The Securities Exchange Board of India on Friday imposed a fine of Rs 25 crore on Reliance Industries and Rs 15 crore on its chairman, Mukesh Ambani, for manipulating shares of Reliance Petroleum Ltd (RPL) in November 2007.
The issue relates to manipulation during the sale and buy of Reliance Petroluem Limited shares within the cash and therefore the futures segments in November 2007. This followed RIL’s decision in March 2007 to sell 4.1 per cent stake in RPL, a listed subsidiary that was later merged with RIL in 2009.
The market regulator found that Mukesh Ambani because the director of RIL was liable for the manipulative activities of RIL.
“I am of the view that Noticee-2(Ambani),being the director of the RIL,cannot absolve himself and plead ignorance about the whole scheme of manipulative transactions undertaken for the advantage of RIL within the shares of RPL within the Cash and F&O Segment.Therefore, I find that Noticee-2(Ambani) was responsible for the actions of RIL leading to violations of PFUTP Regulations, 2003 and SEBI Circular.Therefore, I find that Noticee-2 has violated the provisions of Regulations 3(a), (b), (c), (d) and Regulations 4(1), 4(2) (d), (e) of PFUTP Regulations, 2003 and SEBI Circular no. SMDRP/DC/CIR-10/01 dated November 02, 2001”, observed the Adjudicating Officer BJ Dilip during a 95-page order.
“I note that a director is liable for managing the day-to-day affairs and business of the corporate and he has been vested with the said power under the businesses Act, 1956. this suggests a high level of accountability and knowledge of the general functioning of the company”, the order said.
SEBI said that any manipulation within the volume or price of securities always erodes investor confidence within the market when investors find themselves at the receiving end of market manipulators.
It was found that 12 Agents appointed by RIL took short positions within the F&O Segment on behalf of RIL, while RIL undertook transactions in RPL shares within the cash segment. During the amount of 1stNovember 2007 to 29th November 2007, various transactions were undertaken by RIL within the Cash Segment and by RIL through the Agents within the F&O Segment. From 15thNovember 2007 onwards, RIL’s short position within the F&O Segment constantly exceeded the proposed sale of shares within the Cash Segment. On 29th November 2007, RIL sold a complete of two .25 crore shares within the Cash Segment during the last 10 minutes of trading leading to fall within the prices of RPL shares, which also lowered the settlement price of RPL November Futures within the F&O Segment. RIL’s entire outstanding position of seven .97 crores within the F&O Segment was cash settled at this depressed settlement price leading to profits on the said short positions. The said profits were transferred by the agents to RIL as per a previous agreement.
The routine of the manipulation was explained as follows :
“RIL has entered into a scheme of manipulative trades in respect of the sale of fifty of RIL stake in RPL. However, before undertaking sale transactionsin the Cash Segment, RIL fraudulently booked large short positions within the RPL November Futures through 12 Agents with whom it had entered into an agreement to bypass position limits for a commission payment.As a result, RIL fraudulently cornered nearly 93%of open interest in RPL November Futures, when the said 12 Agents took short positions in F&O Segment on its behalf.The funding for the margin payments by the said Agents was provided by Noticee-3 and Noticee-4.A common person connected with RIL had placed orders within the Cash Segment on behalf of RIL and within the F&O segment on behalf of the Agents”
While noting that execution of manipulative trades affects the worth discovery system itself, the adjudicating officer said, “I am of the view that such acts of manipulation need to be dealt sternly so on dissuade manipulative activities within the capital markets.”
“In the moment case, the overall investors weren’t aware that the entity behind the above F&O segment transactions was RIL. The execution of the… fraudulent trades affected the worth of the RPL securities in both cash and F&O segments and harmed the interests of other investors,” SEBI said.
“I am of the view that any manipulation within the volume or price of securities always erodes investor confidence within the market when investors find themselves at the receiving end of market manipulators.In the instant case, the overall investors weren’t aware that the entity behind the above F&O Segment transactions was RIL. The execution of the aforesaid fraudulent trades affected the worth of the RPL securities in both Cash and F&OSegments and harmed the interests of other investors.Execution of manipulative trades affects the worth discovery system itself. It also has an adverse impact on the fairness, integrity and transparency of the stock exchange .I am of the view that such acts of manipulation need to be dealt sternly so on dissuade manipulative activities within the capital markets”.
Also, the Navi Mumbai SEZ Pvt Ltd and Mumbai SEZ Ltd, which aided and abetted RIL by providing funds to at least one of the agents appointed by RIL, are asked to pay a penalty of Rs 20 crore and Rs 10 crore respectively.
The fine amount has got to be paid within 45 days of the order.