Security and Exchange Board of India (SEBI): B J Dilip, (Adjudicating Officer) imposed the penalty of 25 crores and 15 crore respectively on Reliance Industries Ltd. (RIL) and its MD, Mukesh D. Ambani for making unfair and undue profits by means of fraudulent trade practices.
SEBI conducted an investigation into trading in the scrip of Reliance Petroleum Ltd. (RPL) to ascertain whether there was any violation of the provisions of SEBI Act, 1992.
A resolution was passed by BoD of RIL on 29-03-2007 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. Thereafter, RIL had entered into a scheme of manipulative trades in respect of the sale of 5% (up to 22.5 crore RPL shares) of RIL stake in RPL. However, before undertaking sale transactions in the Cash Segment, RIL fraudulently booked large short positions in the RPL November Futures through 12 Agents with whom it had entered into an agreement to circumvent position limits for a commission payment. Consequently, RIL fraudulently earned nearly 93% of open interest in RPL November Futures. RIL also undertook transactions in RPL shares in the cash segment. By employing these devices and acting through its 12 Agents, RIL had clandestinely accumulated position limits far in excess of limits permissible for a single client. The above steps in the F&O segment in view of its planned sale of 22.5 crore of RPL Shares in the cash segment was naturally expected to trigger steep price declines in the cash segment and alongside in the futures segment. The only way to take advantage of the sharp price decline would be by taking large positions in futures markets. By roping in 12 agent entities to act on its behalf, RIL had proportionately amplified its position taking capacity in futures which was fraudulent in nature as defined in section 12A (a), (b) & (c) of the SEBI Act and Regulations 3 and 4 of Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market (PFUTP Regulations) Regulations, 2003.
The Board observed that after the sale of shares on 29-11-2007, RIL still had 2.21 crore shares left to sell out of the 22.50 crores shares which suggested that RIL’s real objective was to bring down the RPL share price by dumping huge quantity of shares in the cash segment during the last 10 minutes to influence the settlement price in F&O segment. The manipulative and deceptive transactions of RIL were prima-facie, covered under the definition of ‘fraud’ and therefore were “fraudulent”, as defined under regulation 2(1) (c) of the PFUTP Regulations, 2003
Managing Director of RIL, Mukesh D. Ambani had been held liable for manipulative trading done by RIL. SEBI observed that it was difficult to believe that entire asset sale to raise Rs 87,000 crore could be done without the supervision of MD, that too when the said amount was a substantial percentage of its total assets and its turnover. It was held that Mukesh D. Ambani, being the Chairman and Managing Director of RIL, was responsible for its day-to-day affairs and thereby, liable under Section 15HA of SEBI Act for the manipulative trading done by RIL.
In view of the above, the Board imposed the penalty of 25 crore and 15 crore on RIL and its MD respectively. It was also observed that Navi Mumbai SEZ Pvt. Ltd. and Mumbai SEZ Ltd. had allegedly aided and abetted RIL by providing funds to agents appointed by RIL, for making the margin payments for the short positions in RPL November Futures. Therefore, penalty of 20 crore and 10 crore respectively were imposed on them as well. The Board disposed of the matter with further directions that the said amount of penalty should be remitted or paid within 45 days of receipt of order. [Reliance Petroleum Ltd. In Re., 2021 SCC OnLine SEBI 1, decided on 01-01-2021]