Ramdev’s guarantee to his followers that anyone who invests in Ruchi Soya shares will become a crorepati is a serious breach of norms
Patanjali founder Ramdev’s attempt to get his followers to invest in Ruchi Soya Industries Ltd during a yoga session has landed him in a regulatory soup.
The Securities and Exchange Board of India (Sebi) has asked Ruchi Soya to explain why the yoga guru violated regulatory norms, two people with direct knowledge of the matter said, seeking anonymity.
“The Sebi letter seeking an explanation, sent on 28 September, is for alleged violation of insider trading norms, prevention of fraud, unfair trade practices and investment adviser regulations," one of the two people said.
“A notice was sent to bankers handling Ruchi Soya’s follow-on public offer (FPO) and the compliance team, seeking clarification on the statements by Ramdev. The bankers and the compliance team have duly responded to it," said the second person.
Email queries sent to Ramdev’s media team and Sebi remained unanswered.
The capital markets regulator sent the letter after a video clip of Ramdev urging thousands of his followers to invest in the Ruchi Soya stock during a yoga session aired on Aastha TV went viral. Patanjali acquired Ruchi Soya in 2019 through the insolvency process.
“Nowadays, there is a lot of buzz on the Ruchi Soya FPO. Now, do you want to become a crorepati? I will give you the mantra to become a crorepati. I have just learnt the mechanisms of investing in the share market. To trade in shares, you require a demat account. So, open a demat account today," Ramdev is heard saying in the video clip. So far, it appears to be an attempt to educate his followers about investments. But the appeal soon moves into murky territory.
“Get a demat account when I tell you, and buy Ruchi Soya shares. After Ruchi Soya, buy Patanjali (Ayurved) shares," he added. Though Patanjali is not a listed entity, the company has announced its intention to go public.
“For Patanjali, I will do more. I need to talk in limits. In capital markets, there is a term called market cap. Patanjali’s brand equity, I have to limit my speech here. Ruchi Soya’s FPO is ongoing. You never know someone can get me stuck in legal matters; that’s why I am deliberately saying Patanjali. The world is shrewd. Get Patanjali’s assessment done by any agency, and the market cap will be in thousands of crores. So, anyone who invests in shares of Patanjali and Ruchi Soya cannot be stopped from becoming a crorepati. I am giving you this guarantee in the morning. But don’t buy or sell; that’s a gamble. Buy shares, sit tight and take Samadhi (meditation)," Ramdev said in the video.
While Ramdev does not have any personal holdings in either Ruchi Soya or Patanjali, he is the face of these two fast-moving consumer goods brands. He is also a non-executive director for Ruchi Soya, which legally makes him an insider.
So, when Ramdev asks his disciples to buy when he gives the signal, he is passing along and stating his intention that he will pass along inside information even in future. This is a violation of norms to prevent insider trading.
In the securities markets, there are no guarantees. So, anyone who offers guarantees is again in violation of Sebi norms applicable to listed companies and other intermediaries.
Thus, Ramdev’s guarantee to his followers that anyone who invests in shares of Ruchi Soya will become a crorepati is a serious breach of regulatory norms.
This can also be categorized as unsolicited investment advice from a person who is not registered as an investment adviser.
“Sebi is duty-bound to investigate such statements to ascertain the motive, whether a statement which has been made is true or false is immaterial if a representation has been made in a reckless and careless manner. Sebi also investigates the timing, the reason and trading by company-connected persons around the time of such statements. Such cases are investigated as a fraudulent and unfair trade practice because the statement of the functionaries may impact the prices of the securities," said Sumit Agrawal, founder, Regstreet Law Advisors and a former Sebi officer.
It isn’t that Ramdev is not aware that this is legally troubling. He says as much in his speech. So, even the argument of being new to equity markets, an inadvertent mistake, may not hold much water.
This is not Ruchi Soya’s first brush with the markets regulator. Charges of manipulation of Ruchi Soya’s shares had surfaced after its relisting on 27 January 2020 post its bankruptcy resolution. The shares which began trading at ₹16.5 had shot up to ₹1,519 by 26 June 2020, a whopping 8,764% increase in just five months.
The regulator had to tweak the rules and ensure that a stock relisting after a bankruptcy resolution needs a minimum of 5% public float. Earlier, the requirement was 1% public holding and increased to 10% within 18 months of relisting.
In concurrence with the erstwhile rules, Ruchi Soya is currently selling shares to increase the public float to 10%. This follow-on public offering is likely to fetch the company ₹4,300 crore.