Why SEBI Imposed Rs 25 Crore Penalty on Ambani Brothers?

The Securities and Exchange Board of India (SEBI) fined Mukesh Ambani, Anil Ambani, and nine other individuals and entities for irregularities in shareholding that resulted from a violation of the regulator's takeover code regulations.

For allegedly violating share-trading rules about 13 years ago, India's market regulator ordered Mukesh Ambani and his conglomerate Reliance Industries Ltd. to pay a combined penalty of Rs 400 million ($5.5 million).

The penalty was imposed for violations of Regulation 11(1) of the Takeover Regulations, which dealt with irregularities in the issue.

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Reason for Penalty

In January 2020, promoter stakes in Reliance Industries were up 6.83%, following the conversion in 1994 of 3 crore bonds. It was alleged, however, that in conformity with the Securities and Exchange Board of India (Significant Acquisition of Shares and Takeover) Regulations, 1997 the promoter group did not make an open offer.

In accordance with existing rules, a promoting group with a stake of more than 5% must offer minority investors an open offer within the continuing business year. SEBI mentioned in its order that in case of violation of Regulation 11(1) of the adoption regulations the promoter group and other notices.

The Securities and Exchange Board of India said in an order dated Jan. 1 that Reliance and its agents allegedly made undue profits from the cash and futures markets by selling shares in Reliance Petroleum Ltd., a former unit. According to Sebi, Reliance Industries must pay 250 million rupees and its chairman, Mukesh Ambani, is liable for alleged manipulative trading.

SEBI Notice

"It is noted that in the instant matter the noticees have been alleged to have failed to make public announcement to acquire shares of RIL and deprived the shareholders of their statutory rights/opportunity to exit from the target company and therefore they breached the provisions of takeover regulations. Such charges against the noticees make the instant matter grave," SEBI ruled.

"In the event of failure to pay the said amount of penalty within 45 days of the receipt of this order, SEBI may initiate consequential actions including but not limited to recovery proceedings under section 28A of the SEBI Act, 1992, for realisation of the said amount of penalty along with interest thereon, inter alia, by attachment and sale of movable and immovable properties," SEBI stated.

The SEBI stated that the unfair gains or benefit promoters reaped through infringement of adoption regulations cannot be evaluated. However, the regulator stated that the promoters had denied their statutory rights to minority investors.