SECURITIES AND EXCHANGE BOARD OF INDIAversusM/S. INFORMETICS VALUATION AND RATING PVT. LTD.

                         [2013] 3 S.C.R. 426


A       SECURITIES AND EXCHANGE BOARD OF INDIA
                                   v.
     M/S. INFORMETICS VALUATION AND RATING PVT. LTD.
                (Civil Appeal No. 291 of 2012)

                        FEBRUARY 19, 2013
B
       [SURINDER SINGH NIJJAR AND M.Y. EQBAL, JJ.]

            Securities and Exchange Board of India (Credit Rating
     Agencies) Regulations, 1999 - Regulations 3, 4(e), 6, 7 and
C    First Schedule Form A - Application under Regulation 3 by
     company, to Securities and Exchange Board of India (SEBI)
     seeking registration as a Credit Rating Agency (CRA) - SEBI
    required the company to furnish complete details of its
    promoters, confirm the status of their eligibility under
D    Regulation 4(e) (i.e. they have continuous net worth of
     minimum Rs. 100 crores as per its Audited Annual Accounts
     for the previous five years prior to filing of the application
     under Regulation 3), and to offer comments on a discrepancy
     noted in the promoter's net worth certificate etc - The company
E    submitted the net worth certificate of its promoter which was
     issued on the basis of the certificate provided by their Bankers
     - SEBI further directed the company to produce accounts of
     its promoter for another two years after the date of application
     - On the Company's failure to produce two years account,
F    rejected the application under Regulation 3 - Appeal - SAT
     allowed appeal of the Company and remitted the matter to
     SEBI to consider the application without requiring the
     company to produce the accounts for the two years after filing
     of the application - Appeal by SEBI - Held: The information
G    sought by SEBI with regard to additional two years was beyond
     the scope of the Regulations and Form A, hence without
    jurisdiction - However, SEBI was within its power to ask for the
     Audited Accounts for the five years preceding the date of
     application - The Net Worth Certificate for five years did not

H                                 426
     SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS            427
             VALUATION AND RATING P. LTD.

conform to the provisions contained in the regulation 4(e) as        A
the certificate did not categorically state that it was based on
the audited account - Therefore, under Regulation 6, it was
duty of SEBI to have rejected the application - SEBI delayed
the rejection of the application by granting time to remove the
objections even beyond the permissible time - The company            s
taking advantage of the liberty, provided.the audited accounts
for the five years preceding the date of application - It has also
produced the audited accounts for the subsequent two years
- Since SEBI extended the time, the impugned order, not
modified - Appeal dismissed - Securities and Exchange                c
Board of India Act, 1992.

     CIVIL APPELLATE JURISDICTION : Civil Appeal No. 291
of 2012.

    From the Judgment & Order dated 09.11.2011 of the                D
Securities Appellate Tribunal, Mumbai, in Appeal No. 155 of
2011.

     Chander Uday Singh, Pratap Venugopal, Gaurav Nair (for
K.J. John) for the Appellant.
                                                                     E
    R.S. Suri, Chirag M. Shroff, Amrita Singh, Narinder Kr.
Goyal for the Respondent.

     The Order of the Court was delivered by
                                                                     F
     SURINDER SINGH NIJJAR, J. 1. The present appeal
under Section 15Z of the Securities and Exchange Board of
India Act, 1992 ("the SEBI Act") is directed against the
impugned judgment and final order dated 9th November, 2011
passed by the Securities Appellate Tribunal, Mumbai ("the            G
SAT"), in Appeal No. 155 of 2011, by which the appeal filed
by M/s lnformetics Valuation and Rating Pvt. Ltd., (the
respondent herein) was allowed, and the order dated 24th June,
2011 passed by the Whole Time Member of SEBI and
communication dated 21st July, 2011 of the Securities and
                                                                     H
    428         SUPREME COURT REPORTS             [2013] 3 S.C.R.


A Exchange Board of India ("the SEBI") was set aside. By the
  impugned order, the SAT has remanded the matter back to the
  appellant to consider the application of the respondent seeking
  registration as a Credit Rating Agency ("CRA") without
  requiring the respondent to produce Audited Annual Accounts
B of the respondent's promoters for the two years ending
  December, 2010.

         2. We may notice here the skeletal facts which are
    necessary for the determination of the limited legal issue
    involved in this appeal.
c
       3. On 11th June, 2009, the respondent submitted an
  application to SEBI under Regulation 3 of the Securities and
  Exchange Board of India (Credit Rating Agencies) Regulations,
  1999 ("the CRA Regulations, 1999") seeking registration as a
D CRA. The respondent company was incorporated on 23rd
  June, 1986. The promoters of the respondent are stated to be:
          (a)    M/s. Coment (Mauritius) Limited through M/s. ACE
                 Step Management Ltd.

E         (b)    M/s. V. Malik & Associates, Chartered Accountants
                 - Consortium Member for all the Accounting and
                 Management backup.

          (c)    lnfomerics India Foundation - Consortium Member
F                as Policy Making Board.

        4. The appellant (SEBI) is a Statutory Board established
  under the SEBI Act to protect the interest of investors in
  securities and to promote the development of, and to regulate,
  the securities market and for matters connected therewith or
G incidental thereto. Under Section 11 of the SEBI Act, the
  appellant is duty bound to protect the interest of investors in
  securities and promote the development of, and to regulate, the
  securities market, by such measures as it thinks fit. Section
  11 (2) specifically enables SEBI to take the necessary measures
H
     SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         429
 VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.)

to provide for inter alia registration and regulating the working   A
of the depositories, participants, custodians of securities,
foreign institutional investors, credit rating agencies and such
other intermediaries as the Board may, by notification specify
in this behalf.
                                                                    B
     5. Pursuant to the aforesaid power, in July, 1999, SEBI
issued a notification to bring CRAs under its regulatory ambit,
in exercise of powers conferred under Section 30 read with
Section 11 of the SEBI Act.

      6. The CRA Regulations, 1999 empowers the appellaAt to        C
regulate CRAs operating in India. Under the CRA Regulations,
1999, a CRA had been defined as a body corporate, which is
engaged or proposes to be engaged in the business of rating
of securities offered by way of public or rights issue. SEBI has
also prescribed a Code of Conduct to be followed by the CRAs        D
in the aforesaid regulations. The CRA Regulations, 1999 inter
alia, contain:

      A.    Regulations pertaining to the registration of credit
            rating agencies, application for grant of initial and   E
            permanent certificate, eligibility criteria for
            promoter(s) of the credit rating agency, furnishing
            of information, clarification and personal
            representation by the promoter(s}, grant of
            certificate by SEBI, its conditions, and procedure
                                                                    F
            for refusal of certificate and its effect.

      B.    General obligations of Credit Rating Agencies,
            Code of Conduct, Agreement with client(s),
            Monitoring and process of rating and the
            Procedure for review of rating, Appointment of          G
            Compliance Officer, maintenance of proper books
            of Accounts and records, etc.

      C.    Restrictions on rating of securities issued by
            promoter(s} or by certain other person(s)
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    430        SUPREME COURT REPORTS                 [2013) 3 S.C.R.


A         D.     Procedure for inspection and investigation

          E.     Procedure for action in case of default

          7. On 11th June, 2009, the respondent submitted an
    application to SEBI under Regulation 3 of the CRA Regulations,
B   1999. The office of the respondent was duly visited and
    inspected by the appellant. All information that was required
    by the appellant was supplied by the respondent. Further
    undertakings and confirmations as required by the appellant
    were also provided. By letter dated        20th August, 2009, the
C   appellant required the respondent to furnish complete details
    of his promoters, confirm the status of their eligibility under
    Regulation 4(e) of the CRA Regulations, 1999, offer comments
    on a discrepancy noted in the promoter's net worth certificate
    etc. In the aforesaid letter, it was pointed out that under
D   Regulation 4(e) of the CRA Regulations, 1999, the applicant
    is required to show that its promoters have a continuous net
    worth of minimum Rs.100 crores as per its Audited Annual
    Accounts for the previous five years prior to filing of the
    application with the Board for grant of certificate under the CRA
E   Regulations, 1999. It is pointed out that although Mis. ACE
    Step Management Ltd., as a promoter of the respondent, has
    the continuous net worth of minimum Rs.100 crores as per its
    Audited Annual Accounts for the previous five years prior to the
    filing of the application, yet the net worth certificate dated 29th
F   May, 2009, certified by the accountants in this regard pertains
    to M/s. Coment (Mauritius) Limited. Therefore, the respondent
    was advised to offer comments on the aforesaid discrepancy
    and submit the requisite net worth certificate in compliance with
    the relevant provisions of the CRA Regulations, 1999.

G        8. The respondent through its letter dated 21st August,
    2009 submitted the reply to the aforesaid discrepancy pointed
    out by the appellant. The respondent stated that M/s. Coment
    (Mauritius) Limited has invested in the appellant company
    through its associate company M/s. ACE Step Management
H
    SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         431
VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.]

Ltd., which was holding 3,65,000 (Three Lac Sixty Five             A
Thousand) 10.84% equity shares in their company, which is
within the parameters of Regulation 4(e) of the CRA
Regulations, 1999. The respondent also confirmed that M/s.
Coment (Mauritius) Limited is a promoter of the respondent
company having a continuing net worth of minimum Rs.100            B
crores as per its Audited Annual Accounts for the previous five
years prior to the filing of the application with the Board.
Therefore, it was stated that there is no discrepancy and the
net worth certificate submitted by the respondent is in
compliance with the provisions of the CRA Regulations, 1999.       c
Still not satisfied, the appellant through an e-mail dated 1st
September, 2009 (5.36 PM) directed the respondent to furnish
the Audited Annual Accounts of the promoters of the appellant
company for the previous five years prior to the filing of the
application with SEBI. The respondent through a letter dated       D
1st September, 2009 again informed the appellant that their
promoter M/s. Coment (Mauritius) Limited had the continuous
net worth of Rs. 100 crores as per the Annual Accounts for the
previous five years. !heir accounts are audited and they have
provided the appellant with a certificate of their bankers ING     E
Asia Private Bank Ltd., Dubai, to that effect. The certificate
was enclosed with the aforesaid letter. The certificate issued
by the ING Bank was as under:-

    "ING
    PRIVATE BANKING                                                F
    Date: 21 May 2009

          TO WHOMSOEVER IT MAY CONCERN

    This is to confirm that M/s. Coment (Mauritius) Limited, Les
    Cascade Building, Edith Cavell Street, Port Louris,            G
    Republic of Mauritius, part of the Kataria Group has had
    a continued net worth of over Rs.100 crores as per its
    accounts for the previous five years.

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    432       SUPREME COURT REPORTS                   [2013] 3 S.C.R.


A         We further confirm that Mis. ACE Step Management Ltd.
          is promoted by M/s. Coment (Mauritius) Limited.

          The above information is given in strictest confidence at
          the request of our client and is without responsibility or
          engagement on the part of the Bank and/or any of its
B
          officers or employees for its content or any reliance made
          upon it. The letter does not constitute any guidance on the
          part of the bank.

          Yours faithfully,
c         Sd/-
          Nitin Bhatnagar
          Director & Head South Asia Team"

        9. The letter further pointed out that "since the Coment
0 (Mauritius) Ltd. Balance sheet is not a public document though
  in terms of holding in our company it is 10.84 % but in their
  terms it is a small investment made they may not like to share
  balance sheet with us. However, their bankers have confirmed
  that as per certificate it is within the compliance of SEBI
E regulation." In view of the confirmation given by the bankers of
  M/s. Coment (Mauritius) Ltd. Promoter Company, the
  respondent requested the appellant to rely on the bankers
  certificate.

          10. It is further pointed out that in any event the respondent
F had submitted the annual accounts for the last 5 years. However,
   inspite of aforesaid, the appellant vide its letter dated 15th
   September, 2009 directed the respondent to furnish an
  ·undertaking as to whether the promoter of respondent or any
   associate of the respondent are registered with any regulatory
G agency abroad and also directed the respondent to have
   Audited Annual Accounts of the promoters for the 5 years prior
   to filing of the application.

      11. The respondent by a letter dated 21st September,
H 2009 stated that it would furnish the Balance Sheet for five
    SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         433
VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.]

years period as soon as they were received by the respondent.        A
The appellant by his letter dated 21st October, 2009 further
directed the respondent to furnish the Audited Annual Accounts
and detailed profile of the promoters of the respondent. On
26th November, 2009, respondent furnished the detailed
profiles of its promoters and specific details about the             B
promoters such as their activities in detail, the composition of
the Board of Directors and the summary of their financial results
for the last five years. However, the Balance Sheet for the five
year's period was not furnished. Having furnished all the
information, the respondent by its letter dated 11th January,        c
2010 requested for approval of its pending application dated
11th June, 2009, for being registered as a CRA. However, in
spite of repeated requests, the necessary registration was not
granted. In fact, the appellant by letter dated 28th July, 2010
once again advised the respondent to furnish Audited Annual          0
Accounts of its promoters - Mis. Coment (Mauritius) Limited for
the period 2006 to 2009. It appears that till 1st March, 2011,
the appellant was not satisfied with the efforts made by the
respondent to supply the necessary Audited Accounts and
issued Show Cause Notice as to why the application for               E
registration should not be rejected in terms of Regulation 11 (1)
of the CRA Regulations, 1999.

      12. We may notice here that in the Show Cause Notice, it
is specifically mentioned that the respondent has failed to
produce the Audited Annual Accounts of the promoter M/s.             F
Coment (Mauritius) Limited for the previous five years prior to
the filing of the application with the Board for registration as a
CRA. It was pointed out that the respondent has not fulfilled
the requirement under Regulation 4(e) read with Regulation
7(1) of the CRA Regulations, 1999. Therefore, SEBI was prima         G
facie of the view that the appellant was unable to furnish the
information sought by the Board during the course of
processing of the application for registration in accordance with
the provisions of the CRA Regulations, 1999. The respondent
pointed out in its reply to the Show Cause Notice                    H
     434     SUPREME COURT REPORTS                    [2013] 3 S.C.R.


A    dated 4th March, 2011 that the appellant had enquired about
     the status of M/s. Coment (Mauritius) Limited directly from the
     Mauritius Regulatory Authority and collected all the details to
     cross check their credentials. In spite of the aforesaid, the
     appellant was still insisting upon the same information which
 B   in fact is not a precondition for registration under the SEBI law
     or regulations. It is pointed out that even though the information
     was not required to be provided under the regulations, the
     investor company and the applicant still agree to furnish the
     Balance Sheet only to enhance their credibility and as a mark
 c   of their respect to SEBI. The respondent in fact 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. Thereafter, the respondent
     by its letters dated 15th March, 2011 and 18th March, 2011
     submitted the Audited Annual Accounts of M/s. Coment
.D
     (Mauritius) Limited for the periods ending 31st December,
     2003 to 31st December, 2007. On its request, the respondent
     was also granted a personal hearing by the Whole Time
     Member of SEBI on 10th June, 2011. However, even during
     the personal hearing, the respondent was advised to file the
 E   Audited Accounts of M/s. Coment (Mauritius) Limited for the
     years 2009 and 2010. Again on 24th June, 2011, the Whole
     Time Member of the appellant directed the respondent to
     indicate as to which entity is its promoter(s) along with the basis
     of considering the entity as such and to submit Audited Annual
 F   Accounts of the promoter(s) for the last five years along with
     computation of net worth as per the SEBI prescribed formula
     latest by 15th July, 2011, failing which the application of the
     respondent would be deemed to be rejected. The Whole Time
     Member also directed the appellant to take a decision on the
G    basis of the details provided by the respondent in pursuance
     of the order, latest by 15th August, 2011, in accordance with
     law. The respondent on 5th July, 2011 sought review/
     reconsideration of the aforesaid order. Ultimately, on 21st July,
     2011, the appellant rejected the application of the respondent.
H
    SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         435
VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.]

     13. Aggrieved by the rejection, the respondent preferred        A
an appeal being Appeal No. 155 of 2011 on 30th August, 2011
before the SAT. Against the communication dated 21st July,
2011 of the appellant and the order dated 24th June, 2011
passed by the Whole Time Member of the appellant. The SAT
by its judgment and final order dated 9th November, 2011             B
allowed the appeal and set aside the impugned order dated
24th June, 2011 and 21st July, 2011 and remitted the matter
to the appellant to consider the application of the appellant
without requiring it to produce the accounts for the two years
ending December, 2010. Being aggrieved by the impugned               c
order of SAT, SEBI is in appeal before this Court under Section
15Z of the SEBI Act.

     14. We have heard the learned counsel for the parties at
length.
                                                                     D
    15. Whilst allowing the appeal, the SAT interpreted
Regulation 4(e), Regulation 7 and Form A contained in the First
Schedule of the Regulations. It has been observed that :

           "An application was filed on June 11, 2009 and it is      E
    the requirement of regulation 4(e) that the net worth of one
    of the promoters of the applicant should be rupees one
    hundred crores as per the audited annual accounts for the
    previous five years prior to the filing of the application. As
    already mentioned above, Form A prescribes that the
                                                                     F
    applicant should produce a certificate from a Chartered
    Accountant to substantiate the fact regarding the net worth
    of its promoter which was done and the Board has at no
    stage questioned its veracity. Without doing so it (the
    Board) could not have asked for the annual accounts of
    the promoter."                                                   G

      16. It is further observed that an application for the grant
of a certificate is to be made in Form A as prescribed in the
First Schedule to the Regulations. According to the eligibility
criteria prescribed therein, the applicant is required to enclose    H
    436       SUPREME COURT REPORTS                  [2013] 3 S.C.R.


A a Chartered Accountant's certificate, certifying the continues net
  worth to be of Rs. 100 crores for five years in the case of
  promoter referred to Regulation 4(e). With regard to the
  directions issued by the appellant to the respondent to produce
  the Annual Accounts of one of its promoters for the five years
B preceding the date of application, the SAT observed:-

          "lt is pertinent to mention here that neither the regulations
          nor the eligibility criteria in Form A requires the applicant
          to produce the annual accounts of the promoter"
c         Reiterating its earlier view, the SAT further observed:

          "It is doubtful whether the Board could have asked for this
          information without doubting the veracity or correctness of
          the certificate of the Chartered Accountant that
D         accompanied the application."
          "As already mentioned above, Form A prescribes that the
          applicant should produce a certificate from a Chartered
          Accountant to substantiate the fact regarding the net worth
          of its promoter which was done and the Board has at no
E         stage questioned its veracity, without doing so it (the
          Board) could not have asked for the annual accounts of
          the promoter."

        Apart from the above, it is also noticed by the SAT that
F accounts for five years preceding the application were duly
  produced by the respondent. However, the Board then directed
  the respondent to produce accounts for another two years for
  the period ending December, 2010. Since the respondent
  failed to produce the accounts for the two years, the application
G of the respondent for registration as a CRA has been rejected.
  It has been held that the direction for producing two year's
  accounts after the date of application could not be justified under
  Regulation 7. It has been held that such further information as
  referred to Regulation 7 would mean any information in addition
H
    SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         437
VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.]

to the information already furnished by the applicant alongwith      A
the application. The relevant observations of SAT are:

    "Surely the Board was not asking for any further
    information. It was only seeking the basic material on the
    basis of which the Chartered Accountant had furnished a          B
    certificate certifying that one of the promoters of the
    appellant had a net worth of rupees one hundred crores
    for the previous five years. This information could be
    asked for if the Board at any stage had doubted the
    correctness or veracity of the certificate of the Chartered      C
    Accountant."

      17. In coming to the aforesaid conclusion it is observed
by the SAT that wherever the regulations wanted the applicant
to produce the Annual Accounts, a specific provision in that
regard had been made in the regulations. On the other hand,          D
for the purpose of substantiating the fact that the promoter of
the applicant had a net worth of Rs. 100 crores for the previous
five years, regulations do not require the Annual Accounts of
the promoter to be produced. The regulations read with Form
A prescribed that a certificate from the Chartered Accountant        E
should be filed for this purpose. Therefore, it is held that the
information sought by the appellant with regard to the additional
two years was beyond the scope of the regulations and Form
A, hence without jurisdiction.

     18. Mr. C.U. Singh, learned senior counsel appearing for        F
the appellant submitted that at this stage, it would not have been
necessary to press the appeal on merits, but for the
observations made by the SAT that without questioning the
veracity of the certificate submitted by the Chartered
Accountant, the Board could not have asked for the Annual            G
Accounts of the promoter. He submitted that these
observations would seriously curtail the powers of SEBI into
requiring the applicant to furnish all relevant information while
considering the application for registration as a CRA. For this
limited purpose, learned senior counsel submitted that it is         H
    438      SUPREME COURT REPORTS                  [20131 3 S.C.R.

A   necessary for this Court to examine the correctness of the order
    passed by the SAT.

       19. On the other hand, Mr. Suri, learned senior counsel
  appearing for the respondent submitted that necessary
  information having been furnished to the Board, the demand
8
  for an additional two years was beyond the scope of enquiry
  under Regulation 4(e) and various clauses of Form A. He
  emphasised that such an information could not be called for
  under Regulation 7. According to the learned senior counsel
C that even for the five years preceding the date of application,
  the respondent is required only to look at the certificate of the
  Chartered Accountant which has been duly submitted by the
  respondent. However, in order to comply with the directions
  issued by the appellant, the respondent has already submitted
  the audited accounts for the five years preceding the date of
D application. Therefore, at this stage, there should be no hurdle
  to the registration of the respondent as CRA by the appellant.

         20. We have considered the entire material and the
    submissions made by the learned senior counsel for the parties.
E   The controversy raised herein revolves around the interpretation
    of the provisions contained in Regulation 4(e), Form A read
    with Regulation 7 of the CRA Regulations, 1999. In order to
    appreciate the true scope and ambit of the aforesaid
    provisions, it is necessary to take a bird's eye view of the SEBI
F   Act and the CRA Regulations, 1999. As noticed earlier, the
    regulations have been made in exercise of the powers
    conferred on the Board by Section 30 read with Section 11 of
    the SEBI Act. Section 30 empowers the Board by notification
    to make regulations consistent with the Act and to carry out the
G   purposes of SEBI Act. Section 30 (2)(d) empowers the Board
    to make regulations with regard to the conditions subject to
    which certificate of registration is to be issued, the amount of
    fee to be paid for the certificate of registration and the manner
    of suspension or cancellation of certificate of registration under
H   Section 12. Section 11 empowers the SEBI to take measures
    SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         439
VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.]

to protect the interest of investors and to regulate the security A
market, inter alia by regulating and registering the working of
stock progress and other intermediaries such as credit rating
agencies, '!'JhO may be associated with the securities market
in any manner. Regulation 2(h) defines a CRA as a body
corporate, which is engaged in or proposes to be engaged in B
the business of rating of securities offered by way of public or
rights issue. Regulation 2(b) defines an associate in relation
to a credit rating agency to include a person:

    (i) who, directly or indirectly, by himself, or in combination    C
    with relatives, owns or controls shares carrying not less
    than ten percent of the voting rights of the credit rating
    agency, or

    (ii) in respect of whom the credit rating agency, directly or
    indirectly, by itself, or in combination with other persons, D
    owns or controls shares carrying not less than ten percent
    of the voting rights, or

    (iii) majority of the directors of which, own or control shares
    carrying not less than ten percent of the voting rights of the    E
    credit rating agency, or

    (iv) whose director, officer or employee is also a director,
    officer or employee of the credit rating agency;

     Regulation 2(p) defines net worth as under:                      F
    "net-worth means the aggregate value of the paid up equity
    capital and free reserves (excluding reserves created out
    of revaluation), reduced by the aggregate value of
    accumulated losses and deferred expenditure not written G
    off, including miscellaneous expenses not written of'

     21. Regulation 3(1) provides that any person proposing to
commence any activity as a credit rating agency shall make an
application to the Board for the grant of a certificate of
registration for the purpose. Regulation 3(3) provides that such      H
    440          SUPREME COURT REPORTS                  [2013] 3 S.C.R.

A   application shall be made to the Board in Form A of the
    Schedule of the Regulations. Regulations 4, 5, 6 and 7 which
    are relevant for the decision of the legal issue involved in this
    case are as under:-

          "Promoter of credit rating agency
B
          4. The Board shall not consider an application under
          regulation (3) unless the applicant is promoted by a person
          belonging to any of the following categories, namely:

c          (a)     a public financial institution, as defined in section
                   4 A of the Companies Act, 1956 (1 of1956);

           (b)     a scheduled commercial bank included for the time
                   being in the second schedule to the Reserve Bank
                   of India Act, 1934 (2 of 1934);
D
           (c)     a foreign bank operating in India with the approval
                   of the Reserve Bank of India;

           (d)     a foreign credit rating agency recognised by or
E                  under any law for the time being in force in the
                   country of its incorporation, having at least five
                   years experience in rating securities;

           (e)     any company or a body corporate, having
                   continuous net worth of minimum rupees one
F                  hundred crores as per its audited annual accounts
                   for the previous five years prior to filing of the
                   application with the Board for the grant of certificate
                   under these regulations.
G         Eligibility criteria
          5. The Board shall not consider an application for the grant
          of a certificate under regulation 3, unless the applicant
          satisfies the following conditions, namely:
H
    SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         441
VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.]

     (a)   the applicant is set up and registered as a company       A
           under the Companies Act, 1956;

     (b)   the applicant has, in its Memorandum of
           Association, specified rating activity as one of its
           main objects;                                             B

     (c)   the applicant has a minimum net worth of rupees
           five crores. Provided that a credit rating agency
           existing at the commencement of these regulations,
           with a net worth of less than rupees five crores, shall
           be deemed to have satisfied this condition, if. it        C
           increases its net worth to the said minimum within
           a period of three years of such commencement.

     (d)   the applicant has adequate infrastructure, to enable
           it to provide rating services in accordance with the      o
           provisions of the Act and these regulations;

     (e)   the applicant and the promoters of the applicant,
           referred to in regulation 4 have professional
           competence, financial soundness and general
           reputation of fairness and integrity in business          E
           transactions, to the satisfaction of the Board;

     (f)   neither the applicant, nor its promoter, nor any
           director of the applicant or its promoter, is involved
           in any legal proceeding connected with the                F
           securities market, which may have an adverse
           impact on the interests of the investors;

     (g)   neither the applicant, nor its promoters, nor any
           director, of its promoter has at any time in the past     G
           been convicted of any offence involving moral
           turpitude or any economic offence;

     (h)   the applicant has, in its employment, persons having
           adequate professional and other relevant
           experience to the satisfaction of the Board;              H
    442          SUPREME COURT REPORTS                   [2013] 3 S.C.R.

A          (i)     neither the applicant, nor any person directly or
                   indirectly connected with the applicant has in the
                   past been -

                   (i)    refused by the Board a certificate under
                          these regulations or
B
                   (ii)   subjected to any proceedings for a
                          contravention of the Act or of any rules or
                          regulations made under the Act.

c                  Explanation: For the purpose of this clause, the
                   expression "directly or indirectly connected person"
                   means any person who is an associate, subsidiary,
                   inter-connected or group company of the applicant
                   or a company under the same management as the
D                  applicant.

           0)      the applicant, in all other respects, is a fit and
                   proper person for the grant of a certificate;

           (k)     grant of certificate to the applicant is in the interest
E                  of investors and the securities market.

          Applicability of Securities and Exchange Board of
          India (Criteria for Fit and Proper Person) Regulations,
          2004.
F         SA. The provisions of the Securities and Exchange Board
          of India (Criteria for Fit and Proper Person) Regulations,
          2004 shall, as far as may be, apply to all applicants or the
          credit rating agencies under these regulations.

G         Application to conform to the requirements
          6. Any application for a certificate, which is not complete
          in all respects or does not conform to the requirement of
          regulation 5 or instructions specified in Form A shall be
          rejected by the Board: Provided that, before rejecting any
H
    SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         443
VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.]

    such application, the applicant shall be given an              A
    opportunity to remove, within thirty days of the date of
    receipt of relevant communication, from the Board such
    objections as may be indicated by the Board.

    Provided further, that the Board may, on sufficient reason
                                                                   B
    being shown, extend the time for removal of objections
    by such further time, not exceeding thirty days, as the
    Board may consider fit to enable the applicant to remove
    such objections.

    Furnishing of information, clarification and personal          C
    representation

    7. (1) The Board may require the applicant to furnish such
    further information or clarification as the Board may
    consider necessary, fo1 the purpose of processing of the       0
    application.

    (2) The Board, if it so desires, may ask the applicant or
    its authorised representative to appear before the Board,
    for personal representation in connection with the grant of
    a certificate."                                                E

     22. Form A of the First Schedule has to be submitted by
the applicant together with the supporting documents along with
the application. This was duly filled and furnished by the
respondent.                                                        F

     23. A bare perusal of the regulations makes it clear that
an applicant to be eligible to be registered as a credit rating
agency has to be a person/entity promoted by a person
belonging to any of the categories enumerated in Regulation
4. Categories 4(a), (b) and (c) are financial institutions as      G
defined in Section 4(a) of the Companies Act; Schedule
Commercial Banks included in the Second Schedule to the
Reserve Bank of India Act, 1934 and foreign banks operating
in India with the approval of the Reserve Bank of India. Foreign
                                                                   H
    444      SUPREME COURT REPORTS                  [2013] 3 S.C.R.


A  Credit Rating Agency recognized by or under any-law for the
  time being in force in the country of incorporation having at least
  five years experience in rating securities fall within category
  4(d). The respondent falls within category 4(e), which relates
  to any company or a body corporate having continuous net
B worth of minimum Rs.100 crores as per its Audited Annual
  Accounts for the previous five years, prior to the filing of the
  application with the Board for the grant of certificate under the
  Regulation. Regulation 5 provides for the eligibility criteria. It
  is provided that the Board shall not consider any application
c for the grant of a certificate under Regulation 3 unless the
  applicant satisfies the conditions set out therein. Regulation 6
  provides that any application for a certificate which is not
  complete in all respects or does not conform to the
  requirements of Regulation 5 or instructions specified in Form
D A shall be rejected by the Board. It is, however, necessary that
  before rejecting any such application, the applicant shall be
  given an opportunity to remove, the objections indicated by the
  Board within a period of 30 days of the receipt of
  communication of the objections by the Board to the applicant.
  This period can be further extended at the discretion of the
E Board on sufficient reason being shown by the applicant for a
  further period not exceeding 30 days.

       24. A reading of Regulations 4, 5 and 6 together leaves
  no manner of doubt that the SEBI has no discretion not to reject
F the application if it does not satisfy the conditions laid down in
  Regulations 4 and 5. In fact, Regulation 4 mandates that the
  Board shall not consider an application for registration under
  Regulation 3 unless the applicant is promoted by a person
  belonging to any of the categories mentioned therein. Similarly,
G Regulation 5 categorically mandates that the Board shall not
  consider an application for the grant of a certificate under
  Regulation 3 unless the applicant satisfies all the conditions
  which are set out under Clause 5. Regulation 6 again is
  mandatory in nature, which provides that an application which
H is not complete in all respects or does not conform to the
    SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         445
VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.]

requirement of Regulation 5 or instructions specified in Form A
A shall be rejected by the Board. It appears, therefore, that the
intention of the legislature, as expressed through the
regulations, is to put a closure to the consideration of the
application on the basis of the information submitted on the date
of application. The Board has the minimal discretion to extend B
the period for removal of objections upon hearing the applicant
firstly for 30 days and thereafter for another 30 days. In other
words, Regulation 7 enables the Board to ask for further
information within the extended time stipulated in Regulation 6.
For the purpose of processing of the application, the c
information/material for removal of objections has to be
provided within the time stipulated by Board. But the maximum
period provided is sixty days. There is no scope under the
regulations for the time to be extended any further. The
information sought must be in relation to the five years 0
preceding the date of the application. In this view of the matter,
we are of the opinion that the directions issued by the SAT that
the Board could not have directed the respondent to produce
the Audited Accounts for the two years beyond the date of the
 application, are in consonance with the provisions of the E
 regulations. Under Regulation 7, the Board would have the
 power to seek further information or clarification for the purpose
 of processing of the application. This further information would
 relate only to the basic information with regard to the Audited
Accounts for the five years preceding the date of the
 application. Therefore, the observations made by SAT as F
 noticed above are perfectly justified.
     25. This now brings us to the final submission made by
Mr. C.U. Singh that the Board was within its power to ask for
the Audited Accounts of the applicant for the 5 years preceding G
the date of the application. It is true that under Regulation 4(e),
an applicant has to show that it has continuous net worth of
minimum Rs.100 crores as per its Audited Annual Accounts for
the previous five years prior to the filing of the application with
the Board. Clause 2 of Form A provides the "Eligibility Criteria". H
    446     SUPREME COURT REPORTS                  [2013] 3 S.C.R.

A  Under Clause 2(1), the applicant has to indicate the category
  to which the promoters of the applicant company belong under
   Regulation 4, which in this case was 4(e). Clause 2(3) provides
  that the applicant shall "enclose a Chartered Accountant's
  certificate certifying the continuous net worth of Rs.100 crores
B for five years, in case the promoter referred to in Regulation
  4(e)". As noticed above, Regulation 4(e) postulates that the
  proof of net worth on the basis of the audited accounts for five
  years prior to the filing of the application has to be given. It is
  not disputed before us that the applicant has submitted the
c Chartered Accountant's certificate certifying the continuous net
  worth of Rs.100 crores for five years on the basis of M/s.
  Coment (Mauritius) Limited bankers certificate. It is noticed by
  the SAT in the impugned order that the certificate was accepted
  by the Board and no clarification was sought from the
  respondent in regard to the certificate furnished by the
0
  Chartered Accountant. Mr. C.U. Singh submitted that the
  certificate submitted by the Chartered Accountant was issued
  on the basis of the certificate of ING Private bank dated 29th
  May, 2009 confirming that Mis. Coment (Mauritius) Limited had
  a continued net worth of over Rs.100 crores as per its Annual
E Accounts for the previous five years. It is not certified on the
  basis of the Audited Accounts, therefore, the certificate did not
  satisfy the requirements under the regulations.

         26. We are of the opinion that the submission made by
F   Mr. C.U. Singh has substance and cannot be brushed aside.
    The certificate actually provided by the Chartered Accountants
    is as under:-

                     "NET WORTH CERTIFICATE

G       We certify that for previous five years continuous Net worth
        of M/s. Coment (Mauritius) Limited, Les Cascade
        Building, Edith Gavell Street, Port Louis, Mauritius is over
        Rs.100 crores (Rupees One Hundred Crores).

H       The above information is given in strictest confidence at
     SEC. AND EXCH. BOARD OF INDIA v. INFORMETICS         44 7
 VALUATION AND RATING P. LTD. [SURINDER SINGH NIJJAR, J.]

     the request of our client for the purpose of filing application    A
     before Securities and Exchange Board of India.

                           FOR M/S RAJNISH & ASSOCIATES
                               CHARTERED ACCOUNTANTS
                                         Certified True Copy            B
                                                         Sd/-
                                                 (PARTNER)
      Place : New Delhi                 Membership No. 081180
      Date: 29.05.2009"

      27. We are satisfied that the aforesaid certificate did not       C
 conform to the provisions contained in the regulations which
 requires that the certificate of the Chartered Accountant should
 be in confirmation of the Audited Accounts of the promoters/
 applicant for the five years preceding the date of the
 application. We are unable to approve the observations made            D
 by SAT that "neither the regulations nor the eligibility criteria in
 Form A requires the applicant to produce the annual accounts
 of the promoter." We are also unable to approve the
 observations of SAT that "it is doubtful whether the Board could
 have asked for this information without doubting the veracity or       E
 the correctness of the certificate of the Chartered Accountant
 that accompanied the application." The certificate of the
 Chartered Accountant is evidence of the required net worth of
 the promoter. Therefore, it has to be in strict conformity with
 Regulation 4(e). Since the certificate issued by the Chartered         F
 Accountants did not categorically state that it is based on the
 audited accounts for the 5 years preceding the date of
 application, the Board certainly had the power to direct the
 respondent to produce the audited accounts. That being so,
 under Regulation 6, it was the duty of the Board to have rejected      G
 the application of the respondent.

       28. Surprisingly, however, the Board continued to grant
  further time to the respondent to remove the objections even
· beyond the maximum sixty days permissible under the proviso
                                                                        H
    448      SUPREME COURT REPORTS                [2013] 3 S.C.R.


A to Regulation 6. It appears that the enquiries continued from
  20th August, 2009 till March 1, 2011 when the show cause
  notice was issued to the respondent. The application of the
  respondent is not rejected till 21st July, 2011. The delay in the
  rejection of the application of the respondent was wholly
8 unwarranted. It allowed the respondent a latitude not
  permissible under the regulations. Taking advantage of this
  latitude, the respondent has provided the Audited Accounts for
  the five years preceding the date of application. Not only this,
  we are informed that by now the respondent has even produced
  before this Court in a sealed cover the Audited Accounts of M/
C s. Coment (Mauritius) Limited for the subsequent two years upto
  31st December, 2010 also.
        29. Since the Board had extended the time to the
  respondent, even though not permissible in law, we are not
D inclined to modify the directions issued by the SAT. Especially
  in view of the submission of Mr. Suri that respondent is willing
  at this stage to produce the Audited Accounts of the promoter
  even for the subsequent two years.
E       30. In view of the above, we see no merit in the appeal
    and the same is hereby dismissed with no order as to costs.

    K.K.T.                                     Appeal dismissed.