Credit Rating Agency (“CRA”) - 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 SAT”), in Appeal No. 155 of 2011, by which the appeal filed by M/s Informetics 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 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 Page 1 of 29Page 2 as a Credit Rating Agency (“CRA”) without requiring the respondent to produce Audited Annual Accounts of the respondent’s promoters for the two years ending December, 2010.- 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. - 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 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 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/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 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. Page 28 of 29Page 29 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.

Page 1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 291 OF 2012
SECURITIES AND EXCHANGE
BOARD OF INDIA
….APPELLANT
VERSUS
M/S. INFORMETICS VALUATION
AND RATING PVT. LTD. .…
RESPONDENT
O R D E R
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 SAT”), in
Appeal No. 155 of 2011, by which the appeal filed by
M/s Informetics 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 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
Page 1 of 29Page 2
as a Credit Rating Agency (“CRA”) without requiring the
respondent to produce Audited Annual Accounts 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.
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 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.
(b) M/s. V. Malik & Associates, Chartered
Accountants – Consortium Member for all the
Accounting and Management backup.
(c) Infomerics India Foundation – Consortium
Member 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 incidental thereto.
Under Section 11 of the SEBI Act, the appellant is duty
Page 2 of 29Page 3
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 to provide for inter alia registration
and regulating the working 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. 
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
appellant to 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 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 permanent certificate, eligibility
Page 3 of 29Page 4
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 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 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)
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, 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
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
Page 4 of 29Page 5
promoter’s net worth certificate etc.
In the aforesaid
letter, it was pointed out that under 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 Regulations, 1999.
It is pointed out that
although M/s. 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 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.
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 Ltd.,
which was holding 3,65,000 (Three Lac Sixty Five
Thousand) 10.84% equity shares in their company,
Page 5 of 29Page 6
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 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.
Still not satisfied, the appellant through an email 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 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.
Their
accounts are audited and they have provided the
appellant with a certificate of their bankers ING 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
Date: 21 May 2009
Page 6 of 29Page 7
TO WHOMSOEVER IT MAY CONCERN
This is to confirm that M/s. Coment
(Mauritius) Limited, Les Cascade Building,
Edith Cavell Street, Port Louris, 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.
We further confirm that M/s. 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
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,
Sd/-
Nitin Bhatnagar
Director & Head South Asia Team”
9. The letter further pointed out that “since the
Coment (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
regulation.” In view of the confirmation given by the
bankers of M/s. Coment (Mauritius) Ltd. Promoter
Page 7 of 29Page 8
Company, the respondent requested the appellant to
rely on the bankers certificate.
10. It is further pointed out that in any event the
respondent 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
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, 2009 stated that it would furnish the
Balance Sheet for five years period as soon as they
were received by the respondent. 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
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
Page 8 of 29Page 9
information, the respondent by its letter dated 11th
January, 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
Accounts of its promoters - M/s. 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 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. 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 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
Page 9 of 29Page 10
in accordance with the provisions of the CRA
Regulations, 1999. The respondent pointed out in its
reply to the Show Cause Notice 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 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 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 (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 Audited Accounts of
Page 10 of 29Page 11
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 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 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.
13. Aggrieved by the rejection, the respondent
preferred 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
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
Page 11 of 29Page 12
of the appellant without requiring it to produce the
accounts for the two years ending December, 2010.
Being aggrieved by the impugned 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.
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 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 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.”
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,
Page 12 of 29Page 13
the applicant is required to enclose 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 preceding the date of application, the
SAT observed:-
“It 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”
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
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 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 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
Page 13 of 29Page 14
December, 2010. Since the respondent failed to
produce the accounts for the two years, the application
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
to the information already furnished by the applicant
alongwith 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
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 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, 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
Page 14 of 29Page 15
regulations read with Form A prescribed that a
certificate from the Chartered Accountant 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 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 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
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 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
Page 15 of 29Page 16
information could not be called for under Regulation 7.
According to the learned senior counsel 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 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. 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 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 purposes of SEBI Act. Section 30
Page 16 of 29Page 17
(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 Section 12. Section 11 empowers the
SEBI to take measures to protect the interest of
investors and to regulate the security market, inter alia
by regulating and registering the working of stock
progress and other intermediaries such as credit rating
agencies, who 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 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 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, 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 credit rating
agency, or
Page 17 of 29Page 18
(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:
"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 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 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
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:
(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);
(c) a foreign bank operating in India with the
approval of the Reserve Bank of India;
Page 18 of 29Page 19
(d) a foreign credit rating agency recognised
by or 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 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.
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:
(a) the applicant is set up and registered as a
company under the Companies Act, 1956;
(b) the applicant has, in its Memorandum of
Association, specified rating activity as one of
its main objects;
(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 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 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 transactions, to the
satisfaction of the Board;
(f) neither the applicant, nor its promoter, nor any
director of the applicant or its promoter, is
Page 19 of 29Page 20
involved in any legal proceeding connected
with the 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 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;
(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
(ii) subjected to any proceedings for a
contravention of the Act or of any rules
or regulations made under the Act.
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 applicant.
(j) 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 of investors and the securities
market.
Applicability of Securities and Exchange
Board of India (Criteria for Fit and Proper
Person) Regulations, 2004.
5A. The provisions of the Securities and
Exchange Board of India (Criteria for Fit and
Proper Person) Regulations, 2004 shall, as far as
Page 20 of 29Page 21
may be, apply to all applicants or the credit
rating agencies under these regulations.
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 such
application, the applicant shall be given an
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 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 representation
7. (1) The Board may require the applicant to
furnish such further information or clarification
as the Board may consider necessary, for the
purpose of processing of the 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.”
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.
Page 21 of 29Page 22
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 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
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 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 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 A shall be rejected by the Board. It is, however,
Page 22 of 29Page 23
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 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 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, 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 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. It appears,
therefore, that the intention of the legislature, as
expressed through the regulations, is to put a closure to
Page 23 of 29Page 24
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 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 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 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 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 noticed above are
perfectly justified.
Page 24 of 29Page 25
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 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”. 
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 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 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
Page 25 of 29Page 26
respondent in regard to the certificate furnished by the
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 M/s. Coment
(Mauritius) Limited had a continued net worth of over
Rs.100 crores as per its Annual 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 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
We certify that for previous five years
continuous Net worth of M/s. Coment
(Mauritius) Limited, Les Cascade Building,
Edith Cavell Street, Port Louis, Mauritius is
over Rs.100 crores (Rupees One Hundred
Crores).
The above information is given in strictest
confidence at the request of our client for
the purpose of filing application before
Securities and Exchange Board of India.
FOR M/S RAJNISH & ASSOCIATES
CHARTERED ACCOUNTANTS
Certified True Copy
Sd/-
(PARTNER)
Place : New Delhi Membership
No. 081180
Page 26 of 29Page 27
Date: 29.05.2009”
27. We are satisfied that the aforesaid certificate did
not 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 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 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
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 the
application of the respondent. 
Page 27 of 29Page 28
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 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 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/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 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. 
Page 28 of 29Page 29
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. 
……………………………..J.
 [Surinder Singh Nijjar]
……………………………..J.
[M.Y.Eqbal]
New Delhi;
February 19, 2013.
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