The Securities Appellant Tribunal (SAT) has reduced the penalty imposed by Sebi on CARE Ratings to Rs 10 lakh from Rs 1 crore in a case related to lapses in assigning credit rating to non-convertible debentures of Reliance Communications (RCom).
The tribunal has affirmed the regulator’s order with regard to the violation by CARE Ratings under the provisions of the Sebi Act and the CRA (Credit Rating Agency) rule.
However, the penalty has been reduced from Rs 1 crore to Rs 10 lakh, according to a SAT order dated June 9.
“It was a case of lack of due diligence for not having acted in a timely manner… we are of the opinion that the maximum penalty of Rs 1 crore is highly excessive, harsh and arbitrary and does not commensurate with the violation,” SAT said.
The tribunal’s ruling comes after CARE Ratings challenged the order passed by Sebi in July 2020 wherein the regulator had slapped the Rs 1 crore-fine on the rating agency in connection with lapses in assigning credit rating to RCom’s NCDs (Non-Convertible Debentures).
The case relates to default by RCom on the repayment of principal amount of Rs 375 crore and interest of Rs 9.7 crore that were due in February 2017 and March 2017, respectively.
The rating agency had failed to initiate a review of its earlier ratings assigned to RCom even after the publication of third quarter of FY17 results, as per the Sebi order.
The results showed a major decline in cash accruals affecting its credit profile and major development in the telecommunications industry with the entry of Reliance Jio denting the profit margins of all other players in the market, the regulator had said in its order.