Synopsis: Due to manipulative trades, the depressed settlement price resulted in profits on the said short positions that were then transferred to RIL by the agents as per a prior agreement, the order said.
On Friday, the Securities and Exchange Board of India (SEBI) imposed a fine of Rs. 15 crore on Mukesh Ambani and Rs. 25 crore on Reliance Industries Limited (RIL) for entering into a manipulative trading scheme in 2007 for the sale of 5% of RIL’s stake in Reliance Petroleum Limited (RPL).
The market regulator ruled that, on behalf of RIL, twelve agents appointed by RIL took short positions in the F&O segment, while RIL undertook transactions in the cash segment of RPL shares.
Due to manipulative trades, the depressed settlement price resulted in profits on the said short positions that were then transferred back to RIL by the agents as per a prior agreement, the SEBI ruled.
SEBI also concluded that Mukesh Ambani was responsible for RIL’s manipulative activities as the Managing Director of RIL.
In 2017, SEBI had already ordered RIL to disgorge a sum of Rs. 447.27 crore along with interest at the rate of 12 % from 29 November 2007 onwards until the payment date. Moreover, RIL was also prohibited by that order from dealing, directly or indirectly, in equity derivatives in the F&O segment of the stock exchanges for a period of one year from the date of of that order.
In addition to the 2017 order, the current order imposing the penalty is.
By way of background, on March 29, 2007, the RIL Board of Directors approved a resolution approving, inter alia, the 2007-08 operating plan and resource requirements for the next two years, i.e. approximately Rs. 87,000 crore. In November 2007, RIL subsequently agreed to sell approximately 5 % of its shareholding in RPL (i.e. up to 22.5 crore RPL shares).
Subsequently, between October 30, 2007 and November 3, 2007, RIL admittedly appointed 12 agents to undertake RPL Futures transactions in November 2007 (settlement period November 1 to November 29, 2007) on its behalf.
During the period from 1 November 2007 to 29 November 2007, RIL in the Cash Segment and RIL through agents in the F&O Segment conducted transactions. The short position of RIL in the F&O Segment consistently exceeded the proposed sale of shares in the Cash Segment from 15th November, 2007 onwards.
On 29 November, 2007, during the last 10 minutes of trading, RIL sold a total of 2.25 crore shares in the Cash Segment, resulting in a fall in the price of RPL shares, which also reduced the settlement price of RPL November Futures in the F&O Segment. At this depressed settlement price, RIL’s entire outstanding position of 7.97 crores in the F&O Segment was cash settled, resulting in profits on the said short positions held by agents.
As per a prior agreement, the said profits were transferred back to RIL by the agents.
SEBI emphasized that companies should exhibit the highest standards of professionalism, transparency and good corporate governance standards that inspire investor confidence in the capital markets.
Any attempt to deviate from such standards would not only erode investor confidence, but will also affect the integrity of the markets, he said.
The SEBI decided to impose a fine on Ambani and RIL in order to discourage manipulative activities on the capital markets. Such manipulative acts would have to be sternly dealt to.
Two other entities, Navi Mumbai SEZ Pvt. Ltd. and Mumbai SEZ Ltd., which supported and assisted RIL by providing funds to one of the agents appointed by RIL, who in turn provided funds to eleven other agents to make margin payments for short positions in RPL November Futures, were met with similar action by SEBI.
Mumbai Navi SEZ Pvt. Ltd was fined Rs. 20 crore while Rs. 10 crore was handed down to Mumbai SEZ.