What’s the SEBI vs Mukesh Ambani Case: SEBI, the regulator of capital markets in India has imposed a penalty of 25 crores on Reliance Industries and 15 crores on Mukesh Ambani for manipulating the settlement price of Reliance Petroleum Ltd (RPL) on 29th November 2007 (expiry day of the monthly futures contract). SEBI is of the view that Reliance Industries violated the trading rules and manipulated the share price of RPL and which in turn led to investors losing money in the market. 

Anyways, before we get deeper into this case, let us first try and understand a few trading terminologies that will be used during the course of discussion in this article.

— Short Selling: As the name suggests, it simply means to sell the shares of the company before owning them. This is done with the intention of either lowering the price of the shares or gaining from the anticipated weakness in the share price of the company. 

— Futures: A futures contract is a legal agreement to buy or sell a particular underlying asset, or security at a pre-determined price, at a specified time in the future. The buyer of the futures contract is obligated to buy and receive the underlying asset when the futures contract expires. And the seller of the futures contract is obligated to sell and deliver the underlying asset upon expiry. 

What is the SEBI vs Mukesh Ambani Case?

The SEBI’s probe, in this case, is related to the trading of the scrip Reliance Petroleum Limited (RPL), which merged with RIL in 2007. Later in the same year in the month of November, the company decided to sell nearly a 5 % stake in RPL. 

To undertaker the transactions, the company admittedly appointed 12 agents between October and November 2007. These agents took short positions in the futures contract on behalf of the company and RIL took positions in the cash segment of the market. 

On November 2007, Reliance sold 2.25 crores shares 10 minutes before the expiry of the futures contract and which lead to a sharp decline in the share prices of RPL. This further led to a sharp reduction in the settlement price of the RPL futures contracts expiry prices.

RIL’s entire short position of nearly 8 crores shares in the futures and options (F&O) segment was cash-settled which led to a huge profit to the tune of more than 500 crores by short selling.  The said profits were transferred by the agents to RIL as per a prior agreement.

Fines and Sanctions Imposed by SEBI:

The SEBI has imposed a penalty of ₹ 25 crores on Reliance Industries Limited (RIL) and a ₹ 15 crores penalty on Mukesh Ambani. The SEBI maintains that the RIL entered into a well-planned operation with its agents to corner the Open Interest position in the RPL futures contract and earn undue profits by selling shares in the cash segment and shorting the futures position. 

The SEBI also maintains that Mukesh Ambani being the Chairman & Managing Director of RIL, was responsible for its day-to-day affairs and thereby, liable for the “manipulative trading” done by RIL.

The capital market regulator (SEBI) also imposed penalties of ₹20 crores and ₹10 crores on Navi Mumbai SEZ and Mumbai SEZ respectively. The Penalty has to be paid with 45 days from January 1, 2021.

According to Adjudicating Officer of SEBI, BJ Dilip, “I am of the view that Noticee-2(Ambani), being the Managing Director of the RIL, cannot absolve himself and plead ignorance about the entire scheme of manipulative transactions undertaken for the benefit of RIL in the shares of RPL in the Cash and F&O Segment. Therefore, I find that Noticee-2(Ambani) was liable for the actions of RIL resulting in violations of PFUTP Regulations, 2003 and SEBI Circular. Therefore, I find that Noticee-2 has violated the provisions of Regulations 3(a), (b), (c), (d) and Regulations 4(1), 4(2) (d), (e) of PFUTP Regulations 4(1), 4(2) (d), (e) of PFUTP Regulations, 2003 and SEBI Circular no. SMDRP/DC/CIR-10/01 dated November 02, 2001”

Previous Order from SEBI

SEBI also noted that an order noted dated March 24, 2017, had directed RIL to disgorge an amount of ₹447.27 crores along with interest calculated at the rate of 12% per annum from November 29, 2007, onwards till the date of payment.

SEBI has stated that on March 24, 2017, it had directed RIL to return back Rs. 447.27 crores along with an interest of 12% per annum And further Reliance was prohibited from dealing in equity derivatives in the F&O segment of stock exchanges, directly or indirectly, for a period of one year.

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Closing Thoughts

Any sort of market manipulative activities that distorts the normal functioning of the market is watched carefully by SEBI, even in the case of the richest man in India. Although SEBI vs Mukesh Ambani Case is over a decade-old manipulative trading issue, but this ongoing case proves that SEBI is prepared to take corrective measures for the proper functioning of the capital market in India. 

That’s all for today’s Market Forensics. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!

Hitesh Singhi

Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!