MUMBAI: The Securities and Appellate Tribunal (SAT) on Monday overturned an order by the Securities and Exchange Board of India that banned Price Waterhouse, an affiliate of PwC India, from auditing listed companies for two years for its role in the Satyam Computer Services fraud in 2009.
The SEBI order “debarring the PW firms as well as the two auditors from auditing listed companies cannot be sustained and is quashed. Directions to listed companies not to engage any audit firm forming part of PW network is also quashed,” SAT said.
The Tribunal said there was no direct evidence to prove that auditors fabricated or fudged the accounts of the firm in collusion with the management, in relief to PwC and the auditors who signed the audits of Satyam.
The SAT order also said that SEBI did not have the jurisdiction to ban an audit firm, and the auditors are governed by the Institute of Chartered Accounts of India (ICAI). There was no material to prove that “the CA was instrumental in preparing false and fabricated accounts or had connived in the preparation and falsification of the books of accounts”.
The order passed by Justice Tarun Agarwala and CKG Nair, however, ruled that SEBI’s order asking PW to disgorge Rs 13.09 crore as wrongful gains as a punitive measure for its negligence was right and upheld it. “There is no doubt that there has been a professional lapse on the part of the auditors in conducting the audit, especially their failure to seek direct confirmation from the bank relating to bank balances and fixed deposits.
These lapses amounted to negligence,” the order said. “Action has already been taken by ICAI against the auditors,” SAT said, adding that the negligence did not amount to misconduct. One of the areas of neglect was the overstatement of Rs 3,308 crore of deposits supposed to have been held in five banks, and the auditors’ nonverification of the same.
In January 2008, Satyam’s founder B Ramalinga Raju confessed to financial manipulation to the tune of Rs 5,000 crore, leading to investigations and legal proceedings against him even as the firm was sold in a bid to save it from going under. The SAT order was also critical of the delays in SEBI’s pursuit of the case.
Delay by SEBI flayed
The Securities and Appellate Tribunal was critical of SEBI. It said the show cause notice was issued on February 14, 2009, and August 26, 2009.
The impugned order was passed on January 10, 2018. “It took SEBI nine long years to complete the proceedings and the fault lay entirely on SEBI”, it said.