The Securities and Exchanges Board of India on Friday 24 March 2017 barred Mukesh Ambani’s Reliance Industries Limited from trading in the equity derivative market for a year after finding it guilty of using “fraudulent and manipulative strategy” to make “unlawful gains of Rs 513 crore”. The case dates back to 2008 and involves the now defunct Reliance Petroleum Limited. Sebi had in 2008 accused Reliance of violating norms saying it merged its petroleum arm into itself the previous year by allegedly short-selling a 4.1% stake in RPL in the futures market and then the spot market. However, Reliance maintains that the trades were carried out “keeping the best interest of the company and its shareholders, in view” and that Sebi had “misconstrued the true nature of the transactions and imposed unjustifiable sanctions.” The company will appeal against the decision in the Securities Appellate Tribunal.This is the major order given by Sebi after Ajay Tyagi took over as chief earlier this month.
Reliance, the second most valuable firm in the country, will now have to pay a penalty of Rs 447.27 crore with 12% interest from November 2007, which amounts to nearly Rs 1,300 crore, RIL has said it will appeal against the order, which it needs to comply with in 45 days. The order names 12 others in the case, saying they carried out a “fraudulent scheme” with the intention of “making profits on account of the legally impermissible limits held by it clandestinely and lowering the price in the cash market segment”.
Mahalingam said the directions are being passed after taking into consideration the magnitude of the fraud across the markets. “I am inclined to pass certain directions against the notices in order to protect the interest of the investors and reinstate their faith in the regulatory system,” the order said.
Reliance had earlier tried a lot to settle the case, but Sebi had refused for any kind of settlement. The proceedings in the long-pending case were expected in the last few months. Reliance Petroleum limited which had been merged with the listed parent firm Reliance Industries..
“We propose to prefer an appeal and challenge the order in the Securities Appellate Tribunal. We are very confident of fully justifying the veracity of the transactions and vindicating our stand,” The company said also said that they had tried to hedge their positions to lower the risk reward ratio.
According to the Sebi order, Reliance Industries limited by employing 12 agents to take separate position limits of open interest on its behalf by executing separate agreements with each one of them and cornering 93.63 per cent of the November futures of Reliance Petroluem, “acted in a fraudulent and false manner”. Furthermore, Sebi also said RIL “manipulated” the Future & Option segment through 12 agents and instructed them to hold the contracts till the last day of expiry. On the basis of an analysis of the trading strategy and pattern adopted by RIL in the cash market during November 2007 and specifically on November 29, it was found that there has been a manipulation of the last half an hour settlement price, Sebi said.
Thereafter by closing out the derivative contracts on November 29, 2007, RIL “has engaged in a pre-planned fraudulent practice and the same cannot be held to be a mere breach of position limits by the clients attracting penalty under the exchange circulars”, the order noted. November 29 was the expiry day of the November futures of RPL.Mahalingam also said RIL made unlawful gains to the extent of Rs 513 crore.
“The noticees may, however, square off or close out their existing open positions.” In a statement, Reliance Industries said it is in the process of consulting its legal advisers and will prove all these allegations wrong.