SEBI and Competition Commission at Loggerheads on Jurisdiction over Credit Ratings Agencies
Market regulator Securities and Exchange Board of India (SEBI) and the Competition Commission of India (CCI) have come face to face over the jurisdiction of credit rating agencies (CRAs). In a recent judgement, the competition watchdog rejected SEBI's contention to entertain a plea filed by Brickwork Ratings India Pvt Ltd against other CRAs.
In its judgement on 29 December 2020, a bench of CCI chairman Ashok Kumar Gupta and members Sangeeta Verma and Bhagwant Singh Bishnoi, says, "...the Commission notes that though regulation of CRAs may be the subject-matter domain of SEBI, examining any anti-competitive conduct on the part of CRAs falls within the jurisdiction of the Commission."
SEBI as well as rating agencies CRISIL Ltd, India Ratings and Research Pvt Ltd (Ind-Ra), CARE Ratings Ltd and ICRA Ltd contended that regulation of CRAs is strictly within the domain of the market regulator and the CCI has no jurisdiction to decide the allegations raised by Brickwork Ratings.
The market regulator had contended that for any alleged violation of its CRA Regulations, SEBI is the regulatory authority to examine the allegations and take appropriate action, if any, required. Therefore, as per SEBI, the present information may not be entertained by the Commission.
However, quoting a Supreme Court judgement in CCI vs Bharti Airtel case, the bench says, "...even the SC has opined that the mere presence of a sectoral regulator does not oust the jurisdiction of the Commission."
"Further, in the present case, SEBI in its comments dated 26 February 2020 received by the Commission on 28 February 2020 has nowhere stated that it has, or it is, initiating any inquiry against the Opposite Parties considering the averments made in the Information for alleged violation of SEBI (CRA) Regulations, 1999. The Commission thus, is of the opinion that it has the jurisdiction to proceed and decide the present allegations on merits," the CCI bench said.
The case was related with information shared by Brickwork Ratings against four CRAs, alleging cartelisation by them while submitting quotes in tendering process. In its plea, Brickwork Ratings had stated, "...the opposite parties (other CRAs) are involved in anti-competitive practices in contravention of the provisions of Section 3 of the Act which is causing an appreciable adverse effect on the competition in India as well as on the Indian economy. The ratings given by the opposite parties are causing huge financial loss to the bond holders and they are disrupting the economy."
Brickwork Ratings prayed the CCI to issue directions under Section 26 (1) of the Act for investigation into the formation of a cartel and collusive bidding by the opposite parties in the tender processes of various public sector units (PSUs) for the period 2009 till date; and direct the opposite parties to discontinue their collusive bidding for various PSU tenders.
In their submission, rating agencies CRISIL, Ind-Ra, CARE Ratings and ICRA stated that it is a general practice in India that CRAs do not charge fees strictly in accordance with their pricing policies and in most instances, the fees are based on the stature and associated prestige of an issuer, complexity of the assignment, length of relationship and recent pricing trends of the issuer.
"With the number of CRAs increasing over the past few years to present seven from the initial four, increase in competition has been one of the factors responsible for overall drop-in fee charged by CRAs from bond issuers," the ratings agencies told the CCI.
After going through the submissions by all parties, the CCI decided to close the matter due to lack of evidence. It says, "...the Commission is of the opinion that from the facts and evidences given in the present Information, there exists no prima facie case of contravention of the provisions of Section 3 (3) read with Section 3 (1) of the Act or of Section 4 of the Act against the opposite parties. As such, the matter is ordered to be closed forthwith in terms of the provisions of Section 26 (2) of the Act."