MUMBAI: The Securities and Exchange Board of India (Sebi) penalised Reliance Industries Ltd (RIL) and its chairman and managing director Mukesh Ambani as well as two other entities for their alleged role in carrying out manipulative trades in Reliance Petroleum Ltd (RPL) in 2007.

RIL didn’t respond to queries but has challenged an earlier Sebi order in the matter in the Supreme Court.

In its Friday order, the regulator imposed a penalty of Rs 25 crore on RIL and Rs 15 crore on Ambani. It also fined Navi Mumbai SEZ Rs 20 crore and asked Mumbai SEZ to pay Rs 10 crore in connection with the case. RPL was absorbed by RIL in 2009.

Sebi’s contention is that RIL’s sale of a 5% stake in RPL was preceded by the acquisition of RPL futures by parties acting on behalf of RIL. Subsequently, RIL’s sale of its stake lowered the settlement price of RPL in the futures and options (F&O) segment, allowing profits to be made.

“It was observed that RIL had entered into a well-planned operation with its agents to corner the open interest in the RPL futures and to earn undue profits from the sale of RPL shares in both cash and futures segments and to dump large number of RPL shares in the cash segment during the last 10 minutes of trading on the settlement day resulting in a fall in the settlement price,” Sebi adjudicating officer BJ Dilip said in the 95-page order on Friday. The “scheme of manipulation was deceptive and against the interest of the securities markets.”

Sebi conducted an investigation into the trading of RPL shares between November 1 and November 29, 2007, to see whether there was any violation of securities laws. It observed that a resolution had been passed by the RIL board on March 29, 2007, approving the operating plan for FY08 and resource requirements for the next two years of about Rs 87,000 crore. Thereafter, RIL decided to sell about 5% of its shareholding in RPL in November 2007. Subsequently, RIL appointed 12 agents to undertake transactions in November 2007 RPL futures on its behalf, according to Sebi.

The 12 agents took short positions in the F&O segment on behalf of RIL, while RIL’s RPL share transactions were in the cash segment. From November 15 onwards, RIL’s short position in the F&O segment constantly exceeded the proposed sale of shares in the cash segment. On November 29, 2007, RIL sold a total 22.5 million shares in the cash segment during the last 10 minutes of trading, resulting in a drop in the RPL share price and the F&O settlement price. The entire outstanding position of Rs 7.97 crore in the F&O segment was settled in cash at this lowered price, resulting in profits on the said short positions. These were transferred by the agents to RIL as per a prior agreement, Sebi said.

“In this case, the general investors were not aware that the entity behind the above F&O segment transactions was RIL. The execution of the… fraudulent trades affected the price of the RPL securities in both cash and F&O segments and harmed the interests of other investors,” according to the order.

The regulator alleged that RIL cornered nearly 93% of open interest in RPL November futures, when the said 12 agents took short positions in the F&O segment on its behalf. The funding for the margin payments by the said agents was provided by Navi Mumbai SEZ and Mumbai SEZ. A person connected with RIL had placed orders in the cash segment on behalf of RIL and in the F&O segment on behalf of the agents, Sebi said.
“It was also observed that Shri Mukesh D Ambani, being the chairman and managing director of RIL, was responsible for its day-to-day affairs and thereby, liable for the manipulative trading done by RIL,” according to the order. “The transactions executed by noticees (RIL and others) were structured and executed in such manner so as to escape the notice of regulatory authorities, investors as they were not in public domain.”

In a separate order on March 24, 2017, Sebi had directed RIL to disgorge over Rs 447 crore along with interest in the RPL case. The Securities Appellate Tribunal (SAT) had upheld the order in November 2020.

RIL is currently contesting this before the Supreme Court.

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