Analysis: SEBI fine on Ambani Family

The Securities & Exchange Boards (SEBI) slaps with a huge amount of 25 crores rupees fine after almost 20 years on Reliance Industries alongside Mukesh Ambani with Ambani family for an allegation of an alleged violation of the takeover code regulation in 2000 on April 07, 2021.[1]

What is SEBI?

The Securities and Exchange Board of India is the regulator section of the Indian Government under the jurisdiction of the Finance Ministry. It mainly regulates the securities & commodity market in India.[2]

What is Substantial Acquisition of Shares Takeover Regulations (SAST)?

According to Substantial Acquisition of Shares Takeovers Regulations (SAST) 1997, if a promotor group acquires over 5% of the voting rights, in a financial year, it needs to make an open offer to minority investors that allows them to exit the company.[3]

Reason behind the fine:

According to the 85-page adjudication order issued by SEBI, it was said that Reliance Industries Limited (RIL) promoters and acting persons were failed to disclose the acquisition of more the 5% stake in the company in 2000, which would have immediately triggered an open offer to existing public shareholders. As RIL personals failed to make a public announcement to acquired shares of RIL and also deprived the shareholders of their statutory rights to exit from the target company & there they breached the provisions of takeover regulation & such charges against the notices make the instant matter grave. Also, the violation was not committed once & for all but that continues that makes the violation a disobedient of the statutory provisions by which the acquisition of securities giving the notices enhanced control of exercise disobeying trading law, voting rights which are continuing in violation of the & spirit of the law.

Allegations were raised because according to the report RIL’s promotors acquired a 6.83% stake in the company between March 1999 to March 2000 through the conversion of 3 crore warrants issued to them back in 1994. The order also said that it was difficult to ascertain the unfairness again made by RIL’s promotor entities due to the violation. According to the order, since the promotors & PACs have not made any public announcement for acquiring shares, it’s alleged that they have violated the provisions of regulation 11(1) of takeover regulations. 

According to SEBI, while determining the quantum of penalty, they also notified that no quantifiable figures or data are available on record to assess the disproportionate gain or unfair advantage and amount of the loss caused to an investor or group of investors as a result of the default committed.[4]

The regulator (SEBI) said that the penalty will have to paid jointly by 34 individuals named in the order including the Ambani Family within 45 working days. SEBI also said in the order that if they failed to give the amount of penalty within 45 days of the receipt of the order, they may initiate consequential action including recovery proceedings under section 28A of the SEBI act, 1992 for the realization of the said amount of penalty along with interest thereon by attachment & sale of movable & immovable properties. SEBI also clarified that it’s unable to assess the unfair gains or advantage promoters reaped by violating takeover regulations. SEBI, however, maintained that the promotors denied minority investors their statutory rights.[5]

They also said that under section 15H of the SEBI act, a maximum penalty of 25 crores or three times the number of profits made out the failure is allowed.[6]

Effect of the fine:

Although RIL previously tried for out of court settlement on the same charge and also approached SEBI early in 2011.[7]

They are going to appeal in Securities Appellate Tribunal (SAT) against SEBI’s penalty of Rs 25 crore on the Chairman & managing director Mukesh Ambani himself.[8]

RIL also facing a little downgrade (-1.16%) in their stock due to the ongoing legal issue with SEBI.[9]

Resources:

[1] SEBI Slaps Rs 25 crore fine on Ambani’s in 2000 case over alleged violation of the takeover code regulation- The Indian Express. (Dt- April 08, 2021)

[2] SEBI- Wikipedia.

[3] Substantial Acquisition of Shares Takeover Regulation- SEBI

[4] SEBI slaps fine of Rs 25 cr on RIL promotors for violation of takeover norm- The Economic Times. (Dt- April 07, 2021)

[5] SEBI Fines Mukesh Ambani, Anil Ambani, others RS 25 core on RIL shareholding irregularities- Business Today. (Dt- April 07, 2021)

[6] SEBI imposes penalty of Rs 25 cr on Mukesh Ambani, Anil Ambani, others- Business Standard. (Dt- April 08, 2021)

[7] RIL approaches SEBI to seek out of court settlement for insider trading charges- MoneyWorks4Me. (Dt- May 19, 2011)

[8] Reliance Industries to move SAT against SEBI fine- Hindustan Times.          (Dt- April 09, 2021)

[9] Reliance Industries Limited- Money Control (Dt- April 04, 2021)


Author: Unmesh Roy from National Institute of Technology, Durgapur.


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