IL&FS Fraud: SEBI Increases Monetary Penalty to Rs1 Crore Each on India Ratings, Care Ratings and ICRA
Market regulator Securities and Exchange Board of India (SEBI) has increased its penalty to Rs1 crore each on India Ratings and Research Pvt Ltd, Care Ratings and ICRA Ltd for default committed in rating Infrastructure Leasing & Financial Services (IL&FS) and its subsidiary company IL&FS Financial Services Ltd (IFIN).
 
G Mahalingam, whole-time member (WTM) of SEBI, passed three separate orders, which state, "I find that the lapses on the side of the noticee, while rating the securities of IL&FS and IFIN have resulted in real and severe financial loss to investors. It has shaken up the investors’ faith in the reliability of credit ratings in the context of the corporate debt market. Had the noticee downgraded the ratings at the appropriate time and thereby forewarned the investors, the impact of the default on investors who invested in AAA rated instruments, could not have been this severe. Considering the above, I am convinced that the case merits imposition of exemplary penalty provided under Section 15HB of the SEBI Act."
 
"... having found the AO Order dated 26 December 2019 as erroneous to the extent it is detrimental to the interests of securities market, hereby impose a monetary penalty of Rs1 crore upon the noticee under Section 15HB of the SEBI Act," the orders say. 
 
Mr Mahalingam further stated, "I note that substantial public interest was involved in the securities issued by IL&FS and the credit ratings thereon, which were relied upon by the investors to make investment decisions.
 
"However, the failure of the noticee to exercise adequate due diligence with respect to the assessment of the mounting credit risks of IL&FS in the light of its stressed balance sheet position and in turn, the failure to review and modify the ratings on time, so as to alert the market in advance, has resulted in abrupt downgrading of rating of these securities just before the default. In any case, a CRA cannot be heard to contend that its accuracy in ratings should not be relied upon by institutional investors." 
 
Earlier in December 2019, the adjudicating officer (AO) had found that the credit ratings agencies (CRAs), while assigning their credit ratings to the non-convertible debentures (NCDs) of IL&FS, failed to exercise proper skill, care and due diligence while discharging their responsibilities as a CRA and thereby violated the provisions of Regulation 24(7) and clauses 4 and 8 of the code of conduct of the CRAs, read with Regulation 13 of the SEBI (CRA) Regulations, and had hence imposed a penalty of Rs25 lakh each on them.
 
Until July 2018, India’s credit rating companies had put out investment grade ratings on billions of dollars of corporate debt raised by the IL&FS group and its subsidiaries. The first signs of trouble came in June 2018, when the special purpose vehicles tied to IL&FS Transportation Networks Ltd (ITNL), a group subsidiary, defaulted on its debt obligations. More defaults in other parts of the empire followed in August and September. Finally, the rating agencies were forced to downgrade the rating status to default in September 2018.
 
 In October 2018, the government was forced to dismiss the IL&FS board and replace it with six eminent persons of its choice led by the well-known and respected banker, Uday Kotak.
 
 The IL&FS case is a prime example of locking the stable door after the horses have bolted. The credit rating agencies had clearly failed to discharge their prime responsibility.
 
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    COMMENTS

    yerramr

    2 months ago

    Rating agencies need thorough overhaul. The regulators have helped these rating agencies giving weightage for credit disbursal. They have overrated the directors' performance and even failed to disclose facts relating to their previous failures and frauds. They have also failed to recognize the non-disclosure or wrong disclosure of debts owing to their MSE suppliers. Number of companies show cheques issued but not realized as paid dues.

    m.prabhu.shankar

    2 months ago

    1 Crore Penalty on Rating Agencies. Is this a penalty first ? Put 100 Crores and if they can't pay just take out all the assets of the rating agencies, sell it and add the money to govt ex-chequer.

    Newme

    2 months ago

    Behind every Financial crime there is the usual suspects of Bankers, Auditors, Rating Agencies.

    No Compulsion To Invest in Small-/Mid-caps, Schemes Must Be 'True to Label': SEBI Chief
    As the market regulator's recent change in norms regarding constitution of multi-cap schemes continues to cause some discomfort among mutual funds, SEBI (Securities and Exchange Board of India) Chairman Ajay Tyagi on Tuesday said that the regulator is not forcing anyone to invest in mid- or small-cap companies, as it has only asked fund houses to keep their schemes "true to label".
     
    On September 11, SEBI said that multi-cap funds will now invest minimum 75% of total assets in equities with 25% each in large-cap, mid-cap and small-cap companies.
     
    Describing the recent 'confusion' regarding its circular on multi-cap funds as 'unfortunate', Tyagi said: "What we are saying and what we are trying to address here is 'true to label'."
     
    "So when we said that multi-cap should have some portion in small cap and mid cap, we are not really forcing anyone to invest in those caps, we are saying investment should be done in the best interest of the investors."
     
    He added that if a fund is given a label, its form should be as per the name.
     
    Mr Tyagi, however, said that SEBI has received representation from the Association of Mutual Funds in India (AMFI) and it is 'actively' examining them and it will look at how further clarification can be provided.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    payalmehr

    2 months ago

    Mr. Tyagi what is your view on BSE code - Issuer Name: CJCPPL-21%-30-6-21-PVT. Why a company which has shown construction cost at 207 crores be listed on BSE? Do you do due diligence??

    payalmehr

    2 months ago

    Uday Kotak, phoenix arc gives loans worth 99 crores to a litigated Project 1 Aerocity. Website www1aerocity.com some loans are getting restructured since 2003. visit the YouTube channel for all documents Vishal Brijmohan Mehra.
    BSE code - Issuer Name: CJCPPL-21%-30-6-21-PVT. Why would such a brand do this ?

    ganesanjaicare

    2 months ago

    it is not confusion.planned pump and dump of small and midcap stocks of low quality.sebi is doing like that whom to trust by gullible investors.

    SEBI tells MFs to put in place policy for trade execution, allocation
    The Securities and Exchange Board of India (SEBI) has made it mandatory for mutual fund houses to put in place a policy specifying the specific roles and responsibilities of various teams engaged in activities dealing with order placement, execution of order, trade allocation amongst various schemes.
     
    In a circular, the market regulator said that the policy shall ensure that all the schemes and its investors are treated in a fair and equitable manner.
     
    "It has been decided that AMCs shall put in place a written down policy which inter-alia detail the specific activities, role and responsibilities of various teams engaged in fund management, dealing, compliance, risk management, back-office, etc., with regard to order placement, execution of order, trade allocation amongst various schemes and other related matters," it said.
     
    As per the circular, for orders pertaining to equity and equity related instruments, asset management companies (AMC) shall use an automated Order Management System (OMS), wherein the orders for equity and equity related instruments of each scheme shall be placed by the fund manager of the respective schemes.
     
    In case a fund manager is managing multiple schemes, the fund manager shall necessarily place scheme wise order, it said.
     
    "All regulatory limits and allocation limits as specified in SID shall be in-built in the OMS to ensure that orders in breach of such limits are not accepted by the OMS," said the circular released on Thursday evening.
     
    Further, SEBI also said that in respect of purchase of units of mutual fund schemes, except liquid and overnight schemes, closing NAV of the day shall be applicable on which the funds are available for utilisation irrespective of the size and time of receipt of such application.
     
    The existing provision on NAV applicability for liquid and overnight funds and cut-off timings for all schemes shall remain unchanged, it added.
     
    The circular would come into effect from January 1, 2021.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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