FINE OF RS 15 CR ON MUKESH AMBANI, RS 25 CR ON RELIANCE INDUSTRIES FOR "MANIPULATIVE TRADES"
According to the SEBI order, the manipulative trades-related depressed settlement price caused profits on the said short positions which were moved to RIL by the agents in keeping with a prior agreement
Fines of RS 15 CRORE and RS 25 CRORE were imposed on Mukesh Ambani and Reliance Industries Limited (RIL), respectively, by the Securities and Exchange Board of India (SEBI) for participating in a "manipulative trades" scheme involving the sale of 5 per cent RIL stake in Reliance Petroleum Limited (RPL) in 2007.
Twelve RIL-appointed agents took short positions in the F&O segment on behalf of RIL whereas in the cash segment, RIL took on transactions in RPL shares according to the SEBI. The manipulative trades-related depressed settlement price caused profits on the supposed short positions which as per a former agreement were moved back to RIL, the SEBI ordered.
The SEBI ruling read: "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."
Mukesh Ambani as RIL Managing Director (MD) was accountable for RIL's manipulative activities, SEBI decided. In 2017, RIL had already been ordered by SEBI to empty a sum of RS 447.27 CRORE with 12 per cent per annum interest from 29 November, 2007 till the payment date. The SEBI had also forbidden RIL from directly or indirectly trading in equity derivatives in the stock exchanges' F&O segment for a one-year period since the SEBI order date. Adding to the 2017 order is the present order which imposes a penalty.
On 29 March 2007, RIL's Board of Directors passed a resolution which among others endorsed the 2007-08 operating plan and the next two years' resource needs approx. RS 87,000 CRORE. Subsequently, around 5 per cent of RIL's shareholding in RPL amounting to about RS 22.5 CRORE worth RPL shares was decided to be sold by RIL in November 2007.
Thereafter, 12 agents were appointed by RIL by its own admission between 30 October, 2007 and 3 November, 2007 to trade on its behalf in November 2007 RPL Futures (1 November to 29 November, 2007 being the settlement period). RIL undertook various transactions in the cash segment between 1 November, 2007 and 29 November, 2007. RIL also undertook various transactions through agents in the F&O segment.
Beginning 15 November, 2007, the short position of RIL in the F&O segment continually surpassed the projected shares' sale in the cash segment. A total of RS 2.25 CRORE shares were sold in the cash segment in the last 10 minutes of trading on 29 November, 2007, leading to a decline in RPL share prices. This also brought down the RPL November Futures settlement price in the F&O segment.
The entire RS 7.97 CRORE worth outstanding position of RIL in the F&O segment was cash settled at this depressed settlement price leading to profits on the said agent-held short positions. According to a former agreement, the agents moved back the said profits to RIL.
The SEBI order read: "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 highest standards of professionalism, transparency and good corporate governance should be displayed by companies encouraging the confidence of investors dealing in capital markets, SEBI highlighted. Efforts to stray from such standards will corrode investors' confidence and impact market integrity, SEBI said. Before moving to slap fines on Mukesh Ambani and RIL, SEBI ruled that such manipulative activities will have to be dealt with strictly so as to discourage them.
SEBI took similar action against Navi Mumbai SEZ Pvt. Ltd. and Mumbai SEZ Ltd. for helping and supporting RIL by funding one of the RIL-appointed agents who in turn funded 11 other agents for making margin payments for RPL November Futures' short positions. A fine of RS 20 CRORE was slapped on Navi Mumbai SEZ Pvt. Ltd while that of RS 10 CRORE was imposed on Mumbai SEZ Ltd.