IL&FS: SEBI Can Increase Penalties Imposed on ICRA, Rules SAT

The Hindu BusinessLine reports that the Securities Appellate Tribunal (SAT) has ruled in favor of the Securities and Exchange Board of India (SEBI) enhancing penalties on credit rating agency ICRA in the case of Infrastructure Leasing and Financial Services Ltd (IL&FS), as per reports.

BusinessLine, citing LiveMint, relates that the tribunal, in a hearing of the petition filed by ICRA Ltd against a second show-cause notice issued by SEBI, had ruled that it had powers to enhance the penalty for the credit rating agency.

According to BusinessLine, SEBI in December had slapped a INR25 lakh on credit rating agencies ICRA and CARE Ratings for negligence in the IL&FS case.

The fine was levied for a lack of “due diligence” in credit ratings to non-convertible debentures of IL&FS, said previous reports, BusinessLine relays.

BusinessLine says SEBI had issued a fresh notice on January 28 under Section 15-I (3) of SEBI Act, Section 15(I). As per this notice, the board can examine the record of these proceedings. It can then increase the penalty if it deems the INR25 lakh inadequate.

BusinessLine relates that ICRA had appealed to SAT against SEBI’s ability to enhance penalties. However, SAT ruled that the securities board can do so if it deems the earlier penalty insufficient.

“We are prima facie of the opinion that SEBI has the power to initiate proceedings under Section 15-I(3) of the SEBI Act,” said SAT, as quoted by LiveMint.

Infrastructure Leasing & Financial Services Limited (IL&FS) is an infrastructure development and finance company based in India. It focuses on the development and commercialization of infrastructure projects, and creation of value added financial services. The company operates in Financial Services, Infrastructure Services, and Others segments.

As reported in the Troubled Company Reporter-Asia Pacific, the Indian Express related that the Indian government, in October 2018, stepped in to take control of crisis-ridden IL&FS by moving the National Company Law Tribunal (NCLT) to supersede and reconstitute the board of the firm which has defaulted on a series of its debt payments. This was said to be an attempt to restore the confidence of financial markets in the credibility and solvency of the infrastructure financing and development group.

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