Appeals court grants temporary relief to Brickwork Ratings

The matter has been posted for a final hearing on 15 November. Brickwork cannot take up any new rating assignment till then, SAT said in an oral pronouncement.

The market regulator had prohibited Brickwork from adding new clients and directed it to wind up operations in six months.

This has been touted as one of the toughest regulatory action against any credit rating firm.

The order had listed various violations by Brickwork, including failure to document meetings with the management, lack of independent analysis of financial projections given by companies, delay in recognizing defaults and conflict of interest. The violations were under consideration of the regulator since 2020, following a joint audit by Sebi and the Reserve Bank of India (RBI).

The Bengaluru-based company promoted by Canara Bank had approached SAT for relief against the regulator’s order. Brickwork, represented by senior counsel Somasekhar Sundaresan, argued that the Sebi order is a ‘death sentence’. “The order is a product of utter haste and predisposition to cancel registration and is evidently and ex-facie arbitrary and perverse,” said Brickwork in its filing before SAT. A copy of the 200-page filing has been reviewed by Mint. The penalty was disproportionate to the alleged violations, which did not have a market wide impact, the rating agency said.

Sebi was represented by senior counsel Gaurav Joshi.

The rating agency pointed out that it services 8,420 borrowers, rates 8,684 instruments and employs 300 people and all these stakeholders have been impacted by the regulator’s decision. The appellant has “without blemish or complaint been serving the markets since 2008″, Brickwork said.

“The injury that would be inflicted would be serious and irreparable and would impact multiple stakeholders in the securities markets and employees. The serious reputational damage already inflicted on the appellant (Brickwork) would have a stultifying and debilitating effect already on the appellant,” Brickwork said in the appeal.