SAT Overturns SEBI's Order Of Cancelling Brickwork Ratings' Licence

On Tuesday, the Securities Appellate Tribunal (SAT) set aside a Securities and Exchange Board of India (Sebi)'s order canceling the license of Brickwork Ratings India, the credit rating agency.

This move was a big relief to the rating agency, however, the appellate tribunal partly affirmed some of the violations and referred the matter back to Sebi to issue a fresh order on the quantum of the penalty, as per the PTI news report.

Sebi in October 2022 canceled the registration of Brickwork and directed it to wind up operations within six months for violations of regulatory norms. Following this, the rating agency approached SAT.

Sebi highlighted several violations by Brickwork, including that it failed to follow a proper rating process and exercise due diligence while providing ratings. Also, the rating agency was unsuccessful to ensure proper maintenance of records to support its ratings and making correct disclosures in its press releases concerning some issuers.

Brickwork did not conclude the rating exercise within the timelines prescribed as per its internal manual, Sebi had said. Moreover, repeated lapses were noticed across multiple inspections conducted by the regulator.

As per the order passed on Tuesday, SAT said the alleged violations by Brickwork were "not deliberate or fraught with mala fides or fraud and therefore cannot result in the cancellation of the license".

The appellate termed the cancellation "unjustified", SAT said the violations found were trivial and routine operational errors, which had unnecessarily been escalated to regulatory proceedings.

"Isolated instances by not meeting the rating criteria, not reviewing the rating criteria for a shorter period than 3 years / 5 years, not signing the minutes of the meeting, not recording the names of the attendees of the meeting of the rating committee, failure to comply with the timelines specified in the appellant's manual are such violations which do not warrant cancellation of the license," SAT observed.

In January 2020, Sebi along with RBI inspected the period October- November 2019 to ascertain whether Brickwork had been complying with the provisions of the Sebi Act and the CRA (Credit Rating Agency) regulations. This was the third inspection by markets regulator Sebi against Brickwork.