InvestorQ : Is Brickworks planning to take on SEBI in the courts?
shrinidhi Rajan made post

Is Brickworks planning to take on SEBI in the courts?

1 month ago

A couple of days after SEBI had ordered Brickwork Ratings to wind up its operations in 6 months, it is likely to adopt the legal route. Now, Brickwork Ratings cannot accept fresh mandates or onboard fresh clients. In addition, all ratings assigned by Brickwork Ratings will be rendered invalid and these clients will have to seek fresh ratings. Brickwork is one of the seven recognized CRAs (credit rating agencies) in India. SEBI found many cases of violations, including failure to do due diligence, relying on issuer estimates and not sharing information about delayed payments. Its record keeping also had been extremely slipshod.

In response, Brickwork called the order shocking and said it would seek legal and other recourse. There is some history to this order. In 2021, a SEBI appointed committee ordered winding up of Brickwork Ratings, but at that time, Brickwork had obtained an order from the Karnataka High Court quashing the ban. SEBI had then approached the Supreme Court which had ruled in favour of SEBI. That is the problem for Brickwork. Even if it goes to the SAT, the tribunal may be averse to giving an order that goes against the basic grain of the Supreme Court order. This may put Brickwork Ratings at a disadvantage.

The mandate for SEBI is more systemic. Regulating of credit rating agencies had been the missing link in its regulation and quite often the jurisdiction of various regulatory agencies has been quite ambiguous on CRAs. Credit rating agencies had assigned a premium rating to companies like IL&FS and Dewan Housing, just before they went bankrupt. Even globally, in the midst of the financial crisis of 2008, global rating agencies came under a cloud. For Brickwork, the real damage would be to their reputation. The better way would have been to sponsor a change in the management of Brickwork to make it smooth.