Sebi imposes Rs25-cr penalty on Ambani brothers and others for takeover rules violation

The adjudicating officer (AO) of the Securities and Exchange Board of India (SEBI) imposed a joint penalty of Rs25 crore on Mukesh and Anil Ambani along with their family members for violation of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

The penalty has been imposed for violations of the provisions of Regulation 11(1) of the Takeover Regulations over irregularities relating to the issue of 12 crore equity shares in January 2000 by Reliance Industries Ltd at a price of Rs75 per share to 38 entities.

Sebi had conducted an investigation into alleged irregularities relating to the issue of 120 million equity shares in January 2000 by Reliance Industries.

The fine has been imposed for not making regulatory disclosures when they collectively raised their shareholding in Reliance by nearly 7 per cent by subscribing to a January 2000 issue, as per news reports.

The allotment was made consequent to the exercise of the option on warrants attached with 6,00,00,000-14 per cent non-convertible secured redeemable debenture (NCD) of Rs50 each aggregating to Rs300 crore (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 28 April 2000, it was observed that it had disclosed the 38 allottees as Persons Acting in Concert (PACs) with the RIL promoters. From the disclosures made by RIL it was observed that the shareholding of RIL promoters together with PACs had increased from 22. 71 per cent as on 31 March 1999 to 38.33 per cent as on 31 March 2000. Out of these, 7.76 per cent shares were acquired consequent upon a merger and thus were exempt under regulation 3(1) (j) (ii) of Takeover Regulations. However, 6.83 per cent shares that were acquired by RIL promoters together with PACs in exercise of 30 million warrants, were alleged to be in excess of ceiling of 5 per cent prescribed in regulation 11(1) of Takeover Regulations.

It was alleged that the obligation not to make additional acquisition of more than 5 per cent of voting rights in any financial year unless such acquirer makes a public announcement to acquire shares in accordance with the regulations under regulation 11(1) of Takeover Regulations arose on 7 January 2000, ie, the date on which the PACs were allotted RIL equity shares on exercise of warrants issued in January 1994.Since the promoters and PACs have not made any public announcement for acquiring shares, it is alleged that they have violated the provisions of regulation 11(1) of Takeover Regulations.

The order passed by K Saravanan, Adjudicating Officer of the SEBI, observed : "I hold that the Noticees by not making a public announcement have iolated and have been continuing to violate the provisions of Regulation11(1) of the Takeover Regulations". 

"The Noticees by their failure to make public announcement, deprived the shareholders of their statutory rights/ opportunity to exit from the company.

“The acquisition of shares which gives rise to voting rights thereon is a continuous contravention of the bar in law contained in Regulation 11 as the Acquirers and Persons acting in Control are not 'entitled'in law to lawfully exercise the voting rights based on such a null and void acquisition. This cannot be considered as anything but a continuing failure to give the public announcement of the open offer as required under Regulation 11(1) of he Takeover Regulations. 

"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 giving the Noticees 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," Sebi stated.

Shares of Reliance Industries Limited (RIL) traded largely flat on Thursday, ignoring the fine imposed by markets regulator on the Ambani brothers. Having opened higher, the stock traded at Rs1,999.40 apiece as of 10:40 am on the National Stock Exchange, down 0.1 per cent from the previous close.