SEBI lAW Insider

Sowmiya Rajendrakumar

Published on : 27 July 2022 at 17:18 IST

The Securities and Exchange Board of India (SEBI) has moved the Supreme Court against a stay order issued by the Karnataka High Court in the case of Brickwork Ratings India. The high court had issued an interim stay on the capital markets regulator’s order rejecting the credit rating agency’s consent application.

Lawyers said the apex court’s views on whether rejection of a settlement or consent application by SEBI can be challenged in courts will be significant. While Brickwork alleged that its consent was rejected without SEBI giving it a hearing, the regulator maintains that settlement orders cannot be challenged in courts as they are ‘administrative orders’, and not regulatory orders.

The case is likely to be heard around the second week of August by a two-judge bench comprising Justice S Abdul Nazeer and Justice JK Maheshwari, the apex court website showed.

“The Settlement Orders may be administrative in nature but they affect the rights of market participants / alleged offenders,” said Mayank Mishra, partner, Induslaw. “It is desirable that basic principles of natural justice are adhered to when SEBI rejects the settlement applications. There is a need to balance regulator’s discretion and ensure transparency and consistency in the application of the regulations.”

In 2021, SEBI rejected the consent application filed by Brickwork and issued a show-cause notice to the company after the regulator allegedly noticed repeated lapses in the credit rating process. SEBI has powers to accept or reject such settlement applications based on the nature of the alleged violation. The regulator has been arguing that the interim stay by the Karnataka High Court is restraining the regulator from continuing its investigation into the matter.

“It is also submitted that the Board is entitled to exercise the statutory powers and the order of stay gives a free hand to the company to continue to function without setting right the violations of the SEBI (Credit Rating Agencies) Regulations, 1999, statutory provisions as well as various Circulars issued by the Board,” SEBI had told the High Court on March 9.

However, the high court said that the case questions the validity of Settlement Regulations.

“The impugned order has been passed without affording any opportunity of hearing and is bereft of any reasons. In the impugned order, even the specific grounds referred to in Regulation 5(2) of the Regulations have not been mentioned. The order appears to have been passed in a cavalier manner,”
the court noted.

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