A Bench headed by Justice SS Nijjar, however, dismissed Sebi's appeal against the Securities Appellate Tribunal's November 2011 order that asked the watchdog to consider afresh the Informetics Valuation and Rating (IVRPL) application seeking registration as a CRA without requiring it to produce audited annual accounts of its promoters M/s Coment (Mauritius) for the two years ended December 2010.
SAT had held that the information sought by Sebi with regard to the additional two years was without jurisdiction and beyond the scope of the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999.
Senior counsel CU Singh and counsel Pratap Venugopal, appearing for Sebi, submitted that it would not have been necessary to press the appeal on merits, but for the observations made by the SAT that the board could not have asked for the annual accounts of the promoter.
Sebi argued that such observations by the tribunal would seriously curtail its powers into requiring the applicant to furnish all relevant information while considering the application for registration as a CRA.
Sebi had rejected IVRPL's application on the grounds that it had failed to produce all the audited annual accounts of the promoters for the previous five years prior to the date of filing of an application with Sebi.
IVRPL had challenged the Sebi's order of July 2011 that rejected its application before the SAT, which remitted the matter back to Sebi for fresh consideration without requiring it to produce the accounts for the two years ended December 2010.
IVRPL had argued that Sebi had been insisting upon the information, which was not a precondition for registration under the Sebi law or regulations.
It had protested that it was not being given equal treatment under law as others had been granted registrations without submission of any annual accounts of investor companies.
The apex court said it was not satisfied with the certificate submitted by the chartered accountant (CA) based on the certificate of ING Private bank confirming that M/s Coment (Mauritius) had a continued net worth of over R100 crore as per its annual accounts for the previous five years.
Since the certificate issued by the CAs did not categorically state that it is based on the audited accounts for the five years preceding the date of application, the board certainly had the power to direct the respondent (IVRPL) to produce the audited accounts. That being so, under Regulation 6, it was the duty of the board to have rejected the application of the respondent.
However, the Bench came down heavily on Sebi for extending the time to IVRPL for producing the documents even though it was not permissible in law.