SAT overturns Sebi order against Ambani brothers

Mumbai: The Securities Appellate Tribunal (SAT) on Friday set aside the Securities and Exchange Board of India’s (Sebi’s) April 2021 penalty of ₹25 crore on Mukesh Ambani, Anil Ambani, Reliance Industries Holding, and eight other entities for alleged violation of takeover regulations in a more than two-decade-old case.

While SAT observed that the “inexplicable and inordinate” delay on Sebi’s part to impose a penalty is reason alone for setting aside the order, the bench led by Justice Tarun Agarwala held that it found the “appellants have not violated Regulation 11 (1) of SAST (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The imposition of penalty upon the appellants is without any authority of law. Consequently, in view of this, the Sebi order cannot be sustained and therefore quashed, and the appeal is allowed.”

The tribunal added that it was informed that the penalty amount was deposited with the regulator. Since the bench set aside the Sebi order, the market regulator has been directed to refund ₹25 crore within four weeks.

The bench observed that a penalty of ₹25 crore could not have been imposed, and, even assuming that the violation had occurred, a maximum penalty of ₹5 lakh could be imposed.

The order comes after an appeal was filed by the Ambanis and Reliance Industries Holding challenging the Sebi order of 7 April 2021.

The case involves Reliance Industries Ltd (RIL) issuing shares worth ₹12 crore to 38 entities in January 2000 as a conversion of warrants, which Sebi deemed a breach of takeover regulations.

It was claimed by the regulator that RIL’s promoters acquired 6.83% of the company with a few other entities by converting 30 million warrants issued in 1994, thus exceeding the 5% limit prescribed in the takeover regulations for promoters.

Sebi regulations deem that if a promoter acquires more than 5% of voting rights in any financial year, then they need to make a public announcement.

The capital market watchdog issued show-cause notices to RIL’s promoters in February 2011, and six months later, some of the entities filed settlement applications. Sebi rejected their settlement applications after nearly a decade of filing.

RIL promoters then initiated legal proceedings for a significant lapse of time in settling the case.

The markets regulator imposed a joint penalty of ₹25 crore on Reliance Industries Holding, Mukesh and Anil Ambani. Tina, Nita, Isha Ambani, Kokilaben Ambani, and Reliance Realty were also part of the matter, along with some other entities.

“Since the promoters and PACs (persons acting in concert) have not made any public announcement for acquiring shares, it is alleged that they have violated the provisions of regulation 11(1) of Takeover Regulations,” the regulator’s order held.

Harish Salve, senior counsel for Reliance and the Ambani family, argued that imposing an obligation to make an open offer to acquire further shares on persons who have acquired warrants was nothing but a retrospective application of the SAST Regulations. It was contended that the plain language of the SAST Regulations makes it clear that the regulation does not apply retrospectively. Salve also informed the bench that SAST regulations came into force on or after 20 February 1997 and, therefore, the question of applying the SAST regulations retrospectively did not arise.

Sebi, in turn, defended itself, stating that there was no delay in the matter.