SC dismisses Sebi’s Rs 25-crore penalty plea against Mukesh Ambani in RPL stock manipulation case

The Supreme Court on Monday dismissed a move by the Securities and Exchange Board of India (Sebi) for enforcement $Reliance Industries Limited (RIL) Chairman and Managing Director Mukesh Ambani fined Rs 25 crore for alleged stock manipulation in November 2007 involving Reliance Petroleum Limited (RPL) .

Reliance Petroleum merged with RIL in 2009.

“No question of law is raised in this case. Dismissed,” the court said.

A two-judge bench of Justices JB Pardiwala and R. Mahadevan agreed to hear Sebi’s broader case against RIL on December 2 but declined to hold Ambani personally responsible for the alleged conduct.

Sebi challenged a Securities Appellate Tribunal (SAT) order from December 2023 that overturned the total $70 crore for RIL, Ambani, Navi Mumbai SEZ and Mumbai SEZ.

The Supreme Court upheld the decision of the State Administration of Taxation and agreed to revoke the penalty. The court upheld Sebi’s pre-2019 interpretation of Section 27 of the Sebi Act, which did not impose vicarious liability on individuals such as directors unless they were directly involved in or aware of corporate irregularities. This interpretation changed with amendments in March 2019, which introduced vicarious liability of directors and key personnel.

Prior to the amendment, Sebi did not recognize vicarious liability (i.e., personal liability for corporate actions) unless direct involvement or knowledge was proven. After the amendment, directors, key management personnel and other senior managers can be held vicariously liable for corporate violations.

However, the State Administration of Taxation clarified that this amendment cannot be applied retroactively, thus insulating Ambani from liability in the 2007 case.

The case stems from Sebi’s November 2007 investigation into RPL’s trading activities. Sebi accused RIL of manipulating the market by appointing agents to take short positions in RPL futures while trading RPL shares in the spot market. According to Sebi, RIL’s trading in the last few minutes of trading on November 29, 2007 resulted in a sharp decline in RPL prices, affecting futures settlement. Sebi held that Ambani, as a key RIL official, was responsible for these actions.

Sebi has also accused Navi Mumbai SEZ and Mumbai SEZ of funding the alleged scheme by providing funds to agents, implying their complicity.

The SAT overturned the penalties, criticizing Sebi’s 10-year delay in issuing show-cause notices. The SAT ruled that Sebi should initiate the adjudication process simultaneously with the Section 11B proceedings instead of waiting for the latter to be concluded.

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The tribunal also held that Sebi violated the principles of natural justice by withholding key documents of Navi Mumbai SEZ and Mumbai SEZ. It dismissed the conspiracy charges as speculative and lacking concrete evidence.