In India, market scandals often arrive in rapid succession, each new controversy burying the previous one. So, even as Jane Street, a US-based trading powerhouse faced regulatory heat for alleged manipulation and Viceroy Research launched a blistering attack on Vedanta’s debt-laden global empire, an order with serious implications for India’s financial system was buried without any public discussion.
On 27 June 2025, the securities appellate tribunal (SAT) delivered a damning verdict against the Securities and Exchange Board of India (SEBI), quashing its order against Rajesh Mokashi, the former managing director of CARE Ratings. Calling SEBI’s action a ‘misadventure’ and a ‘colossal loss of judicial time and resources’, the tribunal ordered the regulator to pay Rs5 lakh in costs to Mr Mokashi for the ‘miserable trauma’ inflicted on him. (Read: SAT Tears into SEBI’s Proceedings against CARE Rating’s Ex-MD&CEO Rajesh Mokashi, Calls It a ‘Colossal Waste’)
SEBI may appeal the decision, but this order caps a saga that began in 2018, when a string of catastrophic corporate defaults exposed deep flaws in India’s credit rating ecosystem. It began with the collapse of Infrastructure Leasing & Financial Services (IL&FS) which triggered a systemic shock to financial markets.
A Systemic Failure
The IL&FS debacle was not an exception. In quick succession, Dewan Housing Finance Ltd (DHFL), Yes Bank, Reliance Communications and other high-profile finance companies saw their credit ratings plummet overnight from AAA or AA to junk, usually after they defaulted on their obligations. The evidence was damning: rating agencies were asleep at the wheel or had ignored warning signs. The consequences were borne by retail investors, mutual funds and corporate treasuries who invested on the basis of the high credit ratings and were left holding worthless paper.
Under pressure to act, SEBI launched probes against some of India’s top rating agencies—ICRA, CARE Ratings and India Ratings & Research. It issued circulars to tighten compliance, improve ongoing disclosures, levied fines and forced out senior executives. Yet, like the 2011 movie on the Jessica Lal murder, the SAT order of 27th June forces us to ask—Who Killed the Ratings System? If no one was pressured, if no undue influence was exerted, were the committees simply incompetent? And if so, can we trust credit ratings today? To answer that, we must retrace SEBI’s regulatory journey since 2018.
SEBI in Crusader Mode
In early 2019, the parliamentary standing committee on finance, chaired by Veerappa Moily, submitted a sharply worded report titled Strengthening of the Credit Rating Framework in theCountry. This, and the embarrassing defaults, put SEBI in crusader mode.
It responded by investigating CARE Ratings, India Ratings and ICRA Ltd and charged them with ‘lethargic indifference’ and ‘laxity’. Initial fines of Rs25 lakh each were increased to Rs1 crore. SAT upheld the penalty on India Ratings and even enhanced it. SEBI then issued a winding-up order against Brickwork Ratings in October 2022 (SEBI Issues Winding Up Order against Brickwork Ratings), but SAT quashed it in June 2023, instructing SEBI to reconsider its decision. SEBI rolled back the cancellation order in September 2023 but imposed severe operational restrictions, including a freeze on on-boarding new clients. Brickwork was also forced to overhaul and expand its board and replace its chief executive officer (CEO).
SEBI also initiated sweeping reforms: faster rating reviews, stronger documentation, public disclosures of methodologies, enhanced surveillance, rotation of key analytical staff and publishing the probability of default for each rating. It attempted to plug the gaps around the common excuse of ‘issuer not cooperating’ that is used to avoid downgrading troubled borrowers.
And yet, none of the rating agencies under investigation admitted to wrongdoing. All contested SEBI’s orders, paid fines ‘without prejudice’, and prepared for long-drawn legal appeals. That is when SEBI’s key cases began to unravel, barring one.
In June 2021, SAT slashed a Rs1 crore penalty on CARE Ratings—imposed for delaying a downgrade of Reliance Communications—to just Rs10 lakh (SC Dismisses SEBI Plea Against SAT Order on CARE Ratings). The Supreme Court later dismissed SEBI’s appeal.
The SAT order of 27 June 2025, which exonerated Mr Mokashi, now appears to be part of a pattern, raising serious questions about SEBI’s investigative rigour, legal strategy and capacity to hold fiduciaries accountable.
Regulatory Overreach
In April 2023, SEBI barred Rajesh Mokashi of CARE from market-related roles for two years, alleging that he had interfered in rating processes and decisions. Under SEBI’s directions, CARE was asked to conduct an independent inquiry. Former Supreme Court judge, justice BN Srikrishna, who headed this exercise comprehensively exonerated him saying “there is no material to suggest that Mr Rajesh Mokashi interfered with the process of rating and influenced the outcome of the rating committee’s decision.”
Despite this, SEBI’s whole-time member chose to conduct yet another internal inquiry, relying on WhatsApp messages rather than hard evidence of fraud or quid pro quo. The result was an embarrassing outcome at SAT and a fine imposed on the regulator itself.
Shoddy Investigation
This episode underscores a chronic issue with SEBI investigations: its propensity to outsource the commissioning of sensitive investigations to the very institutions under scrutiny. In the infamous co-location (Colo) scandal at the National Stock Exchange (NSE), first exposed by a whistle-blower letter first published by Moneylife in 2015 (Blowing the Whistle on Manipulation in NSE), SEBI repeatedly asked the Exchange to appoint external experts to conduct forensic audits (DeloitteTouche Tohmatsu, Ernst & Young, and ISB Hyderabad were appointed), even though the initial investigation was conducted by two IIT experts commissioned by SEBI’s own technical advisory committee.
At least two of these audits raised concerns about conflict of interest and impacted the credibility of its actions. The initial investigation into Jane Street’s alleged market manipulation was also conducted by NSE, a regulated entity, rather than SEBI itself.
In credit rating, it is a long-held concern that those who pay for the rating call the shots. The same would apply to consultants and forensic auditors. A retired banker puts it bluntly, “It is absurd to ask the accused to commission its own investigation. SEBI could have directly engaged reputed firms to conduct the investigation.”
Systemic Issues
Rating decisions are made by committees, ostensibly governed by documented protocols. But those protocols often leave room for discretion and ‘judgement’. In India’s opaque financial ecosystem, rating mandates often follow a pecking order, decided less by objectivity and more by relationships or other considerations.
This complicates enforcement. Group decisions are designed to create plausible deniability making them harder to prove than insider trading. The challenge is even greater when courts have treated credit ratings as ‘informed opinions’ and their rating failures as regrettable decisions. It had set a threshold that is impossible to meet, unless officials are caught on tape dictating downgrades or upgrades for personal gain.
Mitigating Action
To its credit, SEBI has tried to strengthen the regulatory framework through sweeping amendments. But the events of June 2025 suggest that rating agencies are bound to feel emboldened by the judicial outcomes. After six years of regulatory crusading, not one senior executive has been held liable for serious egregious rating collapses that destroyed investor wealth and confidence. Will SEBI’s disclosure-focused reforms be enough to prevent the next rating debacle? Unlikely.
The brutal truth for Indian investors is that credit ratings cannot be blindly trusted. They must, at best, be treated as a starting point and not a shield against risk. Lenders, mutual funds and retail savers will need to conduct their own due diligence and treat even AAA-rated instruments with caution to avoid being blind-sided by rating failures.
India has never lacked rules. But without credible enforcement that passes legal muster, fiduciaries will continue to fail and investors will continue to be exposed to financial debacles.
Rating agencies are total parasites and not at all doing an honest job. They are always late. They ensure to blow the whistle only after the horse has bolted. It seems rating agencies , regulators, and authorities are all tacitly acting hand in glove and poor tax paying middle class citizens bear the brunt of the losses when the government provides bail outs.
Every Senior Bank Executives and Businessmen understand how to secure better Rating from Rating Agency who are charging fees for Rating . Why Businessmen should pay for bad ratings?
The fees are for the process and assessment, not for buying a good rating. This ensures transparency and fairness for all market participants. If issuers could refuse to pay for lower ratings, the rating system would lose its integrity, and investors would have no neutral, trustworthy benchmark for judging risk
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