Supreme Court allows SEBI to conclude proceedings cancelling Brickwork Ratings' licence

Supreme Court allows SEBI to conclude proceedings cancelling Brickwork Ratings' licence

The SEBI has been allowed by the Supreme Court to conclude the proceedings for cancellation of Brickwork Ratings' licence for allegedly violating various credit rating regulations.

The Karnataka High Court's order has been stayed which has rejected the SEBI's plea to vacate its earlier orders that restrained it from concluding proceedings with regard to cancellation of the Brickwork's license. The HC also stayed the SEBI's order that rejected the Brickwork's settlement application in August last year. The HC orders came on Brickwork's petitions seeking a stay on SEBI's proceedings against it on the grounds that it was not given a proper hearing.

The settlement proceedings filed by Brickwork was not maintainable on account of the statutory bar in terms of Regulation 5(2) of SEBI (Settlement proceedings) Regulation 2018 as the alleged default committed by the CRA had market-wide impact, caused loss to large number of investors and affected the integrity of the market, solicitor general Tushar Mehta and counsel Pratap Venugopal argued on behalf of Sebi. Mehta said that a party can't claim settlement as a vested right.

SEBI told the Supreme Court that "the lapses on the part of Brickwork are serious in nature as it compromises with the protection of interests of investors," while challenging the HC order. The settlement proceedings filed by Brickwork was part of a purely voluntary process of amicable settlement and SEBI was empowered to exercise its discretion and the CRA could not compel it to arrive at a settlement in respect of the alleged violations.

Brickwork was denied the principles of natural justice during the course of the enquiry that led to the impugned report, senior counsel CA Sundaram argued while opposing any stay order. The agency did not receive full and complete inspection of documents and such denial meant that the company was unable to fully and properly understand the charges against it, Sundaram said, adding that the fact that SEBI has chosen to settle with some and not others, without assigning reasons for the same, amounts to a denial of natural justice and is arbitrary.

After a joint inspection of Brickwork, which is one of the seven SEBI-registered credit rating agencies (CRA), was conducted by SEBI and the RBI between October 2018 and November 2019, the markets regulator observed several lapses in Brickwork's rating process and alleged that the CRA had failed to exercise proper due diligence and considerably delayed the disclosures about non-cooperation of the issuer.