Appeal court grants temporary relief to Brickwork Ratings

The final hearing of the matter has been fixed for November 15. The SAT said in an oral announcement that Brickwork cannot take on any new rating assignments until then.

The market regulator had barred Brickworks from adding new customers and directed it to cease operations within six months.

This has been seen as the toughest regulatory action against any credit rating firm.

The order listed various violations by Brickworks, including failure to document meetings with management, lack of independent analysis of financial projections given by companies, delay in recognizing defaults and conflicts of interest. Following a joint audit by SEBI and the Reserve Bank of India (RBI), the breach was under consideration of the regulator since 2020.

The Bengaluru-based company promoted by Canara Bank had approached SAT for relief against the regulator’s order. Senior advocate Somashekhar Sundarsan, appearing for Brickwork, argued that the SEBI order was “death penalty”. “The order to deregister is a product of utter haste and tendency and is obviously and prima facie arbitrary and distorted,” Brickwork said in its filing before SAT. A copy of the 200-page filing has been reviewed by Mint. The fines were disproportionate for the alleged violations, the rating agency said, which did not have a massive impact on the market.

SEBI was represented by Senior Advocate Gaurav Joshi.

The rating agency said it serves 8,420 borrowers, rates 8,684 instruments and employs 300 people and all these stakeholders have been affected by the regulator’s decision. Brickwork stated that the appellant “has been serving the markets since 2008 without any defect or complaint”.

“The injury that would have occurred would be serious and irreparable and would affect many stakeholders in the securities markets and employees. The serious reputation damage already caused to the appellant (brickwork) would already have a degrading and debilitating effect on the appellant,” Brickwork said in the appeal.