Case Law Details
In re Reliance Industries Ltd (SEBI)
It was observed by RIL has entered into a scheme of manipulative trades in respect of the sale of 5% of RIL stake in RPL. However, before undertaking sale transactions in the Cash Segment, RIL fraudulently booked large short positions in the RPL November Futures through 12 Agents with whom it had entered into an agreement to circumvent position limits for a commission payment. As a result, RIL fraudulently cornered nearly 93% of open interest in RPL November Futures, when the said 12 Agents took short positions in F&O Segment on its behalf. The funding for the margin payments by the said Agents was provided by Noticee-3 and Noticee-4. A common person connected with RIL had placed orders in the Cash Segment on behalf of RIL and in the F&O segment on behalf of the Agents. On the date of settlement of RPL November Futures, i.e., on November 29, 2007, RIL sold 1.95 crore RPL shares on NSE Cash Segment in the last 10 minutes of trading resulting in fall in the prices on the Cash Segment, which artificially depressed the settlement price of RPL November Futures. This resulted in profits on the huge short positions held by the Agents in RPL November Futures and the said profits were transferred back to RIL by the Agents as per prior agreement. The above strategy undertaken by RIL has resulted in manipulation of settlement price of RPL November Futures and prices of RPL shares in the Cash Segment. I note that Noticee-2, being the Managing Director of RIL, was responsible for the manipulative activities of RIL. I am of the view that listed companies should exhibit highest standards of professionalism, transparency and good practices of Corporate Governance, which inspires confidence of the investors dealing in the capital markets. Any attempt to deviate from such standards will not only erode the confidence of the investors but also affect the integrity of the markets. From the facts mentioned above paragraphs, the transactions executed by Noticees were structured and executed in such manner so as to escape the notice of regulatory authorities, investors as they were not in public domain. Therefore, I conclude that the said scheme of manipulation was deceptive and against the interest of the securities markets.
I am of the view that any manipulation in the volume or price of securities always erodes investor confidence in the market when investors find themselves at the receiving end of market manipulators. In the instant case, the general investors were not aware that the entity behind the above F&O Segment transactions was RIL. The execution of the aforesaid fraudulent trades affected the price of the RPL securities in both Cash and F&O Segments and harmed the interests of other investors. Execution of manipulative trades affects the price discovery system itself. It also has an adverse impact on the fairness, integrity and transparency of the stock market. I am of the view that such acts of manipulation have to be dealt sternly so as to dissuade manipulative activities in the capital markets.
I note that the Whole Time Member of SEBI in Order dated March 24, 2017 has directed RIL to disgorge an amount of Rs. 447.27 crore along with interest calculated at the rate of 12% per annum from 29 November, 2007 onwards till the date of payment. Further, RIL was prohibited from dealing in equity derivatives in the F&O segment of stock exchanges, directly or indirectly, for a period of one year from the date of the said Order. I find it appropriate to consider the direction in the nature of debarment and the disgorgement that has already been passed against RIL herein as a relevant factor while deciding the quantum of penalty. I have also considered the quantum of loans advanced by Noticee-3 and Noticee-4 to the Agent appointed by RIL. Considering the above, I proceed to impose an appropriate penalty on each of the Noticee that serves as a deterrent to the Noticees and others indulging in such fraudulent trade practices.
Having considered all the facts and circumstances of the case, the material available on record, the factors mentioned in Section 15J of the SEBI Act and in exercise of the powers conferred upon me under Section 15-I of the SEBI Act read with Rule 5 of the SEBI Adjudication Rules, I hereby impose the following penalty on the Noticees under Section 15HA of the SEBI Act:
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