Supreme Court Notification On Stays SAT on Holding SEBI

Highlights

The Supreme Court issued notice on the appeal filed by SEBI against the SAT's 9th September order.

In January 2018, SEBI slapped a 2-year ban on PwC from auditing any listed corporation regarding its role in the Satyam scam.

The Supreme Court recently has stayed an order of the Securities Appellate Tribunal (SAT) which held that markets’ regulator Securities and Exchange Board of India (SEBI) doesn’t have the authority to bar auditors.

A Bench containing Justices Arun Mishra and Indira Banerjee also had issued notice on the appeal which was filed by the SEBI against the SAT’s 9th September order. The tribunal had ruled against SEBI's order relating to the function of auditors at Satyam Computer Services in the internal scam that took place at the business many years ago.

SEBI had issued an order relating to the case in January 2018 and the tribunal's decision came early in September.

The tribunal not only challenged SEBI's jurisdiction over auditors but also stated that auditors shall not be made responsible for not noticing "carefully laid schemes of fraud" at a listed corporation when there was nothing to rouse their doubt particularly when the fraud has been perpetuated through the higher management of a corporation.

SEBI's order had contended that there were many instances which may have easily aroused doubt of the auditors of Satyam Computer, but the tribunal didn’t agree.

The SAT, in its order, which had set aside the ban on audit company Price Waterhouse (PwC), had held that the SEBI doesn’t have the authority to bar auditors.

Previously, the SEBI had challenged the decision of SAT in order to quash a 2-year ban that was levied on PwC with regard to the Rs 7,800 crore Satyam frauds.

On 10th January 2018, the regulator ordered a 2-year ban on Price Waterhouse (PwC), an arm of PricewaterhouseCoopers India, from auditing any listed corporation with regard to the PwC’s part in the fraud.

The Supreme Court recently stayed Para 78 of the tribunal's order, which stated that SEBI should not implement punitive measures against the auditors. SEBI had challenged SAT's judgment to quash its 2-year ban on audit firm Price Waterhouse, a fine levied following the Satyam Computer accounting scam in 2009.  The relevant para 78 of the SAT order had stated that in this case, a measure of debarring an individual from entering the securities market would be justified, but banning an audit company or an auditor from auditing the books of a listed Corporation or from verifying any report of a listed corporation cannot be justified. A direction of barring an auditor from auditing the books of a listed corporation could be supposed to be corrective in nature.

SAT had held in its order that the direction to ban the auditor from auditing the books of a listed corporation is neither remedial nor preventive. However the direction is evidently punitive and it had violated Article 19(1) (g) of the Constitution of India, as it takes away the fundamental right towards carrying out a business.

The tribunal had also stated that the role of banning was beyond the range and powers of the SEBI Act. The tribunal had put down the order but partially allowed disgorgement of the Rs 13 crore fees from the auditors concerned.

The SEBI order had earlier barred Price Waterhouse and others from auditing listed corporations and had also ordered disgorgement.

Satyam case

The scam at previous Satyam Computer Services appeared on 8th January 2009 in which the corporation’s founder Ramalinga Raju openly admitted towards cooking the books to the tune of Rs 5,004 crore over a period of time. A SEBI’s investigation had found that the fraud was much larger at Rs 7,800 crore.

Setting aside the prohibition, the tribunal had stated that only the Institute of Chartered Accountants of India (ICAI) can take any measure against auditors and that scams cannot be substantiated depending on the reason of negligence in auditing.

Amongst other comments, the tribunal had held that SEBI has no power in the direction of looking into the quality of audit as well as auditing services. It had held that SEBI could only take remedial and preventative action. The direction which has been issued is neither remedial nor preventive however it is punitive.

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Author:

eStartIndia Team