SEBI Order in Manipulative Trades in RPL case
Written by: Ms Nikita Kumari
Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations.
There was an investigation in trading were held by the SEBI in the scrip of the Reliance Petroleum Limited (RPL) which is now known as Reliance Industries Limited (RIL). The investigation period was from 1st of November, 2007 to 29th November, 2007. The purpose of this investigation was to ascertain whether there was any violation of the provisions of the SEBI Act, 1992 and the rules and regulations made under this Act.
It was observed during the investigation that the approval of the operating plan for the year 2007 – 2008 was Inter Alia which was passed by a resolution made by the Board of Directors of RIL. Then after that RIL decided to sell its 5% of the shareholding in RPL in November 2007.
As per the investigation report, it was found that this was the case of Manipulative Trade and for these manipulative activities, the managing director of RIL, Mukesh D. Ambani was held responsible and also held liable for the manipulative trading done by RIL. As the Managing Director is responsible for all the business of the company and managing all day-to-day affairs of the company, the said powers were provided under the Companies Act, 1956.
The manipulative trade-in RPL case is about the manipulation were made during the sale and purchase of the shares of the RPL in cash in the year November 2007. The manipulation in RPL was followed by the RIL’s decision to sell a 4.1% stake which was a listed subsidiary, in RPL. The same was later merged with RIL in the year 2009.
SEBI originated Adjudication proceedings against RIL for the violation of Regulation 3(a), 3(b), 3(c), and 3(d) and Regulation 4(1), 4(2)(d), and 4(2)(e) of the PFUTP Regulations, 2003 under section 15 HA of the SEBI Act, 1992 with section 12A(a), 12A(b), and 12A(c) of the SEBI Act, 1992. SEBI also said that any kind of manipulation in the size and price of the securities always corrodes investor confidence in the market when investors find themselves at the getting end of the market manipulators.
Moreover, it was observed that the Navi Mumbai SEZ Private Limited and Mumbai SEZ Limited have also allegedly aided and abetted RIL by providing funds to the appointed agent of RIL and for this, the Adjudication Proceedings have also been initiated action against them for the violation of Regulations 3(b), 3(c), 3(d) and Regulations 4(2)(d), and 4(2)(e) of PFUTP Regulations, 2003.
It was found that there were 12 Agents appointed by RIL to take a position in the F&O Segment even though RIL started transactions in RPL shares in the cash segment. The various transaction was undertaken by RIL in the cash segment through the appointed agents in the F&O Segment during the Investigation Period.
From 15th November 2007 onwards RIL’s position in the F&O Segment constantly exceeded the proposed sale of shares in the cash segment. Even during the last 10 minutes of trading on 29th November 2007, RIL sold a total of 2.25 crore share in the cash segment. The entire profit was transferred by the agents to RIL as per the prior agreement between them.
The general investors were not aware of the fact that the entity behind the above F&O Segment transactions was RIL actually. The execution of this fraudulent trade affected the price of the securities of RPL in both cash and F&O Segments and also harmed the interests of the other investors. Moreover, it also has an adverse impact on the fairness, integrity and transparency of the stock market.
After considering all facts and circumstances of the case, and all the material available on record, the SEBI has given his order as per Section 15J, and Section 15I of the SEBI Act read with Rule 5 of the SEBI Adjudication Rules. And imposes a penalty on the Notices under Section 15HA of the SEBI Act.
The penalty of Rs. 25 crores have been imposed on Reliance Industries Limited and Rs. 15 crores on Mukesh Ambani (Chairman of RIL) for manipulating the shares of RPL in November 2007. And also, the penalty of Rs. 20 crores on Navi Mumbai SEZ Private Limited and Rs. 10 crores on Mumbai SEZ Limited for funding the appointed agent of RIL.
All the Notices were ordered to pay the said amount of penalty within 45 days of the receipt of the order either by the way of Demand Draft or through online payment in the favour of SEBI.