The Supreme Court has upheld a securities appellate tribunal (SAT) ruling in favour of Rajesh Mokashi, former managing director and chief executive officer (MD&CEO) of CARE Ratings Ltd, while laying down an important clarification that regulatory decisions must be based strictly on evidence available on record and not on external enquiry reports.
In
an order last week, a bench of justice Pamidighantam Sri Narasimha and justice Alok Aradhe says it found no error of fact or law in the conclusions drawn by the tribunal and upheld the relief granted to Mr Mokashi. However, it clarified that both the Securities and Exchange Board of India (SEBI) and the SAT must base their decisions only on evidence forming part of their investigation or enquiry.
"The decisions to be arrived by the board (SEBI) or the appellate tribunal (SAT), as the case may be, must be on the basis of evidence that is brought on record. External enquiry reports, which do not form part of the investigation and enquiry by the board, should not be relied on by the statutory authorities, i.e. the board or the appellate tribunal," the Court observed, underscoring limits on regulatory reliance on third-party findings.
The Court, however, partly allowed SEBI’s appeal by setting aside SAT’s direction imposing costs of ₹5 lakh on the regulator, holding that such a penalty is not justified in the facts of the case.
That order was overturned by SAT in June 2025, which found no evidence of interference and held that SEBI had misconstrued findings of an independent enquiry conducted by former Supreme Court judge BN Srikrishna, which had exonerated Mr Mokashi.
The tribunal delivered a scathing indictment of SEBI’s actions, describing them as a 'misadventure' that caused 'colossal loss of judicial time and resources' and inflicted 'miserable trauma' and 'irreparable damage' to Mr Mokashi’s reputation.
The SAT bench, led by justice PS Dinesh Kumar and technical member Dr Dheeraj Bhatnagar, had also imposed a cost of ₹5 lakh on SEBI, directing it to compensate Mr Mokashi for the damage caused.
The tribunal noted that, despite the justice Srikrishna report clearly finding no evidence of interference in rating decisions, SEBI proceeded with a separate internal inquiry. It further observed that key witness testimonies relied upon by the regulator did not substantiate allegations of pressure or influence by Mr Mokashi.
The case traces back to a whistle-blower complaint in 2019 alleging management interference in ratings of companies, including those linked to Infrastructure Leasing & Financial Services (IL&FS). Following the complaint, Mr Mokashi was sent on leave during a forensic audit and later resigned in December 2019.
The Supreme Court’s ruling now brings closure to the protracted legal battle, while also setting a broader precedent on regulatory discipline.
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