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Last Updated : Feb 14, 2020 11:23 AM IST | Source: Moneycontrol.com

IL&FS case: ICRA & India Ratings plan to appeal against SEBI penalty

A penalty was charged to the rating agencies over the IL&FS case as they failed to assign ratings appropriate to the financial health of the company, and deliberately delayed the downgrading of the IL&FS' ratings.


Ratings agencies ICRA and India Ratings, are planning to appeal against show-cause notices issued to them by the Securities and Exchange Board of India (SEBI) in connection with IL&FS case.

A source close to development told Moneycontrol, "Two rating agencies out of the four that have been charged have planned to move the Securities Appellate Tribunal against SEBI in the coming week."

SEBI slapped a penalty of Rs 25 lakh on each of the three rating agencies ICRA, India Ratings and CARE Ratings, on December 26, 2019. This has been recently increased to Rs 1 crore via a fresh show-cause notice under section 15 (I) on February 7.

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When contacted by Moneycontrol, ICRA refused to comment, and India Ratings is yet to reply.

A penalty was charged to the rating agencies over the IL&FS case as they failed to assign ratings appropriate to the financial health of the company, and deliberately delayed the downgrading of the IL&FS' ratings.

Rating agencies suddenly downgraded the instruments of IL&FS in 2018 after the company defaulted on payments over its various instruments which include commercial paper, Non convertible Debentures (NCDs), Inter Corporate Deposits (ICDs), and payments related to the NCDs of its subsidiary IL&FS Financial Services.

SEBI received the forensic audit report of CARE Ratings after the Chairman of the company resigned on February 11. Two other credit rating agencies are yet to submit their investigation report with SEBI.

Based on the forensic Audit, SEBI could issue a new show-cause notice under section 11(B), which can bar the agencies from taking any claw back amount from the concerned officials who had given the rating.

This section in the SEBI Act allows the suspension of trading of any securities on the exchange, and also restricts access to the security markets. The section also suspends any office -bearer from taking up any position in the listed companies space.

Grant Thornton had also conducted the forensic audit for IL&FS, and has identified many anomalies in the rating of the company.

The Serious Fraud Investigation Office (SFIO) will also submit its report on rating agencies.

In another case, an adjudication officer had imposed a cumulative penalty of Rs 3 lakh on Brickwork Ratings over lack of due diligence in the downgrading the rating of NCDs of GPL, and the violation of regulation 24(7) due to incorrect disclosure as stipulated by a SEBI circular.

The SAT, through an order, set aside the adjudication order to the first charge and upheld second charge, and reduced the penalty payable to Rs 2 lakh. However, this order was not changed for increasing the penalty.

Corrigendum: A previous version of the article mentioned Brickwork India had been penalised by SEBI on December 26, 2019. The unintended error is regretted and has been duly corrected.

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First Published on Feb 13, 2020 08:33 pm

tags #ILFS #SEBI

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