Indian market regulator Securities Board Exchange of India has fined Reliance Industries LTD(RIL) and its chairman Mukesh Ambani a sum of Rs. 40 crore for alleged manipulation in the trading of the shares of Reliance Petroleum, a listed company that was merged with RIL in 2009. Reliance Industries LTD has to pay a sum of Rs. 25 crores as a fine along with its chairman and managing director who will be subjected to a fine of Rs. 15 crores.
The market regulator body also warned Reliance Industries LTD that failure to pay the penalties within 45 days will result in recovery proceedings through the sale of the company’s properties.
Two more entities, Navi Mumbai SEZ Pvt LTD and Mumbai SEZ LTD have been slapped a ban of Rs. 20 crores and Rs. 10 crores respectively. The crux of the order issued by SEBI boils down to the fact that RIL executed a well-thought-out plan with its agents to churn out undue profits from trading.
The entire case is pertaining to the sale and purchase of Reliance Petroleum shares in cash and future segments in November 2007. After years of investigation by the SEBI, it was observed that Reliance along with 12 more unlisted trading companies carried out transactions in the shares of Reliance Petroleum that were unlawful in nature.
The agents in question bought stocks between March and November 2007, and then took a short position. A short position means taking a position in the market that the prices of shares would fall in the future with the help of insider information.
In the same year, SEBI ordered the companies to return the profits made that amount to Rs. 4.47 billion, plus interest along with banning Reliance from trading futures on the Indian equity market for a period of 12 months. Reliance countered the appeal by saying that they were “unjustifiable sanctions” on the transactions that were carried out purely in the interest of the company’s shareholders.
The adjudicating officer of the Reliance Petroleum case said that Mukesh Ambani, being the MD of RIL was responsible for all the manipulative activities carried out by RIL. The officer also said that companies that are listed in the markets should demonstrate the “highest standards of professionalism, transparency and good practices of corporate governance, which inspires confidence of the investors” that deal in the markets.
The adjudicating officer is of the opinion that attempts that are made to deviate from the above-mentioned standards lead to not only the erosion in the confidence of investors but also negatively affect the market’s integrity. The officer also said that “I am of the view that such acts of manipulation have to be dealt sternly so as to dissuade manipulative activities in the capital markets.”