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Authored by Aishwarya Lakshmi VM & Padma Akila R

Forum Madurai Bench of the Hon’ble Madras High Court,

Order passed by Hon’ble Justice G. R. Swaminathan.

Purported contravention committed Credit Rating Agencies downgrading client’s rating while disregarding the Covid-19 relaxation norms provided by SEBI and RBI.
Persons against whom the petition was filed Union of India (1st Respondent),

Reserve Bank of India (2nd Respondent),

India Rating and Research Private Ltd. (3rd Respondent),

SEBI (4th Respondent) (Suo motu impleaded by the Hon’ble Judge).


1. Writ petitioner, Mahasemam Trust is a registered public trust and a Non-Banking Finance Company (NBFC)and its activities included micro-financing women Self Help Groups. The petitioner is a client of the 3rd respondent which is a credit rating agency(CRA) which had downgraded the petitioner’s bank loans’ rating to ‘IND BB+’ from ‘IND BBB-‘The Petitioner alleged that their track record was not taken into consideration and the downgrading of rating will result in deviations from the prospective targets of the Petitioner.

2. Since COVID outbreak had caused widespread disruption, RBI came out with its policy package vide circular dated 27.03.2020 which permitted the lending institutions to grant a moratorium of three months on payment of all instalments falling due between 1st March 2020 and 31st May, 2020, which was further extended from 31st May 2020 to 30th September, 2020.

3. SEBI had also issued policy Circular dated 30.03.2020 setting out relaxation norms. Pursuant thereto, the petitioner had also granted the benefit of the moratorium to all the joint liability Self Help Groups, in order to enable them to tide over the economic fallout arising out of the pandemic disruption.

4. According to the petitioner, the 3rd Respondent had downgraded the petitioner’s rating disregarding the relaxation norms contained in RBI’s circular which would consequently have a direct bearing on the capacity of the petitioner to raise loans from the banking institutions. Aggrieved by the downgraded rating this writ petition was filed.


1. The Petitioner argued that CRAs discharge public functions and therefore they are clearly amenable to Writ jurisdiction. The dispute between the parties seemingly contractual in nature, substantially throws up questions of public law. The Counsel for the petitioner also stated that no ouster clause in the rating agreement can resist the jurisdictional reach of the Court under Article 226 of the Constitution of India.

2. It was argued that even a bare textual reading of the circulars issued by RBI and SEBI clarify that the events that have taken place during the moratorium period cannot be factored into the rating process.

3. The Petitioner further argued that the impugned action of the 3rdRespondent was not in consonance with the policy announcements made by RBI and SEBI and had called upon the court to strike down the actions of the 3rd Respondent.


1. The 3rd Respondent pleaded the court to dismiss the petition as infructuous and submitted that it could not be considered as a “State” within the meaning of Article 12 of the Constitution of India. Hence, it was not amenable to writ jurisdiction.

2. The 3rd Respondent stated that the relationship between the petitioner and the 3rdRespondent is purely contractual in nature and that the agreement between the parties was called a rating agreement and any dispute arising out of rating agreement cannot be resolved in writ proceedings. It was further argued that the petitioner also has effective alternative remedies both under the contract as well as under the SEBI (Credit Rating Agencies) Regulations, 1999.

3. SEBI submitted that the petitioner’s understanding of circular was incorrect. It was also pointed out that the instant case pertains to rating of bank loans of the petitioner and does not pertain to rating of debt securities and that in the case of bank loan rating; relevant guidelines issued by RBI would be applicable.

4. Regarding the circular issued by RBI, which was repeatedly invoked by the petitioner, RBI took the position that the circular was merely permissive in character and that it could not be read otherwise.


a) Relying on the judgment of the Supreme Court in Rabjit Surajbhan Singh V. The Chairman, Institute of Banking Personnel Selection, Mumbai [(2019) 14 SCC 189], the Court reiterated that a Writ Petition was maintainable against a private body discharging public functions. Such function should be administratively dominated by or under the control of the Government. Such control should be specific and pervasive, and not merely regulatory. A control which is merely regulatory under the statute or otherwise would not make the body ‘State’ Under Article 12.

b) Rating was an evaluation and assessment of creditworthiness of an individual or company and that the debtor’s ability to repay the debt was analysed and based on the same, credit-risk associated with lending was projected and that these were normal corporate functions. The High Court further stated that

“Merely because they have implications for the general public and lending institutions tend to go by them, credit rating agencies cannot be considered as discharging public function or public duty. Secondly, SEBI has only regulatory and supervisory control over the credit rating agencies”.

Applying the aforesaid decision of the Apex Court, the Court held that the 3rd Respondent cannot be characterised as “State” within the meaning of Article 12 of the Constitution of India and that it was not discharging any public function.

c) Rating being an expert job performed by financial analysts, the said experts would be in a better position to handle issues than a Writ Court. If there arises any grievance against the CRA, the options of in-house appeal and complaint before SEBI are efficacious alternative remedies available to the aggrieved.

d) More significantly, the court stated that credit rating indicates the fiscal health of the person or the institution concerned. It would be one thing to state that notwithstanding the actual position ameliorative relief must be provided and that loans should be provided despite the downgrading, but it would be a completely different matter to say that rating should not reflect the actual state of affairs. The court metaphorically added that:

“Any remedial treatment must be preceded by correct diagnosis. If the patient is going to insist that the symptoms should be disregarded, then there can be no proper diagnosis, not to speak of the resulting treatment”


1. Credit Rating Agencies are not performing any public duty and therefore a Writ Petition does not lie against them.

2. Any person aggrieved by the acts of the CRA shall prefer an in-house appeal or shall file a complaint before SEBI.

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