SEBI Imposes Penalties On Reliance Infrastructure, Reliance Power, And Five Others For Non-Submission Of NDS

SEBI imposed fines on the following entities:

1. Reliance Infrastructure: Rs 1 crore
2. Reliance Power: Rs 1 crore
3. Incredible Realcon: Rs 1 crore
4. Paranjape Schemes (Construction) Ltd: Rs 20 lakh
5. PVP Ventures: Rs 14 lakh
6. Hindustan Cleanenergy: Rs 5 lakh
7. Ginni Filaments: Rs 1 lakh

These entities are required to pay the fines within 45 days from the issuance of the order. The penalties were imposed under Section 15A(b) of the SEBI Act, 1992, which deals with the failure to furnish information or return within the specified time.

Requirement for No Default Statement (NDS)

SEBI mandates that companies issuing debt securities or listing their debt securities must file an NDS with CRAs on a monthly basis. The SEBI order mandating the submission of the NDS listed entities to CRAs is in the SEBI Circular ref. no. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2017/ 71 dated June 30, 2017. This circular, titled "Monitoring and Review of Ratings by Credit Rating Agencies (CRAs)," along with relevant provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, outlines the regulatory framework for the submission of NDS.

The SEBI circular issued on June 30, 2017, establishes a surveillance mechanism for identifying potential defaults. It requires CRAs to continuously monitor the rating of securities and disseminate information regarding newly assigned ratings and changes in earlier ratings promptly. To achieve this, CRAs must develop efficient systems to track significant changes related to the client companies.

One of the key aspects of the circular is the monitoring of repayment schedules. CRAs are tasked with proactively detecting defaults or delays in payments. This involves tracking debt obligations for each rated instrument and looking for potential financial deterioration. To ensure transparency and accuracy in monitoring, CRAs are required to seek a No Default Statement (NDS) from the issuer at the end of each month. The NDS must be provided on the first working day of the next month and should explicitly confirm that there were no delays in the payment of interest or principal in the previous month. If there have been delays, the issuer must disclose them in the NDS, prompting the CRA to conduct a rating review and disseminate the rating action through a press release within two days.

The circular also outlines immediate actions for non-compliance. If no confirmation of debt servicing is received within one day post the due date, the CRA must follow up with the issuer. Should the issuer fail to respond within two days, the CRA must issue a press release and notify all stock exchanges where the security is listed. Additionally, the CRA must make a reference to SEBI regarding the suppression of information or non-cooperation by the issuer.

The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, further support these measures. Regulation 8 states that listed entities must cooperate with intermediaries registered with SEBI, such as CRAs, and submit accurate and adequate information within the specified timelines.

Reasons for Non-Compliance

The investigation revealed that several entities did not submit the NDS during specific periods which led to potential benefits such as continued or extended bank accommodations and reduced borrowing costs. SEBI noted that these companies might have avoided filing the NDS to prevent CRAs from downgrading their credit ratings during times of financial stress.

Reliance Infrastructure, Reliance Power, and Incredible Realcon received higher penalties due to the substantial amounts of debt they raised, each exceeding Rs 500 crore. SEBI's order stated that the significant debt levels and the failure to file NDS could have had severe implications for investors and the financial market's integrity.

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