The Securities and Exchange Board of India (SEBI) on Friday imposed fine of Rs. 15 crores on Mukesh Ambani and Rs. 25 crores on Reliance Industries Limited (RIL) for entering a scheme of “manipulative trades” in 2007 respect of the sale of 5 percent of RIL stake in Reliance Petroleum Limited (RPL).
The market regulator ruled that twelve Agents appointed by RIL took short positions in the F&O Segment on behalf of RIL, while RIL undertook transactions in RPL shares in the cash segment.
The depressed settlement price due to manipulative trades resulted in profits on the said short positions which were then transferred by the agents back to RIL as per a prior agreement, the SEBI ruled.
“In the instant case, the general investors were not aware that the entity behind the above F&O Segment transactions was RIL. The execution of the aforesaid fraudulent trades affected the price of the RPL securities in both Cash and F&O Segments and harmed the interests of other investors,” the order said.
SEBI also concluded that Mukesh Ambani as the Managing Director of RIL was responsible for the manipulative activities of RIL.
SEBI had already directed RIL in 2017 to disgorge an amount of Rs. 447.27 crore along with interest at the rate of 12% per annum from November 29, 2007 onwards till the date of payment. Further, RIL by that order was also prohibited from dealing in equity derivatives in the F&O segment of stock exchanges, directly or indirectly, for a period of one year from the date of that order.
The current order imposing penalty is in addition to the 2017 order.
By way of background, the Board of Directors of RIL passed a resolution on March 29, 2007 which inter alia approved the operating plan for the year 2007 – 08 and resource requirements for the next two years, i.e., approximately Rs. 87,000 crores. Thereafter, RIL decided to sell approximately 5% of its shareholding in RPL (i.e., up to 22.5 crore RPL shares) in November 2007.
Subsequently, RIL admittedly appointed twelve agents, between October 30, 2007 to November 3, 2007, to undertake transactions in November 2007 RPL Futures (settlement period November 1 – November 29, 2007) on its behalf.
During the period of November 1, 2007 to November 29, 2007, various transactions were undertaken by RIL in the Cash Segment and by RIL through the agents in the F&O Segment. From November 15, 2007 onwards, RIL’s short position in the F&O Segment constantly exceeded the proposed sale of shares in the Cash Segment.
On November 29, 2007, RIL sold a total of 2.25 crore shares in the Cash Segment during the last 10 minutes of trading resulting in fall in the prices of RPL shares, which also lowered the settlement price of RPL November Futures in the F&O Segment. RIL’s entire outstanding position of 7.97 crores in the F&O Segment was cash settled at this depressed settlement price resulting in profits on the said short positions held by agents.
The said profits were transferred back to RIL by the agents as per prior agreement.
“The above strategy undertaken by RIL has resulted in manipulation of settlement price of RPL November Futures and prices of RPL shares in the Cash Segment. I note that Noticee-2 (Mukesh Ambani), being the Managing Director of RIL, was responsible for the manipulative activities of RIL,” the order passed by SEBI said.
Companies, SEBI underscored, should exhibit highest standards of professionalism, transparency and good practices of corporate governance, which inspires confidence of the investors dealing in the capital markets.
Any attempt to deviate from such standards will not only erode the confidence of the investors but also affect the integrity of the markets, it said.
Such acts of manipulation have to be dealt sternly so as to dissuade manipulative activities in the capital markets, the SEBI ruled proceeding to impose fine on Ambani and RIL.
Two other entities, Navi Mumbai SEZ Pvt. Ltd. and Mumbai SEZ Ltd., which aided and abetted RIL by providing funds to one of the agents appointed by RIL, who in turn provided funds to other eleven agents for making the margin payments for the short positions in RPL November Futures, were also met with similar action by SEBI.
Navi Mumbai SEZ Pvt. Ltd was fined Rs. 20 crores while Mumbai SEZ was handed down fine of Rs. 10 crores.