TMI Blog2020 (11) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject matter involves analysis by financial experts and the petitioner is having effective alternative remedies, we dismiss this writ petition as not maintainable. The petitioner is at liberty to avail the in-house remedy available to them or move Securities and Exchange Board of India(SEBI) directly by filing a complaint against the third respondent. - W.P.(MD)No.8037 of 2020 and W.M.P.(MD)Nos.7469 & 9960 of 2020 - - - Dated:- 12-10-2020 - THE HONOURABLE MR. JUSTICE G.R.SWAMINATHAN For Petitioners : Mr. K. Subramanian, Senior Counsel, for Mr. S. Ramesh For R-1 : Mr. G. Rajaraman, Central Government Standing Counsel. For R-2 : Mr. K.R. Laxman For R-3 : Mr. P. Giridharan For R-4 : Mr. Sivakumar * * * ORDER The writ petitioner is a registered public trust. Its activities include micro-financing women Self Help Groups. It is a Non-Banking Finance Company (NBFC). The petitioner is a client of the third respondent which is a credit rating agency. The rating agency has downgraded the petitioner's bank loans' rating to 'IND BB+' from 'IND BBB-'. The petitioner has been availing term loans from various banks an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also the typed set of papers. He pointed out that the Hon'ble Principal Seat of this Court is seized of an identical issue and interim stay granted in the said writ petition is still in operation. He would also point out that before the Hon'ble Supreme Court of India, writ petitions have been filed raising identical issues and that therefore this Court can adjourn the case till the matter is settled either in the Principal Seat or in the Hon'ble Supreme Court of India. In the alternative, he prayed for time so that the petitioner can file transfer application before the Hon'ble Apex Court. 7. The learned Senior Counsel first took me through the statutory scheme set out in the Securities and Exchange Board of India(Credit Rating Agencies) Regulations, 1999. As per Clause 2(f) of the Regulations, the petitioner qualifies as a client since their securities are rated by the third respondent/Credit Rating Agency. His core argument is that the Credit Rating Agencies discharge public functions and therefore they are clearly amenable to Writ jurisdiction. Though the dispute between the parties may appear to be contractual in nature, in substance, it throws up questions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r instance, delay of one day even of one rupee (of principal or interest) from the scheduled repayment date in the case of long term loans would fall within the definition of default. 10. Since Covid-19 outbreak had caused widespread disruption, Reserve Bank of India stepped in and came out with its policy package vide circular dated 27.03.2020 which permitted the lending institutions to grant a moratorium of three months on payment of all installments falling due between 1st March 2020 and 31st May, 2020. It was further extended from 31st May, 2020 to 30th September, 2020. Since Securities and Exchange Board of India(SEBI) has to dance in sync, it also came out with its Circular dated 30.03.2020. It reads as follows:- SEBI/ HO/ MIRSD/ CRADT/ CIR/ P/ 2020/ 53 March 30, 2020 To, All Credit Rating Agencies (CRAs) registered with SEBI Dear Sir/ Madam, Sub: Relaxation from compliance with certain provisions of the circulars issued under SEBI (Credit Rating Agencies) Regulations, 1999 due to the COVID-19 pandemic and moratorium permitted by RBI. 1. In view of the developments arising due to COVID-19 pandemic and in light of the moratorium pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Regulation 20 of SEBI (Credit Rating Agencies) Regulations, 1999, to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market. Yours faithfully, Surabhi Gupta General Manager Tel No. 022-26449315 Email id: surabhig@sebi.gov.in The above circular was followed by a subsequent one dated 31.08.2020. It reads as follows:- SEBI/ HO/ MIRSD/ CRADT/ CIR/ P/ 2020/ 160 August 31, 2020 To, All Credit Rating Agencies (CRAs) registered with SEBI Dear Sir/ Madam, Sub: Relaxation from default recognition due to restructuring of debt. 1. CRAs recognize default based on the guidance issued vide SEBI circulars dated May 3, 2010 and November 1, 2016. Further, SEBI vide circular dated March 30, 2020 had provided for relaxation from recognition of default owing to moratorium permitted by RBI and lockdown due to COVID-19 pandemic. 2. The Reserve Bank of India (RBI), vide notification no. RBI/2020-21/16 DOR. No. BP.BC/3/21.04.048/2020-21 dated August 6, 2020, has provided for a resolution framework for COVID-19 related stress. 3. Based on its asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of credit worthiness of an individual or company. The debtor's ability to repay the debt is analyzed and based on the same, credit-risk associated with lending is projected. These are normal corporate functions. Merely because they have implications for the general public and lending institutions tend to go by them, credit rating agencies cannot be considered as discharging public function or public duty. Secondly, SEBI has only regulatory and supervisory control over the credit rating agencies. Applying the aforesaid decision of the Hon'ble Supreme Court, I hold that the third respondent cannot be characterised as State within the meaning of Article 12 of the Constitution of India and that it is not discharging any public function. 14. When Securities and Exchange Board of India(SEBI) was asked to clarify its position, its standing counsel submitted that the petitioner's understanding of circular was incorrect. It was also pointed out that the instant case pertains to rating of bank loans of the petitioner and does not pertain to rating of debt securities. In the case of bank loan rating, relevant guidelines issued by the Reserve Bank of India would be applicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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