In a case pertaining to the increase in the promoter stake of Reliance Industries Ltd (RIL) in January 2,000 the Securities and Exchange Board of India (Sebi) on April 7, 2021 imposed a penalty of Rs 25 crore on Mukesh Ambani, Anil Ambani, other individuals and entities. This penalty has been imposed for non-compliance of takeover norms after conversion of some warrants issued as early as 1994.
According to an Indian Express report the adjudication order noted, “In the instant case, the violation was not one which was committed once and for all but that which continues till date. The violation is a disobedience of the statutory provisions by which the acquisition of securities given that the Ambani family enhanced control by the exercise of voting rights, etc and these are violations which are continuing so long as the voting rights are acquired in violation of the letter and spirit of the law.” A promoter group that acquires over 5 percent of the voting rights, in a financial year, needs to make an open offer to minority investors that allows them to exit the company according to the Substantial Acquisition of Shares and Takeovers (SAST) Regulations 1997. However Sebi has accused RIL of not doing this.
A livelaw report explains, The allotment was made consequent to the exercise of the option on warrants attached with 6,00,00,000-14% Non Convertible Secured Redeemable Debentures (NCD) of Rs.50/-each aggregating to Rs.300,00,00,000 (PPD IV) issued in the year 1994 . From the disclosure filed under Regulation 8(3)of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations,1997 ( “Takeover Regulations”) by RIL to Bombay Stock Exchange (BSE) on April28, 2000, it was observed that it had disclosed the above mentioned 38 allottee entities as Persons Acting in Concert (“PACs”) with the RIL promoters. From the aforesaid disclosures made by RIL it was observed that the shareholding of RIL promoters together with PACs had increased from 22.71% as on March 31, 1999 to 38.33% as on March 31, 2000.
Out of these, 7.76% shares were acquired consequent upon a merger and thus were exempt under regulation 3(1) (j) (ii) of Takeover Regulations. However, 6.83% shares that were acquired by RIL promoters together with PACs in exercise of 3 crore warrants, were alleged to be in excess of the ceiling of 5% prescribed in regulation 11(1) of Takeover Regulations.
Sebi has also noted that the Ambani family replying to its notifications in November 2000 had argued that issue of warrants and the issue of shares on conversion of warrants were not subject to Sebi’s takeover regulations.As the regulator had issued the Show Cause Notice to the Ambani family in 2011, almost eleven years after the alleged violation, the family has said that it is “unreasonable, arbitrary and causes substantial prejudice” to them. gaurilankeshnews.com had reported earlier, after years of inquiry, Sebi noted in 2017 that Reliance carried out illegal transactions in Reliance Petroleum’s shares along with 12 unlisted trading houses. Between March and November 2007, they purchased stock, and then the company took short positions in November futures before beginning to sell the stock in order to drive down the price, betting that the share price will fall, according to Sebi.
The same year, the regulator also told companies to return 4.47 billion rupee gains plus interest and barred Reliance for a year from trading futures and options on India’s stock markets. Reliance appealed the order claiming that “unjustifiable penalties” were levied on actual transactions carried out in the interests of shareholders.