SAT Sets Aside SEBI Order Imposing Rs25 Crore on Ambani Family & Reliance Promoter Entities

Moneylife Digital Team 28 July 2023

Investor Interest

Rapping Securities and Exchange Board of India (SEBI) for imposing an Rs25 crore penalty on the Ambani family and several promoter entities of Reliance Industries Ltd (RIL) without any authority of law, the Securities Appellate Tribunal (SAT) set aside an order passed by SEBI.

In an order, the bench of Justice Tarun Agarwala (presiding officer) and Meera Swarup (technical member), says, "In our view, the provision 15H existing as on January 2000 would apply which at that point was a maximum penalty of Rs5 lakh. Thus, in our opinion, a penalty of Rs25 crore could not have been imposed and even assuming that the violation had occurred, a maximum penalty of Rs5 lakh could be imposed."

"Let us take a situation where Section 15H was omitted by an amendment on or before the passing of the (SEBI) order. If the contention of the respondent (SEBI) is accepted, then the violation committed in the year 2000 could not be penalised at the time of passing of the order since the provision was omitted. If such contention of SEBI is accepted, it would lead to an absurd result. In view of the aforesaid, it is not necessary for us to go into the question as to whether the alleged violation was a continuing violation," the bench says

After learning that the Rs25 crore penalty had been deposited under protest by the Ambani family and several promoter entities of RIL, the bench directed SEBI to refund the money within four weeks.

SEBI imposed the penalty under Section 15H of the SEBI Act, which came into existence on 8 September 2015. The Ambani family and several promoter entities of RIL contended that the violation, if any, came into existence in January 2000 and, therefore, the provision imposing a penalty existing on that date only would apply.

In the order, SAT noted that it took SEBI 11 years from the date of the commission of the alleged violation in January 2000 to issue a show cause notice (SCN). "Further, it took SEBI nine long years to decide the consent application. The order has come after 21 years of the alleged violation. We find that the delay has caused serious prejudice to the appellant. There is an inordinate delay in the initiation of the proceedings but also in the disposal of the proceedings. The order, thus, is liable to be set aside also on this ground."

In January 2000, the promoter group, acting together, raised their stake in RIL by 6.83% through conversion of warrants issued in 1994.

SEBI, in its order issued on 7 April 2021, says that the failure of Reliance promoters to make an 'open offer' had "deprived the shareholders of their statutory rights or opportunity to exit from the target company and therefore they breached the provisions of takeover regulations. The regulator also noted that in case of a continuing offence, the liability continues until the rule or its requirement is obeyed or complied with. In this matter, the liability of making an open offer continues.

It then imposed a penalty of Rs25 crore jointly on on the 34 individuals and entities who were allotted the warrants in the year 1994. These include brothers Mukesh Ambani, Anil Ambani, their mother Kokilaben Ambani, Nita Ambani, Tina Ambani, their sisters Nina Kothari and Deepti Salgaokar, her husband Dattaraj Salgaokar and the children of the Ambani clan. Kankhal Trading LLP (earlier known as Kankhal Investments & Trading Co Ltd) and Reliance Realty Ltd (earlier known as Terene Fibres India (P) Ltd) were also included in the list.

Some of the noticees like Akash M Ambani, Jayanmol Ambani, Isha M Ambani, Vikram D Salgaokar, Isheta D Salgaokar, and Nayantara B Kothari were minors at the time of the commencement of the aforesaid violation on 7 January 2000. SEBI says those who are the natural guardians of the minor noticees are responsible not only on their own behalf but also on behalf of the minors. (Read: 21 Years After: SEBI Imposes Rs25 Crore Joint Penalty on Ambani Family & Reliance Promoter Entities for Violation of Takeover Norms)

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