Reasons Why SEBI Imposed 25 crore penalty on Mukesh Ambani, Anil Ambani, others

There was a recent news headlines which said SEBI has slapped INR 25 crore fine on Ambani's due to the 2000 case over the allegation of violation of the takeover code regulations. Let’s look at the below article to get a clear understanding about the regulation and the reason for imposing the fine.

Substantial Acquisitions of Shares and Takeovers (SAST) Regulations 1997
What Happened with the Ambani family?
Adjudication Order and SEBI
Fine To be Paid by Ambani Family
SEBI and Ambani
FAQ

Substantial Acquisitions of Shares and Takeovers (SAST) Regulations 1997

According to the Substantial Acquisitions of Shares and Takeovers (SAST) Regulations 1997, If a company’s promoter group acquires more than 5% of the voting rights in the company, during a financial year. Then the company will have to make an open offer to the minority investors which will give them an option to exit the company if required.

What Happened with the Ambani family?

SEBI has fined the Ambani family which include Mukesh Ambani, Nita Ambani, Anil Ambani, Tina Ambani and the various other firms linked to the Ambani group. It is because they have been alleged for violation of the takeover code regulations in 2000.

The case is because of the increase in the promoter stake of the Reliance Industries Ltd. (RIL) which is during January 2000. The promoter stake in the company was increased after the conversion of various warrants which was issues during 1994.

In January 2000, the promoter stake of Reliance Industries Ltd (RIL) had increased to 6.83% from the maximum limit of 5% according to SEBI. Securities Exchange Board of India has even alleged that the company or the promoter group had failed to make an offer to the minority investors providing them an opportunity to exit the company.

SEBI has said that the promoter group of Reliance Industries Ltd had failed to make an open offer as required under the norms issued.

SEBI has said that in the instant case the violation was not just committed for a particular year or once and for all but it continues till date, that is even now the promoters of Reliance Industries have the majority voting rights in the company.

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Adjudication Order and SEBI

In an 85-page adjudication order it was written that the violation of the statutory provisions by which the acquisitions of securities giving the notices that is the Ambani family has provided enhanced control by the exercise of voting rights, etc.

Which is a disobedience against the regulation and these are violations which are being continued so long as the voting rights are acquired by violating the letter and the spirit of the law.

SEBI has said that the notices have been alleged because they have been failed to make a public announcement, when they were acquiring more shares of the company to increase the promoter holdings. This has led the other shareholders to be deprived of their statutory rights and opportunity to exit from the target company.

This has led the promoter group of Reliance Industries Ltd to breach the provisions of Substantial Acquisitions of Shares and Takeovers (SAST) Regulations 1997. All these charges against the notices will make the instant matter grave.

The SEBI order has said that it has been difficult to ascertain the value of the unfair advantage made by RIL promoter group due to this violation.

SEBI had said that while determining the amount of penalty they have not found any amount which can be expressed as figures or any data which can be used to record the gain received by the promoter group because of this violation and the amount of loss which has been caused to the minority shareholders in the company as a result of the default that was committed.

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Fine To be Paid by Ambani Family

Under Section 15H of the SEBI Act which was amended in October 2002, a maximum penalty of INR 25 crore or three times the number of profits made out of the failure is allowed.

The Regulator has said that the penalty of INR 25 crore will have to be paid together by the 34 individuals who are named in the SEBI order which includes the mother of Mukesh Ambani and Anil Ambani and even the children of Mukesh Ambani and Anil Ambani. The amount is said to be paid within 45 days.

SEBI and Ambani

In November 2020, in reply to the regulator SEBI said the Ambani family that the issue of warrants and the issue of shares on conversion of warrants were not to subject to SEBI’s Substantial Acquisitions of Shares and Takeovers (SAST) Regulations 1997.

The Reliance promoter group had responded to SEBI saying that the initiation of the adjudication proceedings in the particular case with a large misappropriate delay was unreasonable, arbitrary and causes substantial prejudice to the notices.

FAQ

What is the number of Mukesh Ambani in world richest person?

Reliance Industries (RIL) Chairman Mukesh Ambani is the eighth richest person in the world with a fortune of $83 billion, according to the Hurun Global Rich List 2021.

Who is the CEO of Jio?

Atul Kansal is the current CEO of Jio.

How much did Ambani earn in lockdown?

According to the Oxfam report, Ambani earned Rs 90 crore per hour during the coronavirus pandemic.

Conclusion

The market regulator had issued the show cause notices (SCN) regarding this matter in February 2011. That is almost 11 years after the allegation of violation.