SEBI imposes Rs 25 crore penalty on Mukesh, Anil Ambani and ors for violation of Takeover Regulations

The adjudicating officer (AO) of the Securities and Exchange Board of India (SEBI) has imposed a joint penalty of Rs. 25 crore on Mukesh and Anil Ambani along with their family members for violation of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011..SEBI had conducted an investigation into alleged irregularities relating to the issue of 12 crore equity shares in January 2000 by Reliance Industries Limited (RIL) at a price of Rs. 75 per share to 38 allottee entities..As per Regulation 11(1) of the Takeover Regulations, RIL was obligated not to make additional acquisition of more than 5% of voting rights in any financial year unless it made a public announcement to acquire shares. Since the RIL promoters and Persons Acting in Concert (PACs) did not make any public announcement for acquiring shares, it was found that the Ambanis violated the provisions of Regulation 11(1).."...I hold that the Noticees by not making a public announcement have violated and have been continuing to violate the provisions of Regulation 11(1) of the Takeover Regulations," the order passed by AO K Saravanan today stated. .Pursuant to the investigation, adjudication proceedings were initiated in 2011 against 36 RIL promoters and PACs, including Mukesh and Anil, their wives Nita and Tina, as well Akash and Isha, the children of Mukesh and Nita Ambani..Before the AO, the Ambanis had contended that initiation of adjudication proceedings against the noticees, seventeen years after the acquisition of the warrants and eleven years after the acquisition of shares was unreasonable and time-barred. The other contentions made in their defence included:The provisions of the 1997 Takeover Regulations are not applicable to the issue of warrants and conversion of warrants;The acquisition of shares by was exempt under Regulation 3(1)(c) of the 1997 Takeover Regulations;The noticees were not provided with a full inspection of documents in complete violation of the principles of natural justice..Prior to giving his reasons for the order, the AO noted that there are various other aspects pertaining to the investigation relating to violations spanning from the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, and Section 77(2) and 77A of the Companies Act, 1956. However, the present order, he said, would be limited to alleged violation of the Takeover Regulations..With regard to the delay in proceedings, the AO noted that the noticees had opted for settlement in August 2011, after which the matter was kept at abeyance. However, since they were not agreeable to the terms of the settlement arrived at in accordance with the Regulations, the settlement applications were rejected in May 2020, after which adjudicatory proceedings before the AO resumed. Thus, the AO found that there was no delay, noting,"In any event, even the delay, as argued, is not relevant to the present proceeding as the violation is a substantive violation in the nature of an "economic offence".".Further, it was held that the Ambanis and others committed a serious violation against the investors which has a "public flavour". "Thus the delay, if any, by SEBI is of no consequence where public interest outweighs the requirement of adjudication," the order said..The AO dismissed the contention of violation of principles of natural justice holding that all relevant documents were provided to the noticees. "Since all the documents which are relevant and relied upon in the instant proceedings have been provided to the Noticees, I am of the opinion that principles of natural justice have been duly complied with in the instant proceedings and no prejudice in filing reply has been caused to the Noticees," the order said. .The AO also rejected the contention that the provisions of the Takeover Regulations were not applicable to the present case..The Ambanis were also found to be in violation of regulations requiring the filing of disclosures pertaining to the allotment of RIL shares in 2000."...the failure to file the disclosures under Regulation 3(1)(c) of the Takeover Regulations was not just a technical violation but a deliberate concealment of important facts from the share-holders, for if such a resolution existed or if the Noticees had any desire of even subsequently informing share-holders about the identity before the allotment that they were the intended shareholders, they would have done so and claimed exemption. As discussed previously, compliance with the requirements of Regulation 3(1)(c) is necessary to claim exemption from making public announcement under Regulation 11(1) of the Takeover Regulations. Thus, the resulting failure to make the public announcement and the non-compliance of the open offer obligation being absolute and continuing in nature, was in violation of the requirement of Regulation 11(1) of the Takeover Regulations," SEBI held. .The AO proceeded to place reliance on a number of the Supreme Court judgments to hold as follows:"I note that the SEBI Act, 1992 is a social welfare legislation for the protection of investors and it is the paramount duty to interpret its provisions and to adopt such an interpretation that would further the purposes of law and if possible, eschew the one which frustrates it. Hence, it is necessary to uphold the obligation to give a public announcement of open offer to investors at large which obligation has not been complied with till date. Acceptance of any argument for not making a public announcement of an open offer would tantamount to total disregard to the concerns of the public share-holders as the violation is not one of mere procedural nature but goes against the very grain of the statue under consideration.".For these reasons, among others, the AO deemed it fit to slap a penalty of Rs 25 crore to be paid jointly by the Ambanis and others. They are required to make the payment within 45 days of the order, failing which SEBI can initiate recovery proceedings and realize the amount by attachment and sale of the noticees' movable and immovable properties..[Read Order]