 "Reliance Industries, Reliance, RIL")
The Securities Appellate Tribunal (SAT) on Friday set aside an order by the market regulator against Reliance Industries Holdings, Reliance Industries Limited’s (RIL’s) chairman Mukesh Ambani and others issued in April 2021.
In 2000, the Securities and Exchange Board of India (Sebi) had imposed a penalty of Rs. 25 crore on RIL, its chairman Mukesh Ambani, Nita Ambani, Reliance Group chairman Anil Ambani, Tina Ambani, and seven others for alleged violation of takeover regulations.
Quashing the order, the tribunal has ordered Sebi to refund the penalty within four weeks.
“We find that appellants have not violated Regulation 11 (1) of SAST (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The imposition of penalty upon the appellant is without any authority of law. Consequently, in view of this, the Sebi order cannot be sustained and is therefore being quashed and appeal is being allowed,” said Justice Tarun Agarwala, appearing on behalf of the tribunal.
The matter relates to alleged irregularities regarding the issue of 120 million equity shares in January 2000 by RIL to 38 entities.
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Sebi in its order had alleged that acquisition of 6.83 per cent shares by RIL promoters was in excess to the ceiling of 5 per cent prescribed under the takeover regulations.
RIL had declared a bonus of 1:1 in 1997 and each warrant holder was entitled to receive four equity shares of the company upon payment of Rs. 75 per equity share. The company had filed a disclosure on the same in April 2000. However, Sebi initiated investigation following a complaint, two years later and issued a show-cause notice in February 2011.
The Sebi order, issued by an adjudicating officer, had observed that warrants by did not entitle the warrant holder to exercise voting rights and since the warrants were converted into shares in January 2000, it triggered the obligation to make an open offer.
In the order, SAT opined that there has been an inordinate delay in the issuance of show-cause notice and even if there is no period of limitation, the authorities are required to exercise their powers within a reasonable period.
The show-cause in the matter was issued 11 years after the alleged violations, while it took another nine years to decide consent application. In all, the order came after 21 years of delay.
“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 impugned order, thus, is liable to be set aside also on this ground,” it noted.
Further, the counsels for RIL had argued that the penalty of Rs. 25 crore was imposed under a section of Sebi Act which came into existence in September 2015 and in case of any violation, provisions present till the year 2000 should be applied.
However, Sebi had contended that though the shares were acquired 21 years back without making an open offer, the promoters continued to hold the shares and exercise voting rights thereon -- so the current rules can be applied.
“In our view, continuing violation does not mean that the provision existing on the date of passing the impugned order relating to penalty would apply. We have already held that the alleged violation is not a continuing offence,” said SAT.
“Thus, in our opinion, the provision relating to the alleged violation would apply on the date when the violation was committed,” said SAT.
The tribunal also pointed out that as per the provisions existing in 2000, the maximum penalty in this case of violation (if any) would have been Rs. 5 lakh.
