The whopping fine of Rs 40 crores imposed by SEBI for manipulative and fraudulent trading has a deep-rooted history. In the first week of November 2007, all the major entities associated with Reliance Industries Ltd decided a bet against Reliance Petroleum Limited. It was observed that 12 agents were taking short positions in the F&O Segment as instructed by RIL. During the time frame from 1st November 2007 to 29th November 2007, various transactions were taken care of by RIL in the Cash Segment and also by RIL in the F&O segment. From 15th November 2007, RIL’s share in the F&O segment crosses the proposed sale shares in Cash Segment.
Reliance in F&O Segment
In the last week of November 2007, Reliance Industries sold almost 2.25 crore shares just before the end of the trading. It leads to the decline of RPL shares which in turn brings down the settlement price of RPL November Futures in the F&O Segment. RIL’s net worth happens to be 7.97 crore which was compensated due to this settlement leading to the rise in profits on the said short position. This news has created a panic situation leading to the fall in stock prices. Now, Futures are a powerful financial instrument. The sold stocks directly come to RIL as a prior agreement. This kind of activity is not illegal in India but the fact is while explaining to the retail investors, they told these trades were in no way connected to RIL. Rather they were independent trades. In reality, they were trading at a much higher value crossing the threshold limit. However, the council of RIL mentioned that they have not crossed the threshold value, except for two agents. SEBI did not pay any heed to this. SEBI was well aware that 12 agents or entities were acting as per the instructions of RIL.
Now, at an individual level, they might not have breached but as a group, but as a group, they have crossed the threshold limit. But they have a strong defense backup. Earlier in their board meeting, it was decided that they will sell their shares. This was meant to raise surplus funds and it was a foolproof strategy since it was not illegal. They had the notion that RPL’s stock was overvalued and if it falls in the future, they won’t be able to raise funds as they have intended. To offset their losses, they asked their agent to trade those futures to earn extra money. But owing to a lack of evidence and documentation, SEBI refused the argument.
Excerpt from SEBI Order
Supreme Court’s Action
After that again in 2017, SEBI imposed a penalty of 1000 crores to RIL for their misdeeds. Now, adding to this SEBI imposed an additional fine on RIL, Mukesh Ambani, and two other entities. But they refused to take that blame bypassing it to the two other senior officials. However, RBI refused to obey that and as per the judgment made by the Supreme Court, Mr. Mukesh Ambani cannot absolve himself and plead ignorance about the entire scheme of manipulative transactions undertaken for the benefit of RIL. These fraudulent activities harmed RPL securities in both cash and F&O segments. Supreme Court clearly stated that these manipulations should be prevented to deter the irregularities in the capital market.
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