9911796707
TMI Blog2012 (12) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... by and under two written agreements dated 22nd February, 2010 and 6th October, 2010 respectively claiming declaratory reliefs that above agreements duly and validly terminated by the plaintiff; declaration that the credit rating done by the first defendant grading the plaintiff's financial instruments from AA to A+ after termination of the agreement is invalid and is of no effect, and decree for perpetual injunction from giving effect to the credit rating by way of downgrading of the plaintiff's instruments after termination of the contract. Bereft of all the details made in the plaint the substance of the cause of action is that the first respondent after having been engaged in the credit rating agency, in complete breach of various provision of Regulation and circular issued by the second respondent the first respondent is not employing appropriate methodology and further is not assessing the relevant information with regard to the appellant's performance during the financial year 2011-12. As such the appellant terminated the agreements for rating its financial instruments namely unsecured subordinated debenture bonds in tier II of the value of Rs. 200 crores and value of Rs. 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 29(2)(c) of the Securities and Exchange Board of India (Credit Ratings Agencies) Regulations 1999 (hereinafter referred to as the said 'Regulation'). The said order is bad as no chance was given to counter the application of the respondent No.2. Mr. Sarkar in order to restore earlier interim order has submitted prima facie case in the manner as follows:- The contract between the appellant and the first respondent was discharged in view of the breach committed by the sole defendant. The respondent No.1 committed breach of obligation arising out of the said agreement by not disclosing methodology of the rating of the petitioner's instruments. The said contract specifically provides that the defendant will disclose to the appellant-petitioner the methods of dissemination. He has drawn our attention to the third schedule relating to the Code of Conduct for the Credit Rating Agencies and also regulation 13 of the said Regulation in this regard. In any view of the matter he contends that rating made by the first respondent by downgrading appellant's instruments was mala fide as it has been done subsequent to the notice of termination. Hence the downgrading is arbitrary and done as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its client. The credit rating has to be done by his client under the Regulations irrespective of termination of contracts. According to him it is statutory obligation towards the investors and also the public at large. 6. He has also reminded us the balance of convenience and irreparable injury while discharging the interim order passed earlier. He contends that balance of convenience is wholly in favour of the respondents and against the appellant for not passing any order in the appeal. He has drawn our attention to Ground No. XXXIII in the Memorandum of Appeal wherein it is specifically stated that even after virtual publication of rating in various newspapers by the respondent No.1, the investors in the concerned financial instruments of the appellant continued their investments, indicating the quality and stability of the said financial instruments and justifying the rating by the two individual rating agencies. He submits that in view of the aforesaid admission there is no injury likely to be suffered if credit rating done by his client is allowed to be published on one hand, on the other hand if it is not allowed his client is to face penal measure under the Regulation. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the engagement under the provision of the regulations. He contends that the learned Trial Judge therefore considering the facts and circumstances of this case and considering the obligation of the appellant existing in favour of the investor consequently the member of the public under the regulation has rightly discharged. Moreover the learned Trial Judge has rightly asked the appellant-plaintiff in view of the provision of regulation 29(4) of the said Regulations can investigate into any complaint regarding the correctness of rating done by any agency. 9. We have heard the learned counsel for the parties. While hearing the application for grant of interim relief in connection with the appeal we clearly made the learned counsel clear that hearing of the application would be hearing of the appeal itself. We are thus to decide the appeal and application by this judgment. After considering the submission of the learned counsel and the material placed before us, and going through the papers which in our view are adequate to deal with this appeal also. We think the question which has fallen for consideration in this appeal as to whether the learned Trial Judge in the given facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. In our view it is not an ordinary contract governed by Indian Contract Act. Here once the contract is entered into as rightly contended by both Mr. Jayanta Kumar Mitra and Mr. Hirak Kumar Mitra the rating agents are bound to discharge their obligation in terms of the agreements conforming to relevant provision of the above regulations which have got statutory force. It is settled position of law that irrespective of the terms of the contract whether express or implied between two parties the provisions of law cannot be defeated. 13. We have seen Regulation 13 of the Regulation which provides that every credit rating agency shall abide by the Code of Conduct contained in the Third Schedule. 14. Regulation 15 of the said Regulation obliges credit rating agency as follows: Every credit rating agency shall, during the lifetime of securities rated by it continuously monitor the rating of such securities. Every credit rating agency shall disseminate information regarding newly assigned rating and changes in earlier rating promptly through press releases and websites, and, in the case of securities issued by the listed companies, such information shall also be provided simultaneousl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is not the complete mechanism for adjudication of the dispute. But aforesaid clause particularly Regulation 29 clause (c) without any ambiguity empowers the respondent No.2 to investigate into the complaint received from the client in connection with any matter having bearing on act and omission of the credit rating agency. Whether the rate done by the respondent No.1 following Code of Conduct and norms and guidelines and basing on materials supplied by the plaintiff is bona fide or not as alleged by the plaintiff can always be looked into. 16. Therefore, we slightly modify interim order to the effect that in terms of the above section SEBI will look into the complaint whether it has been done following norms and also information and material supplied by the plaintiff bona fide or not. For this purpose notice for making enquiry shall be given to appellant who will be prejudiced. On enquiry if it is found that rating is done conforming the guidelines issued by it, and also the Code of Conduct in the said regulation then the respondent No.1 would be free to publish. However this should be made in terms of the order of the Court not to be treated in terms of the agreement which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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