Delhi High Court Dismisses Jindal Power’s Suit Challenging Rating Downgrade By ICRA

Being an expert opinion, courts won’t interfere with the credit rating of a company unless the opinion is perverse and done with a malafide intent, the Delhi High Court has said, while dismissing a plea by Jindal Power Ltd., challenging the downgrade in its rating by ICRA.

Jindal Power moved the court questioning the rationale adopted by the credit rating agency while downgrading its rating from “BBB+”, stable outlook to “BBB” with a negative outlook in April. The unlisted subsidiary of Jindal Steel & Power Ltd. argued that the agency assumed the role of a “forensic auditor” and incorrectly relied on negative effect of previous ratings to arrive at its decision.

A single judge bench of Justice Mukta Gupta observed that ICRA’s opinion was rendered by experts after considering related factors. A mathematical calculation of the rating is not possible and Jindal Power cannot seek a decree to set aside or prohibit publication of the ratings after previously using it for raising money, the court said.

Credit Rating = Expert Opinion, Says High Court

Rajiv Nayar, senior counsel for Jindal Power, challenged the downgrade citing that:

• ICRA downgraded the rating even though debt parameters like value of long-term loans, fund-based cash credits, unallocated instruments as well as non-convertible debentures reduced or remained the same compared to previous years.
• While Jindal Power’s credit rating was BBB+ last year, the company was in a comparatively better position in 2020. Despite this, its rating was downgraded.
• And lastly, ICRA was bound by the terms of the “Rating Agreement” which required it to maintain confidentiality and allowed Jindal Power to prohibit publication of a credit rating.

Placing reliance on the regulations and circulars issued by the Reserve Bank of India and the Securities and Exchange Board of India, HS Chandhoke, counsel for the credit rating agency, rebutted Jindal Power’s submissions arguing that:

• A credit rating is a “predictive opinion” which considers various aspects and depends on subjective and discretionary weighing of complex factors.
• The publication of credit rating cannot be subjected to acceptance by Jindal Power since the law does not provide for such consent.
• Once an instrument is initially rated and accepted by an evaluated company, credit rating agencies are legally bound to do a periodic surveillance and disseminate information to stakeholders even if such an act is not acceptable to a company.

Accepting ICRA’s arguments and based on the statutory regime governing credit ratings, the high court observed that ICRA had considered relevant rationales — both negative and positive — to arrive at its conclusion. Value of an opinion must be determined on the basis of an expert’s credibility and hence, an intelligible and convincing opinion cannot be set aside, the court said, while dismissing the suit.