Order under Sec 15-I (3) of SEBI Act 1992 in the matter of ICRA limited

SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
UNDER SECTION 15-I (3) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.
IN THE MATTER OF ICRA LIMITED [SEBI Registration No. IN/CRA/008/15]

Background

1. ICRA Limited (“ICRA” / “Noticee”), is a SEBI registered Credit Rating Agency (“CRA”), having its registered office at 1105, Kailash Building, 11th Floor, 26 Kasturba Gandhi Marg, New Delhi 110 001. The equity shares of the Noticee are listed on BSE Limited (“BSE”) and National Stock Exchange of India Limited (“NSE”).

2. On account of default committed by Infrastructure Leasing & Financial Services Limited (“IL&FS” / “Issuer”) and its subsidiary company, IL&FS Financial Services Ltd. (“IFIN”) on their obligations in respect of the Commercial Papers (“CPs”), Inter-Corporate Deposits (“ICDs”) and default on interest payments on its Non-convertible Debentures (“NCDs”), SEBI undertook an examination with respect to the role of the CRAs, including the Noticee in assigning rating to various NCDs of IL&FS. It was observed that IL&FS had defaulted on its obligations in respect of the CP and ICDs which were due for payment on September 14, 2018. The said CP was rated by the Noticee amongst other CRAs. Subsequently, IL&FS also defaulted in the interest payments on its NCDs on various dates i.e. September 17, 21, 26 and 29, 2018.

3. The examination indicated that, prima-facie, the Noticee was liable for the following violations:

a. Excessive reliance placed on the submissions of the management of IL&FS.
b. Failure to change the Rating Outlook or to place the rating under Credit Watch.
c. Failure to consider latest financials in the rating committee note presented on October 27, 2017

4. In view of the above, SEBI initiated adjudication proceedings against ICRA for alleged violation of Regulation 24(7) and Clauses 4 and 8 of Code of Conduct for CRAs, read with Regulation 13 of SEBI (Credit Rating Agencies) Regulations, 1999 (“ SEBI (CRA) Regulations”) and a Show Cause Notice dated December 17, 2018 (“SCN1”) was issued to ICRA in the matter.

5. The Adjudicating Officer (“AO”) vide AO order no. SS/AS/2019-20/6280 dated December 26, 2019 (“AO Order”), inter-alia, found that the Noticee, while assigning its credit rating to the NCD of IL&FS, failed to exercise proper skill, care and due diligence while discharging its responsibilities as a CRA and thereby violated the provisions of Regulation 24(7) and Clauses 4 and 8 of Code of Conduct of the CRAs read with Regulation 13 of SEBI (CRA) Regulations and imposed a penalty of Rs.25,00,000 on the  Noticee under Section 15HB of the Securities and Exchange Board of India (“SEBI”) Act, 1992.

6. SEBI examined the AO Order and observed that the penalty imposed by the AO appeared to be erroneous and not commensurate with the overall impact these violations had on the market. In view of the same, the competent authority granted approval to review the AO order.

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