SEBI fines Reliance Industries, Mukesh Ambani Rs 40 crore for ‘manipulative trades’ in 2007
The case is related to alleged fraudulent trading of Reliance Petroleum shares November 2007.
The Securities and Exchange Board on Saturday imposed penalties on Reliance Industries Limited, its Chairperson Mukesh Ambani and two other entities for allegedly manipulating share trading of Reliance Petroleum Limited in November 2007. The other two companies are Navi Mumbai SEZ and Mumbai SEZ.
Reliance Industries Limited, or RIL, and Ambani were fined Rs 25 crore and 15 crore, respectively. Mumbai SEZ was asked to pay 10 crore, while Navi Mumbai SEZ was penalised Rs 20 crore.
The case is related to the sale and purchase of Reliance Petroleum shares in future and cash segments in November 2007. This followed RIL’s decision to sell 4.1% stake in the Reliance Petroleum Limited, or RPL, which later merged into RIL in 2009.
“It was observed that a resolution was passed by the Board of Directors of (hereinafter referred to as ‘Noticee-1’ / ‘RIL’) 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 crore,” the order by the regulatory board said. “Thereafter, RIL decided to sell approximately 5% of its shareholding in RPL [Reliance Petroleum Limited] (i.e., upto 22.5 crore RPL shares) in November 2007.”
The order said that before undertaking sale transactions in the cash segment, RIL fraudulently booked large short positions in the RPL futures by appointing 12 agents with whom it had entered into an agreement to circumvent position limits for a commission payment. A short position happens when a trader sells security first with the intention of repurchasing it or covering it later at a lower price.
As a result, the order said, RIL fraudulently cornered about 93% of open interest in RPL November Futures as the 12 agents took short positions on its behalf.
“It was observed that RIL had entered into a well-planned operation with its Agents to corner the open interest in the RPL Futures and to earn undue profits from the sale of RPL shares in both cash & futures segments and to dump large number of RPL shares in the cash segment during the last ten minutes of trading on the settlement day resulting in a fall in the settlement price,” the order said.
Navi Mumbai SEZ and Mumbai SEZ had provided the funding for the margin payments by the agents, it said. SEBI’s adjudicating officer BJ Dilip said any manipulation in the volume or price of securities always erodes investor confidence in the market when investors find themselves at the receiving end of market manipulators.
“In the instant case, the general investors were not aware that the entity behind the above F&O segment transactions was RIL,” Dilip said in the order. “The execution of the... fraudulent trades affected the price of the RPL securities in both cash and F&O [Futures and Options] segments and harmed the interests of other investors.”
The order said that Ambani, being the RIL managing director, was responsible for the “manipulative activities” of the RIL. “I am of the view that listed companies should exhibit highest standards of professionalism, transparency and good practices of corporate governance, which inspires confidence of the investors dealing in the capital markets,” the order said.
SEBI had in March 2017 ordered Reliance Industries Limited and certain other entities to disgorge over Rs 447 crore in the RPL case, according to PTI. The Securities Appellate Tribunal had dismissed the company’s appeal against the order in November 2020. RIL, however, had said that it would appeal against the tribunal’s ruling in the Supreme Court.