SEBI has barred Rajesh Mokashi, former chief executive of Care Ratings, from the securities market for two years for violation of rules. 

This is the first time that the head of a ratings agency has been penalised in such a way by the capital markets regulator.

As per the SEBI order, Mokashi can’t for two years associate with any of its registered intermediaries, directly or indirectly. 

SEBI found that Mokashi interfered in the rating process of the rating firm in instruments issued by certain companies, including Dewan Housing Finance Ltd (DHFL), Yes Bank and Infrastructure and Financial Services Ltd, a unit of Infrastructure Leasing & Financial Services Ltd.

“…the findings arrived at upon a consideration of the material available on record have brought to the fore the existence of a skewed hierarchical relationships that allowed Noticee 2 (Mokashi) to exert influence on the employees of Care for ensuring favourable ratings towards certain Issuers,” the SEBI order said.

"Members of the Rating Committee had repeatedly exchanged WhatsApp messages lamenting the repeated interferences by Noticee 2 (Mokashi) during the duration of the DHFL ratings for the period from September 2018-February 2019," SEBI noted.

According to the regulator, Mokashi was only "paying performative obeisance" to the regulatory mandate by not being part of the rating committees. He was, however, interfering in rating decisions. The law does not permit the management of a rating firm to be part of the rating committee.

It also found that Mokashi had a veto on decisions of the rating committee of Care by asserting his authority, which resulted in inflated ratings assigned for DHFL.

SEBI was acting against complaints raised against Mokashi between December 2018 and July 2019, alleging that he was interfering in the rating process at Care and granting AAA ratings to clients paying higher fees.

"The conflict between business development and rating functions at Care is writ large in the WhatsApp conservations between key employees. Further, I have noted, in the matter of DHFL, the Rating Team and Rating Committees were not allowed to act independently and were instead guided by the undeniable pressure exerted by Mokashi.

"In the face of such interference by him, the measures adopted by Care to ensure the independence of the rating decisions like independent rating committee, separation of rating and business development, etc. amounted to nothing more than a collective exercise in futility," SEBI's Whole Time Member Ashwani Bhatia said in the order.

Through such acts, Mokashi flouted the regulatory norms and accordingly, the regulator directed that "noticee 2 shall not be associated with any Sebi-registered intermediary, directly or indirectly, in any manner whatsoever, for a period of two years".

In December 2019, Mokashi stepped down as MD and CEO of Care Ratings, five months after he was sent on leave.