The Securities Appellate Tribunal (SAT) has partly set aside the SEBI order on cancellation of Brickwork Ratings’ licence and directed the market regulator to reconsider the case for deciding on the quantum of penalty.
In January 2020, SEBI and the RBI undertook a joint inspection of Brickwork, where they found “several irregularities”. Following this, SEBI issued an administrative warning and directed it to rectify the discrepancies and take corrective measures.
During its inspection, SEBI had found several violations by Brickwork such as failure to follow a proper rating process, maintain records to support rating decision, delayed dissemination of information, failure to comply with timelines as per internal manual for completion of ratings and address conflict of interest issue.
On October 6 last year, SEBI had cancelled Brickwork’s licence and directed the credit rating agency to wind down its operations in six months for violation of various rules. On October 14, SAT had stayed the cancellation of licence till the pendency of the case, but had maintained the ban on on-boarding of new clients.
SAT in its order on Tuesday said the violations found by SEBI are routine operational errors, which have unnecessarily been escalated to regulatory proceedings and does not warrant cancellation of Brickwork’s licence.
Even the charge of conflict of interest is not that serious which, by itself, could warrant cancellation of the licence of the rating agency, it said.
Considering the totality of the violations, SAT said that the alleged violation of routine matters is not deliberate or fraught with malafides or fraud and therefore cannot result in the cancellation of the licence.
While partly affirming the violations noted in the inspection, SAT said the impugned order cancelling the certificate of registration as credit rating agency of Brickwork is quashed. The matter is remitted to SEBI for passing a fresh order on the quantum of penalty other than the order of the cancellation of the licence after giving an opportunity of hearing to Brickwork.
“While considering the quantum, the respondent will take into consideration the interim order passed by this Tribunal, where Brickwork was restrained from taking new clients as a mitigating factor,” said SAT.