Observing it to be a “serious kind of fraud,” the Supreme Court on Monday stayed a part of the Securities Appellate Tribunal (SAT)’s order that had quashed Sebi’s two-year ban on audit firm Price Waterhouse (PW) in the wake of the Satyam Computer fraud in 2009.
A bench led by justice Arun Mishra partly stayed the SAT’s order that had held that Sebi has no authority to debar any auditor or auditing firm from auditing listed companies. Among other observations, the tribunal had stated that Sebi can only take remedial and preventative action, but the Sebi’s direction in the Price WaterHouse case “is neither remedial nor preventive but punitive.”
Attorney general K Venugopal argued that SAT ignored the findings of the Bombay High Court that it had jurisdiction over chartered accountants and its powers are not in conflict with the provisions of the Institute of Chartered Accountants of India (ICAI) Act and also the chartered accountants of listed companies can be said to be persons associated with the securities market under the Sebi Act. “SAT’s finding cripples us from barring errant firms, our mandate is to protect investors interests. Even if fraud is found in future, Sebi can’t bar listed companies”, he said while seeking stay.
Senior counsel Mukul Rohtagi, appearing for the auditing firm, argued that the firm is being punished for wrongdoings of the two partners. “We have already suffered, how many time will we be killed,” he said, adding that it’s the ICAI only which can bar auditors and not Sebi.
While SAT had on September 9 quashed the Sebi’s two-year ban imposed on the audit firm, it upheld Sebi’s move on disgorgement of Rs 13 crore from the auditor along with interest of 12% since 2007 for the wrongful gain.
The fraud dates back to 2009 when Satyam Computer founder B Ramalinga Raju confessed to cooking the company’s books and inflating profits. Satyam’s board was superseded and later the company was auctioned and taken over by Tech Mahindra.
On January 10, 2018, the markets regulator had barred Price Waterhouse firm and two auditors — S Gopalakrishnan and Srinivas Talluri — from auditing listed companies and had also directed the latter not to engage any audit firm forming part of the Price Waterhouse network. The ban order was passed on the grounds that the auditors had totally abdicated their “duty to follow the minimum standards of diligence and care expected from a statutory auditor, compelling the Whole Time Member (of Sebi) to draw an inference of malafides” and their involvement in the “large scale financial manipulations of Satyam Computer Services Ltd.”
Sebi told the SC that these auditors had ignored vital materials like the internal audit report which flagged material discrepancies in reconciliation of the invoices. Besides, the Sebi found that the auditors had failed to get independent verification of the cash and bank balances done from banks for a period of eight years and had instead relied on purported one line confirmation given by Satyam itself, it said.
According to the market regulator, the verification of the invoice management system was done in a perfunctory manner by the statutory auditors in total disregard of the accounting standards and the ICAI guidelines, the auditors ignored the internal audit findings on invoices and did not evaluate other audit evidences regarding the financial statement assertion being audited, they also clearly obfuscated the true position to the investors by deliberately skipping other steps of auditing, and all this was sufficient to establish the auditors’ complicity, acquiescence, negligence and collusion with the company and its promoters and would amount to “fraud” as contemplated under the SEBI Act,” the appeal filed through counsel Pratap Venugopal stated.
Source : TImes of India