2000 (6) TMI 805 - HC - SEBI

Summary

Issues Involved:
1. Whether the respondent can review and alter the credit rating of the applicant without waiting for the annual audited balance-sheet and profit and loss account.
2. Whether the respondent's actions in reviewing and altering the credit rating were arbitrary and irregular.
3. Whether the applicant is entitled to an interim injunction restraining the respondent from altering the credit rating.

Issue-wise Detailed Analysis:

1. Review and Alteration of Credit Rating Without Annual Audited Balance-Sheet:
The plaintiff/applicant argued that the respondent should not review or alter the credit rating until the publication of the annual audited balance-sheet and profit and loss account for the year ending 30.11.1999. The applicant claimed that the review conducted by the respondent without waiting for the audited accounts was irregular and arbitrary. However, the court noted that there was no mandate in any documents filed by the plaintiff that required the respondent to perform credit rating only upon receipt of the annual audited balance-sheet. The court highlighted that the regulations and mandates allowed for continuous surveillance and monitoring of the ratings throughout the life of the debt instruments. The SEBI (Credit Rating Agencies) Regulation, 1999, which came into force in July 1999, also did not restrict the surveillance process to a procedural rigidity of just once a year.

2. Actions of the Respondent:
The respondent was engaged in the business of credit rating and was obligated to continuously monitor the rating of debt instruments during their lifetime. The respondent argued that they had been requesting information from the applicant since May 1998, but the information provided was either delayed or inconsistent. The respondent had considered downgrading the ratings as early as November 1998. Despite several opportunities given to the applicant to clarify inconsistencies, the explanations provided were unsatisfactory. The court found that the respondent had acted within their rights and obligations to continuously monitor and revise the ratings based on available information. The documents and regulations supported the respondent's actions, and there was no evidence to suggest that the review process was irregular or arbitrary.

3. Entitlement to Interim Injunction:
The court examined whether the applicant had made out a prima facie case for the grant of interim injunction. The relief sought in the application for interim injunction was ancillary to the main relief of declaration. The court emphasized that if the plaintiff was not entitled to the relief of declaration, they could not claim the ancillary relief of injunction. The court found that the applicant had not established a prima facie case, as there was no mandate requiring the respondent to wait for the audited accounts before reviewing the credit rating. The court also considered the balance of convenience and irreparable injury. It concluded that granting an interim injunction would prejudice the respondent's ability to fulfill their statutory obligations and could harm the interests of investors. The court noted that the applicant had not objected to the review process in their correspondence and had admitted to certain inconsistencies in their financial performance. The court also dismissed the applicant's allegations of mala fide actions by the respondent, as there was no documentary evidence to support such claims.

Conclusion:
The court dismissed the application for interim injunction, finding that the applicant had not made out a prima facie case, and the balance of convenience and irreparable injury favored the respondent. The court held that the respondent had acted within their rights and obligations to continuously monitor and revise the credit ratings based on available information. The court's observations were limited to the disposal of the application and would not affect the final decision in the main suit.