of 10.12.1992, and Board Resolution passed on 21.1.1993 i.e. about 13 months prior to UTI's first transaction in March 1994, and more than 20 months prior to UTI's second transaction in October 1994, and a subsequent Board resolution on 11.10.1993.
• * The time gap between the different transactions was thus not just "8 weeks" as alleged, but actually more than 52 weeks to 80 weeks, i.e. 1 to 2 years.
• * The reference to the market price of Rs. 382 per RIL share on 12.1.1994 (the date of allotment of the NCDs/warrants) is misplaced, as the offer was made in terms of the AGM resolution of 10.12.1992, and Board resolutions of 21.1.1993 and 11.10.1993, when the market prices of RIL shares were much lower, in the Rs. 242 - 258 per share range.
• * The exercise price of Rs. 150 per share was in line with the terms of warrants issued to lakhs of retail investors holding RIL "F" series debentures for Rs. 270 crores, which were converted into shares at the same price of Rs. 150 per share in August, 1993. The "F" series warrants conversion being the most recent transaction of equity issuance at that time, the same was used as the reference point for pricing the new warrants at Rs. 150 per share.
• * In fact, in August 1993, the convertible portion of H Series debentures issued by RIL in 1992, and held by lakhs of investors, were also converted into equity shares at a much lower price of Rs. 55 per share.
• * Likewise, warrants issued by RIL with the J Series debentures in 1991, and held by lakhs of investors, were converted into equity shares at a lower price of Rs. 70 per share, as late as in August 1994.

The above facts establish the fair pricing for all transactions of equity issuance by RIL at the relevant time. The allegation that UTI made a cash loss of Rs. 900 - Rs. 1,000 crores by making "excess" payment for RIL shares, as compared to the earlier warrants issued by RIL, is thus entirely misconceived.

Certain other allegations with regard to the earlier warrants issued by RIL are likewise completely misconceived, and are dealt with hereunder, to remove any doubts:

• * The allegation that the warrants were exercised at Rs. 30.50 per share is incorrect. As per the original terms of issue, the warrants were exercised at Rs. 150 per share.
• * The attempt to derive a discounted price for the exercise price of the warrants "at 1994 prices" is also misleading. As per the original terms of issue, the warrants were exercisable at any time in a period of 6 years, and this timing aspect was factored into the exercise price of the warrants. It was a common practice at that time for warrants to be issued with a long exercise period. For instance, warrants for F Series debentures issued by RIL to lakhs of investors had an exercise period of 1 year, while J Series warrants had an exercise period of nearly 3 years.
• * The effective reduction of the warrants exercise price by 50% was on account of the 1:1 bonus shares issued by RIL in the interim period. This benefit was derived by all shareholders, including UTI on its investment in RIL shares, and it is thus unfair and incorrect to make reduction on this account only in respect of the warrants.
• * It is noteworthy that subsequent to the issue of the warrants, the RIL share price actually dropped to a level as low as Rs. 149 on January 29, 1996. Thus, RIL shares became available to all categories of persons, at a price even lower than the exercise price of Rs. 150 per share under the warrants.

Allegation No. 3:
UTI made a further cash loss of Rs. 500 - Rs. 600 crores in the next 5 years as a result of the aforesaid investment of Rs. 1,073 crores in RIL shares. UTI was to receive dividends of Rs. 55 crores only on its investment in RIL shares, while its own "cost of funds" was Rs. 670 crores on the amount invested, representing dividend payable to its own unit holders at an effective dividend distribution rate of 17.33%.

Comment:
This is a misconceived allegation.

• * The investment of Rs. 1,073 crores by UTI in RIL shares in 1994 has already generated income of Rs. 862 crores - which is higher than the "cost of funds" artificially and incorrectly computed at Rs. 670 crores as above.
• * Investments in equity shares provide returns in terms of capital appreciation and dividends, with bulk of the returns coming from share price appreciation. This is true of all equity investments, and not just investments in Reliance shares.
• * The overall dividend yield on the Sensex, representing a basket of leading Indian shares, has always typically ranged between 1% to 2%.
• * If the logic of "adequate dividend returns" is accepted, then UTI can never invest in any equity shares, because the dividend yield will always be much lower than the dividends paid to unitholders.
• * The actual dividends on UTI's equity portfolio will demonstrate that the dividend yield on equity shares is always in the range of 1% - 2%.

The reference to the dividend yield alone, ignoring capital appreciation, is thus misleading, and there is no question of any losses on this account.

Allegation No. 4:
The current negative net worth of UTI is almost equal to the loss consciously incurred by UTI in investment in RIL shares.

Comment:
The allegation is misleading. Far from causing any losses, UTI's investments in RIL shares in 1994 have already made a positive contribution of Rs. 862 crores to reserves, as detailed above (Annexure 1).

UTI's negative net worth is caused by other factors, unrelated to its investments in RIL shares in 1994. Also, as pointed out earlier, the investment of Rs. 1,073 crores represented less than 2% of UTI's corpus at that time, and it is far-fetched to suggest that UTI's present problems are linked to the same.

Allegation No. 5:
This investment in RIL shares has blocked the UTI from deriving any kind of liquidity or leverage on this investment. UTI consciously agreed to keep shares under lock-in for a period of 5 years.

Comment:
This allegation is entirely incorrect. RIL has historically been one of the most liquid stocks in the Indian stock market, with amongst the highest trading volumes, large floating stock, millions of shareholders, etc.

• * UTI's investment of Rs. 773 crores in RIL shares in October 1994 did carry a 5 year lock up, but this was a condition imposed by SEBI guidelines on preferential allotments, and not asked for by RIL.
• * In any case, at all points of time, UTI has held 7 to 8 crore saleable RIL shares, as part of its existing stock, which it was always free to dispose off, if it wished to book profits or realise proceeds, and this is exactly what UTI has done over the past few years, by continuously selling RIL shares, and generating profits and liquidity. This has resulted in the UTI's shareholding in RIL coming down from around 13% of RIL's equity a few years ago, to around 10% currently.
• * Importantly, even the limited number of RIL shares under the lock-in, became free and available for disposal more than 2 years back in October 1999.
• * The liquidity of UTI's investment in RIL shares is further demonstrated by the fact that in the years 2000 and 2001 alone, as per reports appearing in the media, UTI has sold nearly 2 crore shares of RIL at prices of upto Rs. 425 per share.
• * Far from blocking its funds, and making losses by its investments in RIL shares, UTI has thus booked huge profits of nearly Rs. 500 crores, and raised substantial cash proceeds of nearly Rs. 800 crores, just in recent times, from RIL shares.

Allegation No. 6:
UTI converted the RIL warrants attached to the Rs. 300 crore NCD issue of March 1994, at a price of Rs. 401 per share at a time when the market price of RIL shares was lower at Rs. 289, thereby causing a huge loss.

Comment:
This is a distortion of facts.

• * In March 1994, UTI had subscribed to debentures, with non-detachable warrants exercisable at a price of Rs. 401 per share, carrying interest at 16% per annum.
• * As per the terms of the issue, the debentures were compulsorily to be converted into shares, as per the attached non-detachable warrants.
• * The instrument was identical to a compulsory fully convertible debenture, without any option to forego conversion in the future.
• * Accordingly, it is the market price on the date of issuance of the debentures, which is relevant, and not the price on the date of conversion.

As stated above, the justification for the conversion price of Rs. 401 per share for these debentures was as follows:

• * The net price to UTI for this tranche in March 1994 was Rs. 337 per share. This was derived on the basis of the stated price of Rs. 401 per share, less interest of 16% earned for 1 year by UTI on the investment i.e. Rs. 64 per share.
• * The net price of Rs. 337 per share represented a discount of 4% to the prevailing market price of Rs. 352 per share, at the time of the transaction.
• * The net price to UTI was also significantly lower than the price of Rs. 369 per share paid by sophisticated international investors in RIL's much larger GDR Offering of US$ 300 million (Rs. 950 crores) in February 1994.
• * Accordingly, since the issue was made at a discount to the prevailing market price, there is no question of UTI facing any loss on account of this deal.
• * It may be mentioned that, based even on current depressed prices of RIL shares, UTI has made a profit of Rs. 258 crores on this transaction alone (Annexure 1).

Allegation No. 7:
The private placement of RIL's shares with FIs is not in line with the company's authorising shareholder approvals, which approved the issue to FIs only if other parties did not subscribe to the issue.

Comment:
This is factually incorrect.

• * The private placement has been made completely in accordance with the special resolution no. 10 at RIL's 20th AGM on August 19, 1994.
• * The relevant portion of the authorising shareholders' resolution clearly specifies that the securities could be issued to "....the members, debentureholders, employees, NRIs, OCBs, FIIs, companies, other entities/ authorities and to such other persons through public issue, rights issue, private placement, exchange of securities, ........"
• * The issue of equity to the financial institutions was thus not contingent upon other parties not subscribing to the company's equity, as implied in the allegation.

Allegation No. 8:
In like manner, LIC and GIC suffered losses aggregating Rs. 281.50 crores by their investment in RIL shares in October 1994.

Comment:
The allegation is baseless and misconceived.

On parity of reasoning as contained above, LIC and GIC neither paid any "excessive" price, and nor have they suffered any "cash loss."

LIC and GIC have actually made a profit of Rs. 134 crores on the investment in RIL shares in October 1994, as detailed in Annexure 6.

Allegation No. 9:
The investment in the private placement of RIL shares by UTI and other financial institutions was made without following proper procedures for making investments. There was no credible appraisal, project report, profit projections, sensitivity analysis, determination of ownership of the oil fields, etc. The offer was initially to invest in FCDs, but the investment was made in equity shares. There was complete silence between the initial offer from RIL in August and completion of the deal in October 1994. The institutions paid the subscription amounts against the investments with "amazing' rapidity" within 15 days of the approvals.

Comment:
This allegation is baseless and misconceived.

• * RIL had provided all required details for evaluation of the proposal.
• * There was no period of "silence." The time from August 1994 to October 1994 was utilised by UTI for exhaustive analysis of the investment, based on details submitted by RIL.
• * The FIs made the investment of Rs. 945 crores in RIL equity shares in October, 1994, in accordance with their internal procedures and guidelines, after extensive due diligence and proper evaluation had been carried out.
• * RIL had made an initial offer to the FIs to invest in debentures. However, this was modified to equity shares by mutual consent, as desired by the FIs. The allegation that no offer was received for equity shares is incorrect.
• * There is also nothing unusual in payment of the subscription amounts within 15 days. In fact, in international capital markets transactions, usually just 3 to 4 days are given for making payments of subscription amounts in such transactions.
• * It may be mentioned that this matter was also discussed on the floor of the Rajya Sabha on August 1, 1995. The Government had then observed that no irregularities had been committed by the FIs in investing in RIL shares. It was also stated by the Government in the Rajya Sabha that the CBI had enquired into the matter (refer Annexure 7).

Allegation No. 10:
A CBI officer, Mr. Y.P. Singh, looking into the private placement of RIL shares with the FIs, had claimed there was "clinching" evidence of irregularities, and had completed "detailed analysis" of the loss caused to the institutions, but he was transferred to an "unknown destination."

Comment:
The allegation referring to the outcome of earlier CBI investigations, and the role of an individual officer, is baseless. As elaborated earlier, there are no irregularities in the investments made by the FIs in RIL shares in 1994, and far from any losses, the institutions have actually made huge profits.
It is also significant to note that, in the affidavit filed by the CBI in Writ Petition 5823 of 1999 before the Delhi High Court, the CBI has, inter alia, stated as follows with regard to the allegation relating to transfer of Mr.Y.P. Singh:
"It is not true that Mr.Y.P. Singh was transferred out of CBI due to this matter. He was repatriated to his parent cadre for different reasons. The matter was adjudicated by CAT, Mumbai and all allegations of malafide against the CBI/Govt. were rejected."

Allegation No. 11:
Reliance began manipulating the prices of its shares from June/July 1993, or even earlier, prior to the IPO of RPL shares, and till the private placement of RIL's shares to the FIs. This was done through circular arrangements involving RIL, ICICI, various Reliance group companies, and fraudulent partnership firms, and by diversion of funds from the RPL public issue. After the private placement to the institutions, the RIL share price tumbled to even below Rs. 200 per share.

Comment:
These are baseless and misconceived allegations, without any supporting facts.

RIL is amongst the most actively traded shares in the Indian stock markets, enjoying the highest trading volumes and liquidity, large floating stock, and millions of shareholders. The question of manipulation of share prices in a stock like RIL does not arise.

The reality is that from April 1993 to September 1994, the Indian stock markets were in an uptrend, and the benchmark index, the Sensex more than doubled from 1980 to 4643. The RIL share price, too, moved up in line with this trend, and rose beyond Rs. 400 levels.

Subsequently, from October-November 1994 to January 1996, the overall Indian stock market came down, with the Sensex declining almost 50% from 4500-4600 to 2820, leading to erosion in value of all major stocks. The RIL share declined in line with this broad trend.

The reference to alleged transactions of private companies and partnership firms is thus misleading and incorrect, as there is no rigging of share prices, through circular arrangements or otherwise, by any of these entities.

For the record, RIL has actually been amongst the best performing stocks in the Indian stock markets for the past several years, based purely on its strong fundamental performance, as detailed below:

Period% change	RIL share price
	Period% change	Sensex
2 year	74%	-28%
3year	114%	-1%
5 year	159%	-11%
10 year	381%	130%

As is evident from the table above, the RIL share price has performed far better than the Sensex over all time frames.

An independent study published by Surjit S. Bhalla and Rohit Chawdhry in December 2000, has, after taking into account the share price performance for companies belonging to various Indian groups, concluded that "...Reliance is the only large family house which shares wealth with ordinary shareholders - investment of Rs. 100 in Reliance in 1995 would yield 235 today - or a 43% return above the risk free rate." (Annexure 8).

Allegation No. 12:
The diversion of public funds received in RPL's IPO and manipulation of market prices of Reliance shares have "been already exposed" in a public interest litigation filed in the Delhi High Court.

Comment:
The petition referred to above is still pending for admission before the Delhi High Court. Reliance has denied all charges contained therein. It is RIL's submission that the petition is part of a campaign of disinformation being conducted at the behest of Reliance's corporate rivals.

• * RPL's world class refinery has been completed in a world record time frame at costs that are significantly lower than the capital costs of other refineries.
• * RPL has performed extremely well in the very first year of its commercial operations to emerge the country's largest private sector company in terms of sales, and also amongst the most profitable companies in India.
• * The timely and cost efficient implementation of the project clearly demonstrates that there is no diversion of funds from RPL, for the purposes of manipulation of stock market prices.

Allegation No. 13:
Merger of RPPL and RPEL with RIL was done at unfair values in November 1994, to enable the promoters to enhance their stake in RIL at unjustifiably low prices of Rs. 64 per share, compared to the high price of Rs. 385 per share paid by the institutions in October 1994.

Comment:
This is another baseless and misconceived allegation.

• * The merger of RPEL and RPPL with RIL was completed following all due procedures, based on the valuations carried out by leading independent accounting firms, and taking into consideration all accepted methods of valuation. The merger was duly approved by the shareholders of the respective companies, creditors, other relevant authorities, etc., and the High Court of Bombay.
• * The allegation that the promoters obtained RIL shares at Rs. 64 per share is baseless, as the merger ratio duly took into consideration the then prevailing market prices of the shares of RIL, RPEL and RPPL, and other relevant criteria, such as future profit earning capacity of the respective companies, book value, etc.

The projects of RPEL and RPPL have since been implemented by RIL, and have generated huge profits for the benefit of RIL's shareholders. The allegation that merger was done to enhance the promoters' stake in RIL is without any substance.

Allegation No. 14:
UTI has never realised the value of its RIL holdings, but has merely acted as "holders" for RIL shares. UTI did not even take advantage of the RIL offer to acquire its own shares at Rs. 303 per share. UTI is functioning as an associate of RIL.

Comment:
The allegation is baseless.

• * As stated above, UTI has sold nearly 2 crore RIL shares at prices as high as upto Rs. 425 per share, in the last 2 years. Accordingly, UTI has realised substantial gains and liquidity from its RIL holdings.
• * Secondly, there has been no occasion for UTI to take advantage of any offer by RIL to acquire its shares at Rs. 303 per share. RIL has not bought any shares under its buyback programme from anyone as on date.
• * The price of Rs. 303 per share is only the maximum permissible price fixed by RIL, as required under SEBI guidelines, for buying back shares through open market purchases under its share buyback programme. This price will be applicable only if and when RIL buys back its shares. This has not been done as yet.

Conclusion

UTI's continuing holdings in RIL shares reflect Reliance's position as India's largest private sector group in terms of sales, profits, net worth, total assets and market capitalisation.

RIL is a market leader in the rapidly growing domestic market for all its products with market shares ranging between 40% to 80%, and has capacities ranking among the top ten globally for all its major product categories.

RIL is amongst the few large companies in India, with a consistent track record of financial and operating performance (Annexure 8).

Given RIL's strong business and financial fundamentals, and a track record of consistent financial performance, it is hardly surprising that large numbers of domestic and foreign institutions, including UTI, have chosen to allocate a substantial portion of their portfolios to RIL equity shares.

UTI's holdings of Reliance group shares are also in line with the leading weightage of the Reliance stocks in the benchmark index, the Sensex (nearly 24%), and the MSCI (21%). Most large domestic and international investors model their portfolios based on the weightage of individual stocks in these indices, and UTI has simply adopted the same approach.

In fact, in the period from 1994 onwards, international investors, too, have considerably increased their holdings in RIL shares, resulting in foreign institutional ownership in RIL going up from barely 2% to nearly 25%.

As may be observed from the facts mentioned above in dealing with the various allegations, the investments by UTI in RIL shares in 1994 have no co-relation with the present crisis in UTI. It is also evident that, far from causing any losses, investments in RIL shares have actually generated huge profits for the benefit of UTI and its unitholders.

These transactions were entered into by UTI in a bona fide manner, and in exercise of due and proper judgement, and are now unnecessarily being sought to be brought into debate, to divert attention from the real issues affecting UTI.

We shall be glad to provide any further clarifications or details that may be required in the matter.

Thanking you,
Yours faithfully,

Reliance Industries Ltd.
(Yogesh J. Desai)
President - Corporate Development
Enclosures:
Annexures 1 - 9

Index of Annexures
Annexure	Title	Page
1	Returns to UTI from private placement in RIL's equity	21
2	UTI's gains from investment in Reliance shares	22
3	Few other private placements in equity shares undertaken by UTI in 1994	23
4	Stock price performance of many prominent UTI holdings	24
5	FCCB Offering Memorandum of November 1993, GDR Offering Memorandum 26 of February 1994, and relevant excerpts from RIL Annual Reports for financial years 1993-94 to 1998-99
6	Returns to LIC and GIC from private placement in RIL's equity	38
7	Extracts from Government statement in Rajya Sabha on 01.08.1995	39
8	Independent study titled "Values of Destruction - Indian Promoters, 1995-2000" 40 by Surjit S. Bhalla and Rohit Chawdhry
9	RIL's consistent track record of financial and operating performance	41

Returns to UTI from private placement in RIL's equity
	Equity shares	NCD + Warrants	Total
Date of Issue	21-Oct-94	11-Mar-94
Number of shares	20,075,650	7,480,000	27,555,650
Price (Rs.)	385	337	*
Investment (Rs. Crores)	773	300	1,073
Current no. of shares (post 1:1 issue)	40,151,300	14,960,000	55,111,300
Share price on July 20, 2001(Rs / share)	312.35	312.35
Current value of investment (Rs. Crores)	1,254	467	1,721
Capital gains (Rs. Crores)	481	215	696
Dividend till date (Rs. Crores)	90	33	123
Reinvestment income on dividends @ 12% p.a. (Rs. Crores)	32	11	43
Total Returns (Rs. Crores)	604	258	862
* The net price to UTI for this tranche in March 1994 was Rs. 337 per share. This was derived on the basis of the stated price of Rs. 401 per share, less interest of 16% earned for 1 year by UTI on the investment i.e. Rs. 64 per share.

UTI's gains from investment in Reliance Shares
	RIL	RPL	Total
Current no. of shares (crore)	10	24
Average cost (Rs / share)	140	15
Investment (Rs. crores)	1400	360	1,760
Share price on July 20, 2001 (Rs / share)	312.35	45.65
Current value of Investment (Rs. crores)	3,124	1,096	4,219
Unrealised Capital Gains (Rs. crores)	1,724	736	2,459
Shares sold (crore)	2	1
Avg. selling price (Rs / share)	380	55
Approx. sales proceeds (Rs. crores)	760	55	815
Realised Capital Gains (Rs. crores)	480	40	520
Total Captial Gains (Rs. crores)	2,204	776	2,979

Few other Private Placements in equity shares undertaken by UTI in 1994
Company	Pvt. Placement Price ( Rs / share)	Amount (Rs. crs.)	Price on July 20, 2001 (Rs / share)	Current Value (Rs. crs.)	Profit/ Loss (Rs. crs.)
Hanil Era (Sep-94)	75	19	2.80	0.7	-18
Mangalam Cement (Oct-94)	85	20	4.95	1.1	-18
Balkrishna Industries (Sep-94)	210	21	20.50	2.1	-19
Royal Cushion Vinyl (Nov-94) **	370	22	2.60	0.2	-22
Rajasthan Spg. & Wvg. (Nov-94)	160	24	12.65	1.9	-22
Garden Cotton & Yarns (Nov-94)	250	40	1.25	0.2	-40
Mafatlal Industries Ltd. (Sep-94)	765	48	9.10	0.6	-47
Total Loss					-187
** There has been bonus issue and/or stock-split for these stocks

Stock price performance of leading Indian companies from 21.10.1994
	Company	Price as on 20-Jul-01 (Rs / share)	Price as on 21-Oct-94 (Rs / share)	% Change
	Sensex	3340.75	4310.52	-22%
1	BHEL	170.25	185.00	-8%
2	VSNL	315.05	366.63	-14%
3	L & T	215.00	295.00	-27%
4	IOC	143.00	200.00	-29%
5	BPCL	179.65	255.00	-30%
6	MTNL	121.95	177.50	-31%
7	ACC	139.55	225.45	-38%
8	HPCL	150.30	300.02	-50%
9	Bajaj Auto	240.55	510.03	-53%
10	ICICI	67.00	147.50	-55%
11	ONGC	167.75	400.00	-58%
12	GAIL	62.90	150.30	-58%
13	Grasim	310.35	755.00	-59%
14	IDBI	21.60	62.70	-66%
15	Tisco	92.95	315.00	-70%
16	Telco	71.50	351.56	-80%
17	Tata Chemicals	36.20	253.13	-86%
18	Essar Oil *	3.85	36.75	-90%
19	Century Textiles	31.65	395.00	-92%
20	IFCI	3.40	62.00	-95%
21	Essar Steel	3.00	111.25	-97%
* Since the date of listing, i.e., 4th August, 1995

Stock price performance of leading TMT holdings
	Company	Price as on 20-Jul-01	Peak Price	% Change
1	DSQ	45.85	2820.0	-98%
2	HFCL	66.95	2552.9	-97%
3	Pentamedia G	61.65	2344.0	-97%
4	Visual Soft	95.60	3543.3	-97%
5	SSI	204.05	7200.0	-97%
6	Mastek	95.8	3074.5	-97%
7	Global Tele	137.15	3550.0	-96%
8	Silverline	54.9	1395.0	-96%
9	Aptech	67.75	1540.0	-96%
10	NIIT	202.7	3800.0	-95%
11	Zee Tele	94.50	1630.0	-94%
12	Tata Infotech	136.7	1386.7	-90%
13	Satyam	168.40	1446.0	-88%
14	Polaris	209.9	1612.5	-87%
15	Wipro	1380.75	9800.0	-86%
16	HCL Tech	294.00	1510.5	-81%
17	Hughes Softwares	608.85	2424.1	-75%
18	Infosys	3751.30	13812.9	-73%
19	Digital Equip.	484	1569.0	-69%

Returns to LIC and GIC from private placement in RIL's equity
	LIC	GIC	Total
Date of Issue	21-Oct-94	21-Oct-94
Number of shares	2597400	1872400	4,469,800
Price (Rs / share)	385	385
Investment (Rs. Crores)	100	72	172
Current no. of shares (post 1:1 issue)	5,194,800	3,744,800	8,939,600
Share price on July 20, 2001 (Rs / share)	312.35	312.35
Current value of investment (Rs. Crores)	162	117	279
Capital gains (Rs. Crores)	62	45	107
Dividend till date (Rs. Crores)	12	8	20
Reinvestment income on dividends @ 12% p.a. (Rs. Crores)	4	3	7
Total Returns (Rs. Crores)	78	56	134

Extracts from Government statement in Rajya Sabha on 01.08.1995

SHRI MANMOHAN SINGH

Mr. Chairman, Sir,
I do not accept the proposition that public sector financial institutions should not go through the route of private placement if, in their opinion, it is considered that that is the best thing to do taking into account the interests of the policyholders or consisted with their broad objectives. With regard to the specific transactions, I think we have to look at the investment in the totality of things. You cannot judge the LIC simply by its investment in a single year. There is such a thing as portfolio diversification and I have already mentioned that in terms of investment norms, you cannot consider 2.62% of the total equity of the LIC being invested in the Reliance group as exorbitant.

Sir, it is inherent in the nature of equity markets that markets fluctuate and today (Interruptions) Please. Let me conclude. Markets fluctuate, prices rise and prices fall. Now, the LIC is a long-term investment. They have taken into account the long-term prospects of profit. Therefore, simply because one day one particular scrip goes down in price, you cannot conclude, therefore, that the original decision to invest in that particular company is faulty. I don`t buy that logic.

I don't accept the proposition that simply because after a particular institution has invested in a share and if its price goes down, that by definition implies that that transaction is malafide.

RIL's consistent track record of financial and operating performance
(Rs.crs)
	2000-01	1999-00	1998-99	1997-98	1996-97
Sales	28,008	20,301	14,553	13,404	8,730
Cash Profit	4,211	3,681	2,559	2,320	1,733
(Net Profit + Depreciation)
Net Profit	2,646	2,403	1,704	1,653	1,323
Net Worth	14,765	13,983	12,369	11,983	8,471
Total Assets	29,875	29,369	28,156	24,388	19,536
Market Capitalisation	41,191	33,346	12,176	16,518	14,395