SAT backs Sebi's fresh show-cause notices to rating agencies in IL&FS case

Some rating agencies moved the tribunal seeking a stay on the second show-cause notices issued by Sebi in January 2020

The Securities Appellate Tribunal (SAT) has held that the Securities and Exchange Board of India (Sebi) has the power to issue a second set of show-cause notices to rating agencies in the IL&FS matter. It also said the “proceedings in pursuance to the second show-cause would continue”. 

In January 2020, Sebi had issued a second set of show-cause notices seeking an explanation as to why the penalty should not be enhanced.

Some rating agencies had moved the tribunal, seeking a stay on another set of show-cause notices issued by Sebi in January 2020.

"Having heard the learned counsel for the parties at some length, we are prima facie of the opinion that Sebi has the power to initiate proceedings under Section 15-I(3) of the SEBI Act," the SAT said in an order dated July 1 in an appeal filed by India Ratings. The SAT will further hear the matter after Sebi and India Ratings submit their replies.

In December 2019, Sebi had imposed a penalty of Rs 25 lakh on India Ratings and two other credit raters for violating the code of conduct while rating IL&FS for FY19. The SAT said: “We further direct that the proceedings in pursuance to the second show-cause notice dated January 28, 2020, will continue and Sebi will pass appropriate orders after giving an opportunity of hearing to the appellant (India Ratings) either through physical hearing or through video conferencing.”