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TMI Blog2000 (6) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... the year ending 30.11.1999 and from publishing any proposal for review or concluded review of the applicant's ratings. 3. This court, by the order dated 27.1.2000, on a perusal of the plaint and other documents and on hearing the counsel for the plaintiff, felt that since the rating committee at its meeting held on 15.1.2000 had already taken a final decision on the rating revision which was conveyed to the plaintiff through the letter dated 17.1.2000, passed only the order of status quo indicating that the respondent should not announce the altered rating to the public, for a period of three weeks and ordered notice returnable in three weeks.: 4. On receipt of the same, the respondent entered appearance through the counsel and also filed the application in A. No. 851 of 2000 to vacate the order of status quo besides filing a counter to O.A. No. 75 of 2000 contending that there is no prima facie case for granting interim relief sought for by the plaintiff/applicant. 5. Let us see the case of the respective parties. 6. The case of the plaintiff/applicant is this: (a) The applicant is engaged in leasing activities. The respondent is a company engaged in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould cause panic among the depositors/investors, resulting in a run on the investments by the public. Hence, the suit for declaration and permanent injunction alongwith this application seeking for interim injunction. 7. The case of the defendant/respondent is as follows: (a) The respondent is a public limited company engaged in the business of credit rating, debt instruments, etc. The respondent was set up in order to provide information and guidance to investors/creditors, to promote transparency and financial markets, provide intermediaries with a tool, to improve efficiency in the fund raising process. The primary objective of the respondent is to provide guidance to investors/creditors in determining credit risk associated with a debt instrument/credit obligation. (b) The respondent has been rating the debt instruments of the applicant since the year 1991. The respondent as a credit rating agency is obliged to continuously monitor the rating of debt instruments rated by it during the life-time of such debt instruments. The respondent is also required to disclose to the investors/creditors including the applicant, the rating assigned to the securities through regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be under review, despite the withdrawal of request for rating for the fresh NCD. (f) As far as the other outstanding instruments are concerned, the respondent did a review of the same on 26.11.1999 based on the information available. However, the applicant did not accept the rating and appealed for a review of the decision. Therefore, the applicant's case was once again taken up at the meeting of the respondent on 14.1.2000. After due consideration of various factors, the ratings of the applicant were finally revised in the meeting held on 14.1.2000. The applicant again appealed for review of the rating through the letters dated 15.1.2000 and 18.1.2000. But, the request was declined by the respondent as it had decided not to entertain any further appeal from the application since any further meetings that the applicant would not yield any meaningful results. The respondent also sent a rating communication to the respondent on 20.1.2000. (g) Instead of receiving the said communication, the applicant chose to issue a legal notice on 20.1.2000. The respondent was constrained to downgrade the instrument in time, with its foremost responsibility being towards the investor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investors and also the interim relief sought for in the application would be beyond the scope of the suit. 10. Having heard the counsel for the parties carefully and having regard to the pleadings, counter pleadings and the documents filed by the rival parties, I am of the considered view that the plaintiff/applicant has not made out a prima facie case for the grant of interim injunction pending disposal of the suit. The circumstances for the abovesaid conclusion could be narrated as below. 11. The reliefs sought for in the plaint are: (a) for declaration that no analysis or change in the credit rating of the applicant can be made by the respondent until publication of the annual audited balance-sheet and profit and loss account for the year ended on 30.11.1999, and (b) for permanent injunction restraining the respondent from making any alteration in the credit rating of the applicant till the publication of the annual audited balance-sheet and profit and loss account for the year ended on 30.11.1999. 12. The reading of both the prayers would clearly show that the relief of interim injunction in the main suit is only an ancillary relief to the main relief of declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the other hand, the documents and rules would provide contrary to the case projected by the plaintiff/applicant: 17. According to the counsel for the respondent, SEBI (Credit Rating Agencies) Regulation, 1999; came into force only in July, 1999, and, therefore, it is necessary to examine the law prevailing prior to July, 1999, to determine as to how the regulations apply to the debt instruments created prior to the introduction of the said regulation. Even the new regulations do not restrict surveillance process to a procedural rigidity of just once a year. 18. Admittedly, the plaintiff/applicant who is engaged in the business of extending lease finance facility for over 27 years, has approached the defendant/respondent in 1999 to rate its instruments. The respondent is engaged in the business of credit rating which is intended to protect the investors. The respondent's job is to analyse the financial status of the parties and grant them rating with reference to the safety, liquidity, etc. The respondent was set up in order to provide information and guidance to investors/creditors, to promote transparency in financial markets, provide intermediaries with a tool to imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of event, the rating assigned warrants revision, the respondent is at liberty to make such a revision and to publish such a change in rating in any manner it considers suitable. (g) The applicant is bound to furnish such information as the respondent may require from time-to-time for the above purpose. (h) It is open to the respondent in the public interest to disclose to the appropriate authorities the correct position in case of allegations of misstatement by the applicant in public document about the rating assigned or about where the instrument was rated by the respondent or not. 21. All these mandates are agreed terms. That apart, it is noted that the regulations 14 and 15 of the SEBI regulations, which came to be introduced later, also would fulfill all the requirements contained in the earlier documents. 22. Regulation 14(c) provides that the agreement shall contain a clause that the client should agree to a periodic review of the rating by the credit rating agency during the tenure of the rated instrument. Regulation 15 states that every credit rating agency shall during lifetime of securities rated by it continuously monitor the rating of such securities. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inclusion of high amount of penal charges. In fact, the applicant admitted that the lower penal charges reported earlier were incorrect. Though the opportunities were given in the further meetings held on 13.9.1999 and 24.9.1999, the applicant has not given satisfactory clarification regarding the high penal charges. Despite repeated reminders by the respondent calling upon the applicant to furnish details of the same, the applicant failed and neglected to do so. Subsequently, the applicant attributed variance not only to penal charges, but also to extraordinary income. 27. In the light of the above circumstances, the prayer seeking for declaration that the respondent cannot make a review in the credit rating without the annual audited report for the year ending 30.11.1999 in the absence of any embargo put on the respondent may not be proper. When those materials and statutory provisions prohibiting the respondent from making a credit rating only after the receipt of annual audited report, this court cannot hold, that too, at the initial stage, that the applicant would be entitled to interim injunction from making any alteration in the credit rating till the publication of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .12.1999, 14.12.1999, 17.12.1999, 18.12.1999 till 17.1.2000 would clearly show that the plaintiff/applicant had not objected either to the continuous monitoring of the rating and the action of the respondent seeking clarification sought for from the applicant on the ground that the rating was irregular and arbitrary. On the other hand, these letters would show that they were going on giving explanation with reference to the inconsistencies which were not ultimately accepted by the respondent. 35. As detailed in the earlier paragraphs, the applicant himself would admit that the lower penal charges reported earlier were incorrect. It is also to be noticed that the applicant admits the variance not only to penal charges, but also to extraordinary income. Under those circumstances, there is no point in contending that there is no circumstance or change of event warranting for reviewing or revision of the credit rating assigned. 36. As a matter of fact, the respondent gave a number of opportunities to the applicant to present its views by reviewing his case at the meetings held on 13.8.1999, 20.8.1999, 13.9.1999, 24.9.1999, 26.11.1999 and 14.1.2000. But, these opportunities as men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplained about such threat. Therefore, the allegations regarding the mala fides cannot be given any credence. That apart, the documents filed by both the applicant and the respondent clearly show that there were several correspondence and several meetings held by giving opportunity to the applicant before taking decision. 43. For the relief of injunction, whether permanent or temporary, the plaintiff/applicant has to establish (a) strong prima facie case; (b) balance of convenience; and (c) irreparable injury. The relief of injunction is the equitable and discretionary relief. 44. While considering the relief, it shall be relevant for the court to consider the conduct of the plaintiff/applicant also. In other words, whether he has come to the court with clean hands or not. He who seeks equity must come with equity. 45. In my view, in view of the discussion made above, the applicant has failed to prove all the three ingredients, namely, prima facie case, balance of convenience and irreparable injury. On the other hand, if interim injunction is granted, the prejudice for the respondent would be more. 46. The credit rating agency is bound by the code of conduct contained i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be hazardous and risky for the courts to tread an unknown path and should leave such task to the expert bodies.....In matters of economic policy even experts can seriously and doubtlessly differ. Courts cannot be expected to decide them without even the aid of experts. The function of the court is to see that lawful authority is not abused, but not to appropriate to itself the task entrusted to that authority. A public body invested with statutory powers must take care not to exceed or abuse its power. It must keep within the limits of the authority committed to it. It must act in good faith and it must act reasonably. 51. In my considered opinion, the legal situation as projected by the Delhi High Court and the apex court would fully apply to the present case also. 52. In the light of the above principles, if we look at the facts of the present case, I take the view that the respondent has acted in good faith and reasonably within the limits of the authority through the mandates given to the respondents and the regulations framed thereof. 53. Therefore, I do not find merit in any of the contentions urged by the counsel for the applicant and, consequently, the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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