SEBI bars Anil Ambani's Reliance Infra from stock market until December 2011

As part of a consent order of the Securities Exchange Board of India (Sebi), Anil Ambani agreed to keep off trading in shares till December this year after two companies belonging to his group — Reliance Infrastructure (RInfra) and Reliance Natural Resources Ltd (RNRL) — were found violating rules on overseas loans.

The companies were fined Rs25 crore each and barred from investing in the secondary stock market for two years — till December 31, 2012.

But the restrictions do not apply to initial public offers (IPOs) or follow on offers, buybacks and open offers. Sebi also barred four of RInfra’s senior officials — Satish Seth, executive vice-chairman, and directors SC Gupta, Lalit Jalan and JP Chalasani — from investing in the secondary stock market directly till December 2011.

This is the largest settlement agreed to by an Indian company.

“SEBI is coming down pretty hard on transparency,” Akil Hirani, managing partner at Majumdar & Co, a law firm, told Bloomberg.

“I think the regulatory regime in India is much tighter than what it was a few years ago. This may be the first of many more strict and high settlement orders.”

Interestingly, the Rs50 crore-fine tops what Sebi collected in every single year through this route since 2007, when this process was first made available.

In fact, the figure is more than 50% of the total settlement charges collected by Sebi through consent orders in the past four years — which is estimated at Rs98 crore.

A consent order is an exercise to settle administrative or civil proceedings between a regulator and a person or entity who/which may prima facie be found to have violated securities laws.

The Anil Ambani Group preferred to call the settlement “extremely positive”. “It removes the uncertainty and huge costs involved if the case would have been dragged for a longer tenure. However, this settlement in no way amounts to admission of guilt,” Jalan said.

Deven Choksey, managing director, KR Choksey Securities, said though the perception from the order will be negative, “there is nothing beyond that. Companies can continue to access markets while promoters are curbed”, he said.

SEBI alleged that the two companies used proceeds from overseas borrowings to invest in the capital market.

SEBIi’s investigations revealed that RInfra and RNRL misrepresented the nature of investments in instruments such as yield management certificates and deposits, and the profits and losses from such investments in their annual reports for the years ended March 2007, 2008 and 2009, the regulator said in the statement.