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SC stays SAT’s order holding that Sebi lacks power to bar auditors

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SC stays SAT’s order holding that Sebi lacks power to bar auditors.

The SAT, in its order which set aside the ban on audit firm Price Waterhouse (PwC), had noted that SEBI does not have the power to bar auditors. Earlier, the SEBI had challenged SAT’s decision to quash a two-year ban that was imposed on PwC in connection with the Rs 7,800 crore Satyam fraud.

MUMBAI: The Supreme Court Monday stayed an earlier order of the Securities Appellate Tribunal (SAT), which had held that market regulator Securities and Exchange Board of India (Sebi) did not have the power to debar auditors.

A bench comprising Justices Arun Mishra and Indira Banerjee also issued notices to Price Waterhouse & Co, its associate audit firms, and two of its auditors on an appeal filed by Sebi against SAT’s September 9 order.

The apex court on Monday stayed Para 78 of the tribunal’s order, which had said Sebi shouldn’t adopt punitive measures against the auditors Sebi challenged SAT’s decision to quash its two-year ban on audit firm Price Waterhouse, a penalty imposed in the wake of the Satyam Computer accounting fraud in 2009.

“In a given case, a measure of debarring a person from entering the securities market will be justified, but in our view, banning an audit firm or an auditor from auditing the books of a listed Company or from certifying any report of a listed company cannot be justified. By no stretch of imagination, a direction debarring an auditor from auditing the books of a listed company can be said to be remedial in nature,” the relevant Para 78 of the SAT order had said.

“The direction to debar the auditor from auditing the books of a listed company is neither remedial nor preventive. In fact, the direction is clearly punitive and violative of Article 19(1) (g) of the Constitution of India, as it takes away the fundamental right to carry on its business,” SAT had said in its order.

The tribunal had also said that the role of debarment was beyond the scope and powers of the Sebi Act. Attorney general KK Venugopal represented Sebi, while Mukul Rohatgi appeared for Price Waterhouse.

The tribunal had partially upheld the Sebi order on disgorgement of more than Rs 13 crore.

The Sebi order had earlier debarred Price Waterhouse and others from auditing listed companies and had also ordered disgorgement.

“The Supreme Court will determine whether ‘auditing a listed company’s books’ is ‘dealing in securities’ since Sebi’s regulations on Fraudulent and Unfair Trade Practices can be invoked only if there is dealing in securities – directly or indirectly,” said Sumit Agrawal, founder, Regstreet Law and a former Sebi official. “There is another question of law here. Are auditors ‘persons associated with securities market’ and hence amenable to Sebi’s jurisdiction? While Bombay HC had said so, the Supreme Court has not decided this issue so far.”