SAT pares Sebi's Rs 1 cr penalty on CARE Ratings to Rs 10 lakh; stock gains

The tribunal, however, has affirmed the order pertaining to lapses in assigning credit rating of Reliance Communications debentures

The Securities Appellate Tribunal (SAT) has reduced the penalty levied on CARE Ratings by the Securities and Exchange Board of India (Sebi) from Rs one crore to Rs 10 lakh. The tribunal, however, has affirmed the order pertaining to lapses in assigning credit rating of Reliance Communications (RCom) debentures.

Share of Care gained 5 per cent to end at Rs 631.

Care had moved SAT against Sebi’s order dated July 24, 2020, imposing a monetary penalty of Rs 1 crore, for violating Regulation 15(1) and Clauses 3 and 8 of the Code of Conduct for Credit Rating Agencies under the SEBI (Credit Rating Agencies) Regulations, 1999.

SAT in its order stated that “Considering the aforesaid that it was a case of lack of due diligence for not having acted in a timely manner we are of the opinion that the maximum penalty of Rs one crore is highly excessive, harsh and arbitrary and does not commensurate with the violations.”

RCom had defaulted on the repayment of the principal amount of Rs 375 crore and interest of Rs 9.7 crore on February 7, 2017 and March 7, 2017. Delayed payment was made on April 10, 2017. Based on the third quarterly financial results of financial year 2017 as well as the fourth quarterly results of the financial year 2017, CARE Ratings had downgraded the ratings of non-convertible debentures (NCDs) of RCom from ‘A-’ to ‘BB’ and thereafter to ‘D’.

Later the market regulator sought comments from the rating agency and after analyzing the comments and taking into account other factors issued a show cause notice. The notice alleged that there was failure on the part of the Care Ratings to monitor the ratings and factors affecting the credit worthiness of the company in a timely manner resulting in a significant delay in conducting the rating process and downgrading the ratings.