2019 (6) TMI 1746

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....the appellant is challenging the legality of the order dated August 31, 2018 passed by the Adjudicating Officer ('AO' for short) of Securities and Exchange Board of India ('SEBI' for short) whereby a penalty of Rs. 3 lakhs has been imposed under Section 15-I(2) of the SEBI Act, 1992. 2. The facts leading to the filing of the appeal is that the appellant is a SEBI registered Credit Rating Agency (CRA). SEBI conducted an inspection of the appellant agency for the period April 1, 2014 to September 30, 2015 and found certain irregularities which violated various SEBI circulars and provisions of SEBI (Credit Rating Agencies) Regulations, 1999 ('CRA Regulations 1999' for short). Accordingly, a show cause notice was issued to show cause as....

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....ich provide that upon non-payment of interest on the principal amount, the CRA shall recognize the default at the first instance of delay. 5. The contention of the appellant that the default could not be noticed or acted upon on account of the Christmas season cannot be accepted and appears to be an afterthought. In the light of the aforesaid we do not find any error on the part of the AO. 6. The AO has found that GPL had defaulted on NCDs due for redemption on December 1, 2014 in spite of which the appellant failed to downgrade the rating to "default" instead of downgrading the rating to "BWR BB-". It was also observed by the AO that the details of the default and restructuring were not mentioned in the Rating Rationale dated Februar....

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....idering the default as well as the dialogue between the Company and with the investors with regard to reschedulement of the default the appellant recommended a revision of rating from "BWR A" to "BWR BB-". In our opinion due diligence was exercised. Thus, the order of the AO to this extent is not correct and cannot be sustained. 10. The AO also found that the founder director of the appellant had violated Clause 2.12 of IOSCO Code of Conduct Fundamentals for Credit Rating Agencies which provides as under:- "As per Point 2.12 of IOSCO Code of Conduct Fundamentals for Credit Rating Agencies states that "The CRA should not have employees who are directly involved in the rating process initiate, or participate in, discussions regard....