BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.155 of 2011
Date of Decision: 9.11.2011
M/s. Infomerics Valuation and Rating Pvt. Ltd.
Flat No.104/108, 1st Floor,
Golf Apartments, Sujan Singh Park,
New Delhi – 110001.
….. Appellant Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C-4A, G Block,
Bandra Kurla Complex,
Bandra (East), Mumbai – 400 051.
…...Respondent Mr. Vinay Chauhan, Advocate with Mr. An ant Upadhyay and Mr. Prashant Ingle,
Advocates for the Appellant.
Mr. Vikram Nankani, Advocate with Ms. Aparna Kalluri, Advocate for the Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer
P.K. Malhotra, Member
S.S.N. Moorthy, Member
Per : Justice N. K. Sodhi, Presiding Officer (Oral)
The appellant before us is a company having its registered office in New Delhi. It
was promoted by three persons/entities na mely Coment (Mauriti us) Limited through
ACE Step Management Ltd., V. Mallika & Associates, Chartered Accountants and
Infomerics India Foundation. The appellant file d an application with the Securities and
Exchange Board of India (for short the Board) for getting itself registered as a Credit
Rating Agency in terms of the Securities and Exchange Board of India (Credit Rating
Agencies) Regulations, 1999 (hereinafter called the regulations). Regulation 4(e) of the
regulations provides that the Board shall no t consider any application for registration
unless the applicant is promoted by a comp any or a body corporate having a continuous
net worth of minimum rupees one hundred crores as per its audited annual accounts for
the previous five years prior to filing of the application with the Board for the grant of
certificate under the regulations. An applicatio n for the grant of a certificate is to be
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made in Form A as prescribed in the First Schedule to the regulations. It is not in dispute
that the appellant filed the application in the prescribed form which lays down the
eligibility criteria. According to this crit eria, the applicant is required to enclose a
Chartered Accountant’s certificate certifying the continuous net worth to be of rupees one
hundred crores for five years in the case of a promoter referred to in regulation 4(e). In
other words, the applicant has to substantiate the fact that one of its promoters had a net
worth of rupees one hundred crores for five years by submitting a certificate from the
Chartered Accountant. It is pertinent to men tion here that neither the regulations nor the
eligibility criteria in Form A requires the applicant to produce the annual accounts of the
promoter. On receipt of the application date d June 11, 2009, the Board issued a letter to
the appellant requiring it to produce the annu al accounts of one of its promoters for the
five years preceding the date of the applica tion. It is doubtful whether the Board could
have asked for this information without dou bting the veracity or correctness of the
certificate of the Chartered Accountant that a ccompanied the application. Be that as it
may, it is common ground between the parties th at this informati on has since to be
furnished. After the appellant furnished in March 2011 the annual accounts of its
promoters for five years ending Decembe r 2008, the Board requires it to produce
accounts for another two years for the period ending December 2010. The appellant
insisted that it was not re quired to produce th ese accounts on which the whole time
member by his order dated June 24, 2011 requ ired the appellant to produce the same by
July 15, 2011 failing which the application w ould be rejected. The appellant sought
further time to produce the accounts which request was declined by the Board and by
order dated July 21, 2011 the application has been rejected. It is against the orders dated
June 24, 2011 and July 21, 2011 that the present appeal has been filed.
- We have heard the learned counsel for the parties who have taken us through the
record. An application was filed on June 11, 2009 and it is the requirement of
regulation 4(e) that the net worth of one of the promoter s of the applicant should be
rupees one hundred crores as per the audited annual accounts for the pervious five years
prior to the filing of the application. As already mentioned above, Form A prescribes that
the applicant should produce a certificate from a Chartered Accountant to substantiate the
fact regarding the net worth of its promoter which was done and the Board has at no stage
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questioned its veracity. Without doing so it (the Board) could not have asked for the
annual accounts of the promoter. However, the appellant produced those accounts as
well which are for the five years preceding th e date of the application. After these
accounts were produced in March 2011, the Bo ard now wants the a ppellants to produce
accounts for another two years for the peri od ending December 2010. This is not the
requirement of the regulations. Since the appellant did not produce the accounts for these
two years the application for registration as a Credit Rating Agency as been rejected. We
are clearly of the view that the ground on which the applicat ion has been rejected is
erroneous and the impugned orde rs cannot be sustained. Th e learned counsel appearing
for the Board drew our attention to regulation 7 of the regulations wherein the Board can
require an applicant “to furnish such further information or clarification as the Board
may consider necessary, for the purpose of processing of the application.” We do not
think that this regulation would help the Board. Such further information as referred to in
regulation 7 would mean any information in addition to the one already furnished by the
applicant alongwith the application. Surely , the Board was not asking for any further
information. It was only seeking the basic ma terial on the basis of which the Chartered
Accountant had furnished a certificate certifying that one of the promoters of the
appellant had a net worth of rupees one hundred cr ores for the previous five years. This
information could be asked for if the Boar d at any stage had doubted the correctness or
veracity of the certificate of the Chartered Accountant. Learned counsel for the Board
concedes before us that no clarification was sought from the appellant in regard to the
certificate furnished by the Chartered Accountant. We have gone through the regulations
and also the prescribed Form A in which the application for registration was required to
be filed and find that wherever the regulations wanted the applicant to produce the annual
accounts, a specific provision in that regard has been made in the regulations. For
instance, clause 8 of Form A requires an applicant to produce his annual accounts for the
period of three years. When it came to substa ntiating the fact that the promoter of the
applicant had a net worth of r upees one hundred crores for th e previous five years, the
regulations do not require the annual accounts of the promoter to be produced. Instead,
the regulations read with Form A prescribe that a certificate from the Chartered
Accountant should be filed for this purpose. We are, therefore, satisfied that the Board
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was not justified in requiring the appellan t to produce the annu al accounts of its
promoters for the two years ending December 2010. Such a direction would require the
appellant to produce the accounts of its promot ers for a period of seven years preceding
the date of the application which is contrary to the requirement of regulation 4(e) of the
regulations. In this view of the matter, the impugned orders cannot be sustained.
In the result, the appeal is allowed and the impugned orders dated June 24, 2011
and July 21, 2011 set aside and the case remitted to the Board to consider the application
of the appellant without requiring it to pr oduce the accounts for the two years ending
December 2010. Since the application has remained pending since June 2009, the Board
is directed to dispose of the same expeditious ly but not later than 8 weeks from the date
of receipt of a copy of this order. There is no order as to costs.
Sd/-
Justice N.K.Sodhi
Presiding Officer
Sd/-
P.K. Malhotra
Member
Sd/- S.S.N. Moorthy
Member
9.11.2011
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