The Securities and Exchange Board of India (SEBI), the regulatory authority overseeing India’s capital markets, has imposed substantial penalties on seven entities for their failure to submit No Default Statements (NDS) to credit rating agencies (CRAs). Among these entities are prominent corporations such as Reliance Infrastructure, Reliance Power, and Incredible Realcon.
SEBI’s enforcement actions resulted in the following fines being levied:
- Reliance Infrastructure: Rs 1 crore
- Reliance Power: Rs 1 crore
- Incredible Realcon: Rs 1 crore
- Paranjape Schemes (Construction) Ltd: Rs 20 lakh
- PVP Ventures: Rs 14 lakh
- Hindustan Cleanenergy: Rs 5 lakh
- Ginni Filaments: Rs 1 lakh
These fines are required to be paid within 45 days from the issuance of SEBI’s order. The penalties were imposed under Section 15A(b) of the SEBI Act, 1992, which pertains to the failure to furnish information or returns within the stipulated timeframe.
Mandatory No Default Statement (NDS) Requirement:
SEBI mandates that companies issuing debt securities or listing their debt securities must submit an NDS to CRAs on a monthly basis. This requirement is outlined in SEBI Circular ref. no. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2017/ 71 dated June 30, 2017. The circular, titled “Monitoring and Review of Ratings by Credit Rating Agencies (CRAs),” together with relevant provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, establishes a regulatory framework for the submission of NDS.
The circular establishes a surveillance mechanism aimed at identifying potential defaults. It mandates CRAs to continuously monitor the ratings of securities and promptly disseminate information on newly assigned ratings or changes in earlier ratings. CRAs are required to develop efficient systems to track significant changes related to client companies.
Monitoring and Reporting Responsibilities:
A key aspect of the circular involves CRAs proactively monitoring repayment schedules to detect defaults or delays in payments. This oversight ensures transparency and accuracy in monitoring financial obligations. Companies are obligated to provide the NDS by the first working day of each month, confirming timely payments of interest and principal. Any delays must be disclosed in the NDS, triggering a review by CRAs and subsequent dissemination of rating actions through press releases within two days.
Consequences of Non-Compliance:
The circular outlines immediate actions for non-compliance. If CRAs do not receive confirmation of debt servicing by the specified date, they must follow up with the issuer. Failure of the issuer to respond within two days prompts CRAs to issue a press release and notify all relevant stock exchanges. Additionally, CRAs must report non-cooperation or information suppression to SEBI.
Regulatory Support and Reasons for Non-Compliance:
SEBI’s (Listing Obligations and Disclosure Requirements) Regulations, 2015, reinforce these measures, stipulating that listed entities cooperate with SEBI-registered intermediaries and furnish accurate information within designated timelines.
The investigation revealed that several entities failed to submit the NDS during specific periods, potentially benefiting from continued bank accommodations and reduced borrowing costs. SEBI noted that companies may have avoided filing the NDS to prevent CRAs from downgrading their credit ratings during financial stress periods.
Implications and Conclusion:
Reliance Infrastructure, Reliance Power, and Incredible Realcon received higher penalties due to substantial debt levels exceeding Rs 500 crore. SEBI emphasized that failure to submit NDS could severely impact investors and undermine market integrity.
