2020 (11) TMI 56 - HC - SEBI

Validity of Downgrading petitioner's bank loans' rating to 'IND BB ' from 'IND BBB - Covid-19 pandemic outbreak - Reserve Bank of India has announced moratorium for the period upto 31st May, 2020 vide Circular dated 27.03.2020 - objection regarding territorial jurisdiction - whether third respondent cannot be characterised as State within the meaning of Article 12 of the Constitution of India? - HELD THAT - Even though the third respondent may be located in Mumbai, in as much as part of the cause of action arose within the territorial limits of this Court, this writ petition cannot be dismissed on the ground of lack of territorial jurisdiction. Likewise, reliance on the ouster clauses in the rating agreement is equally misplaced. As third respondent is a private body and not a State within the meaning of Article 12 of the Constitution and by rating its clients, the third respondent is not discharging any public function and the subject matter involves analysis by financial experts and the petitioner is having effective alternative remedies, we dismiss this writ petition as not maintainable. The petitioner is at liberty to avail the in-house remedy available to them or move Securities and Exchange Board of India(SEBI) directly by filing a complaint against the third respondent.

Summary

Issues Involved:
1. Maintainability of the writ petition against a private credit rating agency.
2. Territorial jurisdiction of the court.
3. Interpretation and application of RBI and SEBI circulars regarding moratorium and rating relaxation.
4. Nature of the relationship between the petitioner and the credit rating agency.
5. Availability of alternative remedies for the petitioner.

Detailed Analysis:

1. Maintainability of the Writ Petition:
The third respondent contested the maintainability of the writ petition, arguing that it is a private entity and not a "State" under Article 12 of the Constitution of India. The court held that the third respondent, being a credit rating agency, performs normal corporate functions and is not discharging public functions or duties. Therefore, it cannot be considered a "State" within the meaning of Article 12, and the writ petition is not maintainable against it.

2. Territorial Jurisdiction:
The court addressed the objection regarding territorial jurisdiction, referencing Article 226(2) of the Constitution of India, which allows the High Court to exercise jurisdiction if part of the cause of action arises within its territorial limits. Since part of the cause of action arose within the jurisdiction of this court, the objection on territorial jurisdiction was rejected.

3. Interpretation and Application of RBI and SEBI Circulars:
The petitioner argued that the third respondent downgraded its rating in violation of the RBI and SEBI circulars issued during the COVID-19 pandemic, which provided for a moratorium and relaxation in recognizing defaults. The court examined the circulars and noted that the RBI circular dated 27.03.2020 allowed a moratorium on loan repayments, and the SEBI circular dated 30.03.2020 provided temporary relaxations for credit rating agencies. However, the court found that the petitioner's interpretation of these circulars was incorrect and that the circulars did not mandate disregarding the actual financial condition during the rating process.

4. Nature of the Relationship:
The court noted that the relationship between the petitioner and the third respondent is contractual, governed by a rating agreement. Disputes arising from such agreements are typically resolved through contractual remedies rather than writ proceedings. The court emphasized that rating is an expert-driven process and should not be interfered with by the writ court.

5. Availability of Alternative Remedies:
The court highlighted that the petitioner has effective alternative remedies available, including the provision for an in-house appeal and the option to file a complaint with SEBI against the third respondent. Given these alternatives, the court found that the writ petition was not the appropriate forum for resolving the dispute.

Conclusion:
The court dismissed the writ petition as not maintainable, emphasizing that the third respondent is a private entity not discharging public functions, and that the petitioner has alternative remedies available. The court did not delve into the merits of the case, leaving the petitioner free to pursue other legal avenues. Consequently, all connected miscellaneous petitions were also closed.