9911796707
TMI Blog2020 (8) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... seeks decree of mandatory injunction directing the defendant to withdraw the said credit rating rationales from the physical as well as electronic records of the defendant including on the world wide web. By the application under Order XXXIX Rule 1 and 2 CPC the plaintiff seeks an interim injunction in terms of prayers made in the suit. 3. The present suit and the application came up before this Court on 13th May, 2020 when summons in the suit were issued returnable before the learned Joint Register for 15th July, 2020 and in the application notice was issued returnable for 19th May, 2020. 4. On 19th May, 2020 learned counsel for the defendant entered appearance and stated that he had already prepared the reply and filed the same and liberty was granted to the learned counsel for the plaintiff to file rejoinder and the application was listed on 22nd May, 2020. During the course of arguments learned counsels for the parties agreed that even in the suit the parties have to lead no further evidence except the documents filed and since the arguments in the suit would also be based on the documents filed by the parties, the arguments be heard for disposal of the suit. Thus, after hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiff and there is no negative rationale permitting downgrading of the rating. 7. The main business of the plaintiff is with Tamil Nadu Generation and Distribution Corporation Limited (in short 'TANGEDCO'). The major reason why the credit rating of the plaintiff company has been shown in the negative by the defendant in its letter dated 30th April, 2020 is that since TANGEDCO is stressed, the outstanding dues to be received by the plaintiff company are uncertain. Learned counsel for the plaintiff submits that TANGEDCO is a government concern and thus there can be no uncertainty to receive the outstanding dues. The plaintiff has a letter of credit in its against TANGEDCO for a sum of Rs.120 crores and merely because the plaintiff has presently not invoked the letter of credit it cannot be held that the receiving of the outstanding dues by the plaintiff from TANGEDCO is uncertain. 8. Referring to Clause-G (i) and (ii) of the agreement dated 15th June, 2016 between the parties, learned counsel for the plaintiff stated that once the plaintiff protested to the downgrading of the credit rating, the defendant could not have published the same on its website. The plea of the defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ratings over average time on the basis of foreseen development prospects. To formulate the opinion the analyst and the Rating Committee members are required to consider various factors, which include the credit strengths and credit challenges. The rating process requires a balance of publishing timely ratings that are predictive of an issuer's credit profile while avoiding precipitous ratings that are prone to significant reversals and lead to volatile and erratic ratings. Only after balancing the conflicting factors, the rating committee members who are independent professionals render their opinion based on their wisdom, knowledge and past experience and expertise, as a result of which the element of prognosis is inherent in a rating. Even the highest rated instrument carries certain degree of credit risks. Thus, a credit rating is a predictive opinion, dependent on a subjective and discretionary weighing of complex factors within an established methodology. Though learned counsel for JPL argues that in terms of Regulation 21 read with Regulation 24(3) and (4) assignment of a rating is a decision of the Rating Committee, however, it is nothing more than an opinion as defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of this agreement, rating requisition form and all schedules and annexures, each as may be amended, supplemented or modified from time to time. ii. "Credit Rating" or "Rating" refers to evaluating the capabilities of a company to timely meets its debt obligations expressed in the form of standard symbols or in any other standardized manner, assigned by ICRA and used by your Company, to comply with a requirement specified by the SEBI (Credit Rating Agencies) Regulations, 1999 and relevant guidelines & circulars issued by Reserve Bank of India, from time to time. A Credit Rating does not address any other risk, including liquidity risk, market value risk, or price volatility. Any Rating must be construed solely as a statement of opinion and not a statement of fact. A Credit Rating is not an offer, invitation, inducement or recommendation to purchase, sell or hold any securities or otherwise deal or act in relation to any issue or Bank Facility(ies), to which this Agreement relates or otherwise in connection with any associated transaction, entity, or matter. References in this Agreement to "rating" or "credit rating" also encompass any revalidation of Rating and the terms of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances. ICRA reserves the right to revise the Rating Fee/ Surveillance Fee payable by you under this Agreement subject to maximum of 0.05% of the Rating Fee/Surveillance Fee. C. Disclaimer I. Disclaimer of advice: We are not: (a) providing an audit opinion any financial, legal, tax, advisory, consultative or business services; or (b) advising on structuring, drafting or negotiating transaction documentation. You should take independent legal, tax, financial and other advice when structuring, negotiating and documenting transactions. You agree that neither a Rating nor any discussions with ICRA's analysts constitutes advice on business operations. II. Disclaimer of warranties: All information, including the Ratings and other communications, provided by ICRA relating to you, this Agreement, the facility or the Transaction is provided "as is" and without representation or warranty of any kind in particular, neither ICRA nor its agents make any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information or communication. III. We are an independent rating agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt an issuer rating as a securities rating. E. Tenure of Agreement I. This Agreement shall remain valid till the earlier of the date that the Rating assigned is withdrawn or the date that there are no longer any obligations outstanding under the Bank Facility. This Agreement cannot be terminated by your Company once it has accepted the Rating. II. Notwithstanding the clause E (I) above, the provisions of clauses L (Warranty), M (Confidentiality); N (Applicant Confidentiality Unpublished ratings), O (Indemnification), P (Limitation of Liability), Q (Warranties with respect to information provided to ICRA), R (Use of information) and U (IV) shall survive any termination of the Agreement. F. Changes in Rating I. Subject to the terms and conditions of this Agreement, ICRA will keep the Rating under surveillance until the earlier of the date that the Rating is withdrawn or the date that there are no longer any obligations outstanding under the Bank Facility. Following surveillance, ICRA may reaffirm, upgrade, downgrade, suspend, or withdraw the Rating; further, it may assign an outlook, or change or withdraw the outlook previously assigned; it may also place the Rating (previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of misstatement by your Company, ICRA shall have the right to disclose the assigned Rating in public documents and/or publicity material and/or other forum. H. Revalidation of the Rating I. The rating assigned to the Bank Facility of your Company shall require revalidation if there is any change in the size or structure of the Bank Facility. I. Suspension/withdrawal of rating I. ICRA shall suspend/withdraw the assigned Rating in accordance with its suspension/withdrawal policy in force. II. Suspension may be revoked on receipt of renewal request from your Company. III. Subsequent revival of the suspended rating will not be subject to any acceptance. M. Confidentiality I. ICRA's confidentiality: "Confidential Information" means any information regarding your Company or the Bank Facility rated by ICRA under this Agreement that ICRA receives from you, or your respective group companies or authorized agents in connection with ICRA's services accompanied by a written notice specifying the confidential nature of such information. The term "Confidential Information" does not, however, include (i) information that is or becomes publicly known other than by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed by ICRA, such revalidation must be kept strictly confidential, and should not be disclosed to any person or entity without ICRA's prior written consent. N. Applicant Confidentiality for Unpublished ratings The following additional confidentiality provisions are applicable to any unpublished rating or other opinion delivered by ICRA hereunder, i.e., any rating or other opinion not disclosed by ICRA to the general public at the time of delivery by ICRA, including, without limitation, any Rating during the 7 (seven) days acceptance period and thereafter in the event that the Company does not accept the Rating. For the purpose of this Agreement, "ICRA's Confidential Information" means any non-public information that ICRA discloses to either of : (i) you or any of your agents; or (ii) if different, any relevant entity on which a rating is requested or whose issuances are requested to be rated under this Agreement (each, a "Rated Entity") or its agents. ICRA's Confidential Information includes any rating and/or other opinion we deliver in connection with this Agreement that we do not also disclose to the general public at the time of delivery You agree to ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used to accept the rating and hence, the same could not have been published. In case acceptance by JPL is not treated as a pre-condition for publishing the rating by ICRA, then Clause G(I) of the agreement between the parties would be rendered nugatory. Clause G(II) stipulates that ICRA has a right to publish the rating as and when required by government authorities or any other statutory authority. The impugned publication has not been done by ICRA pursuant to the requirement of any government or statutory authority. By publishing the credit rating, ICRA has violated Clauses M and N of the agreement providing for confidentiality. Reliance of ICRA upon Clause D to defend its action or to plead credit rating binding on JPL is totally misplaced as Clause D of the agreement is functioned upon 'acceptance/non-acceptance of the credit rating' and 'use of the credit rating by the client'. On a harmonious reading of Clauses D and G of the agreement, the only conclusion that can be arrived at is that ICRA could conduct its rating exercise any time and upon declaring its credit rating, it was upon the JPL to accept or reject the same, which JPL specifically refused on 30th April, 2020. Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular, surveillance of the rating is critical and dissemination of the rationale has to be completed within the specified time limit. Further, any delay in the time lines to disclose on the website affects the beneficiaries. Though time for acceptance by the issuer is provided in case of initial rating, however, no such time is provided in case of surveillance which mandates that the rating is to be disseminated within five working days of the decision of the rating committee. Thus, from the Master Circular of the SEBI itself, it is evident that the acceptance of the issuer is not required for dissemination of rationale for cases under surveillance. In the event of non-publication of the rating, the same may amount to an indicative rating which is barred by SEBI. The Master Circular of the SEBI further require publication of the rating irrespective of the non-cooperation of the issuer including non-payment of fee in terms of Regulation 16(3) read with Clauses 2.9, 3.3.3 and 3.3.7 of the Master Circular. Publication of the credit rating and rationale by the credit rating agency in a timely manner plays a critical role in protection of the interests of the investors in security mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, Clause-G (I) provides that ICRA is required to communicate to JPL its rating decisions in terms of the assignment or change in the rating in writing and whether to accept the same and use the initial rating will be upon the company. In case there is no protest and the rating is accepted, ICRA has a right to publish the rating or any change or suspension or withdrawal of the rating on its regular methods of dissemination. ICRA further reserves its right to disclose the rating, whether or not accepted by JPL as and when required by the government, statutory, regulatory or judicial or quasi judicial authorities etc. 23. Case of the ICRA is that it is only that only the initial rating can be accepted or objected to by JPL and subsequent rating cannot be objected to, once the initial rating is utilized to avail the credit facility. However, even then it has been reviewed by a Review Committee comprising of other persons pursuant to the representation of JPL dated 26th April, 2020 and only after the Review Committee decided to maintain the downgraded rating that the letter dated 30th April, 2020 was communicated to JPL and the rating put up on the website. 24. For the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed ratings during the lifetime of the securities, unless the rating is withdrawn. Thus if the security subsists and is pending all published ratings are bound to be reviewed periodically even if the client does not cooperate with the Credit Rating Agency and complies with its regulation. Further the Credit Rating Agency cannot withdraw a rating as long as the obligations under the security rated are outstanding unless the company whose security is rated is wound up or merged or amalgamated with the another company or as may be specified by SEBI from time to time. 26. Further the Code of Conduct i.e. IOSCO Credit Rating Agency Code defines "Credit rating action" as 'to determine an initial credit rating, an upgrade of an existing credit rating, a downgrade of an existing credit rating (including to a default category), an affirmation of an existing credit rating, or a withdrawal of a credit rating'. Thus after the initial credit rating is assigned, the action of the credit rating agency in the form of credit rating action continues by upgrading or downgrading or maintaining the existing credit rating or withdrawal of the credit rating. 27. In this regard it would also be relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 by the CRA. 3.3.6. Timelines of review and Press Releases a. In order to enable CRAs to disseminate information on ratings promptly through press releases as per requirements of Regulation 15 and 16 of SEBI (CRA) Regulations, following is clarified: i. Initial Rating: Scenario Timelines - immediately but not later than Acceptance of Rating/ Appeal for Review of Rating by the Issuer 5 working days of communication of rating by the CRA to the Issuer Disclosure of rating as non-accepted Rating In case rating is not accepted by the Issuer within a month of communication of rating by the CRA to the Issuer, the same shall be disclosed as Non-Accepted Rating on the CRA's website Dissemination of Press Release on CRA's website and intimation of same to Stock 2 working days of acceptance of Rating by the Issuer Exchange/ Debenture Trustee ii. Periodic Surveillance: Scenario Timeline - immediately but not later than Dissemination of Press Release on CRA's website and intimation of same to Stock Exchange/ Debenture Trustee 5 work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Stock Exchange/Debenture Trustees within two days. However, in respect to periodic surveillance there is no provision of a period of one month from the date of communication wherein the issuer has to accept or not accept the rating and within five working days of the Rating Committee Meeting the rating has to be disseminated by press release on Credit Rating Agency's website and duly intimated to stock exchange/debenture trustees. Clause 3.3.9 also provides that despite delay where credit rating is reviewed but not completed within the due date on completion thereof the same will be promptly disclosed on the website. 29. Thus the combined reading of SEBI CRA Regulations and RBI Master Circular clearly depict that as far as the initial rating is concerned, if the same is not accepted, then the same will not be published by the Credit Rating Agency however, once an initial credit rating is accepted and published based whereon a party seeks financial facility, during the pendency of the said financial facility, the Credit Rating Agency is mandated to conduct periodic surveillance and even if subsequent rating opined by the Credit Rating Agency during the period of surveillance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l' which has been published by ICRA. Further clause (N) does not pertain to the rating actions under surveillance and applies to initial rating which if not accepted is unpublished and based thereon no financial facility is raised. 33. Learned counsel for JPL further relied upon the decisions reported as 1973 (2) SCC 825 Delhi Development Authority vs. Durga Chand Kaushish (supra) and 1991 (1) SCC 412 M.O.H Udman & Ors. vs. M.O.H Aslam (supra) to contend that if two constructions of the document are possible, the one which will not render a provision nugatory has to be adopted and that the intention of the parties must be gathered from the language used in the contract. As noted above, clause (B) of the agreement between JPL and ICRA clearly defines the scope of work and that once the initial credit rating is assigned and accepted, ICRA shall subject to clause (F) keep the rating under surveillance during the lifetime of the bank facility, that is, such time that any amount is outstanding against it or the sanction remains valid whichever is earlier. Once based on the credit rating a party seeks a bank facility it cannot thereafter want the Credit Rating Agency to not conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed JPL not to enforce the letter of credit. While awarding the credit rating ICRA failed to note the rating drivers in favour of JPL, that is, (i) additional income of about 430 crores per year from JSPL by way of interest on loans, w.e.f. the 1st quarter of 2019-2020, which gives a quantum jump to the loan serviceability by JPL; (ii) new short term PPA of 200 MW with OPJ Industrial Park at 3.90/kwh; (iii) although repayments increased from Rs.497 crores in F.Y.2019 to Rs.695 crores in F.Y. 2020 and are increasing to more than Rs.800 crores from F.Y.2021 onwards, plaintiff has already served repayments of Rs.695 crores in F.Y. 2020 which amount would increase to Rs.800 crores in F.Y. 2021. Although repayment of principal is getting increased by Rs.105 crores in F.Y. 2021 as compared with F.Y. 2020, however, due to repayment of Rs.695 crores in F.Y. 2020, there will be reduced interest outgo by Rs.75 crores in F.Y. 2021, thus the net increase on account of debt obligation is only by Rs.30 crores; and (iv) out of Rs.800 crores repayment in F.Y. 2021, and post the second moratorium provided by RBI now the revised repayment for F.Y. 2021 stands at Rs.583 crores. The Plaintiff having al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive position; past track record; and force majeure risk; (ii) industry risk drivers, which includes regulatory risk; (iii) financial risk drivers, which includes: adequacy of future cash flows; profitability; leverage and coverage indicators; liquidity and financial flexibility; tenure mismatches and risks relating to interest rates and refinancing; foreign currency related risks; debt transaction structure; accounting quality and contingent liabilities/off balance-sheet exposures in addition to management quality and corporate governance and parentage. The financial risk assessment is not done in isolation but in conjunction with the business and industry risks that the entity is exposed to. Since the prime objective of the rating exercise is to assess the adequacy of the issuer's debt servicing capability, the defendant draws up projection on the likely financial position of the issuer under various scenarios. The extent of deterioration of credit profile on account of pandemic is being considered for all entities but the same is factored into depending upon their sector and their financial position. The limited exemption provided by SEBI under its circular dated 30th March, 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance such conflicting factors and exercise their independent professional judgment, by relying on, amongst other things, their past experience, to apply these various factors to the available information, in the specific context of that point in time and consider likely outcomes. 41. As per ICRA, the rating methodology used for rating the facilities of JPL were; Corporate Credit Rating Methodology, Rating Methodology for Thermal Power Producers and Liquidity analysis of the entities in nonfinancial sector. The risk analysis framework used by ICRA for thermal power producers requires balancing of various factors and can be broadly divided into the following: (i) Business risk drivers which include operating risk; demand and tariff risk; counter party credit risk and force majeure risk. (ii) Industry risk drivers which includes regulatory risk (iii) Financial risk drivers, which includes adequacy of future cash flows; profitability; leverage and coverage indicators; liquidity and financial flexibility; tenure mismatches and risks relating to interest rates and refinancing; foreign currency-related risks; debt transaction structure; accounting quality; and contingent lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plaintiff's overall receivables position. Sizeable amount of funds blocked in the receivables continue to have a bearing on the Plaintiff's liquidity profile, which remains stretched, as reflected in consistently high working capital limit utilisation averaging at 93% in 9M FY2020 (over 95% in Q3 FY2020 and 96% as on April 1, 2020). (iii) In this context, even in the last rating rationale (dated July 29, 2019), it was duly highlighted that the Stable outlook on the ratings reflected an expected improvement in Plaintiff's receivables position by the end of FY2020. Additionally, Defendant had noted a revival in activity in medium/long-term PPAs in the industry and Plaintiff's favourable positioning in the tenders, which provided comfort on the Plaintiff's ability to secure incremental PPAs. Plaintiff's inability to achieve any of the above parameters was highlighted in July 2019 as a rating sensitivity. (iv) Further, while Plaintiff's repayments remained moderate at Rs. 367 crore and Rs. 497 crore in FY2018 and FY2019, respectively, these repayments increased to Rs. 830 crore in FY2020 (Rs. 695 crore, excluding the March 2020 instalment which is under moratorium as per the RBI's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 and November 1, 2016. B. In view of the nationwide lockdown and the three month moratorium/deferment on payment permitted by RBI, a differentiation in treatment of default, on a case to case basis, needs to be made as to whether such default occurred solely due to the lockdown or loan moratorium. C. Accordingly, based on its assessment, if the CRA is of the view that the delay in payment of interest/principle has arisen solely due to the lockdown conditions creating temporary operational challenges in servicing debt, including due to procedural delays in approval of moratorium on loans by the lending institutions, CRAs may not consider the same as a default event and/or recognize default. Appropriate disclosures in this regard shall be made in the Press Release. D. The above shall also be applicable on any rescheduling in payment of debt obligation done by the issuer, prior to the due date, with the approval of the investors/lenders. E. The above relaxation is extended till the period of moratorium by the RBI. 3. Extension in timelines for press release and disclosures on website A. Considering that the CRAs are dependent on the issuers and third parties for infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the receivables of JPL did not increase, the repayment would be stretched. Admittedly in this year there was no new agreement entered into by JPL to supply of further power. Further by clause (3) of the Circular dated 30th March, 2020 issued by SEBI the extension of time was granted to credit rating such as ICRA to complete the same in the extended period and issue a press release on the website thereafter. Hence JPL cannot derive any benefits from the Circular of SEBI dated 30th March, 2020. As against the plea of SEBI's Circular dated 30th March, 2020, the reasoning of ICRA to down grade as noted in para 42 above, inter alia being the inability to secure incremental PPAs and receivable position from TANGEDCO which a major client of JPL being uncertain; appear to be plausible and cannot be termed to be arbitrary or suffering from non-application of mind. 45. After the rating dated 24th April, 2020 was communicated to the JPL, JPL submitted its detailed representation dated 26nd April, 2020 relevant portion whereof is as under: "The entire power sector has seen a lot of stress over the last few years. A large number of plants had to shut construction and about 10000MW of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (i) Inability of Jindal Power Limited (JPL) to secure long/ medium-term power purchase agreements (PPAs) for two-thirds of its 3,400- MW installed capacity (ii) Favourable steps being taken by the Government of India to address the issue of delayed payments by various State Electricity DISCOMS. (ii) Delay in realisation of receivables from Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO). (iii) JPL's competitive capital as well as cost-efficient operations supported by the location of its plant in proximity to various coal blocks and linkage for part capacity, which enables it to compete effectively on tariffs. (iv) The Stable outlook reflects ICRA's expectation of comfortable credit metrics in the near-term, supported by PPAs in place for ~32% of its installed capacity, increased interest income from JSPL, which is supplementing the company's operational cash flows, and an expected improvement in receivables position by the end of FY-2020. Positive Aspects in 2020 Negative Aspects in 2020 (i) Debt exposure reduced from Rs. 7200 Crs approx. to Rs. 6500. Same as 2019 (ii) The Plaintiff has bid for 420 MW and is placed at 2nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is likely to be increased by Rs.800 crores in the financial year 2021 however, the opinion cannot be faulted merely on the basis that JPL was able to manage substantial repayments, as the reason given by ICRA is that despite increase in repayment obligations of JPL there were still high debt levels and suboptimal capacity utilization. As noted above, the credit rating of the company is based on the futuristic position of the company to clear its debt liability and the same is not dependent merely on the fact that in the preceding year, debts had been cleared. The opinion of ICRA as primarily based on the fact that though in the previous year there were increased repayments of debt, however, the debt liability was still high coupled with the fact that JPL could not procure contract to optimally utilize its power generation and was utilizing power generation only to the extent of 1/3rd and that the primary client of JPL being TANGENDCO, the time for recovery of its dues was increasing as in the past thereby making the liquidity and debt paying capacity of JPL stretched. 52. Considering the fact that opinion of ICRA is rendered after taking into account all positive or negative fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
