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Tribunal quashes SEBI order against Price Waterhouse

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Regulator couldn’t establish fraud: SAT

The Securities Appellate Tribunal (SAT) has quashed the capital markets regulator’s order that barred Price Waterhouse (PW) from auditing listed entities for two years for its alleged role in the fraud committed at the erstwhile Satyam Computer Services.

In January 2018, the Securities and Exchange Board of India (SEBI) barred PW for two years, while directing the audit firm to disgorge ₹13.09 crore along with 12% interest per annum since January 2009.

“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,” the 125-page order by SAT said.

More importantly, the tribunal highlighted the jurisdiction issue while observing that there was no need for SEBI to act against the auditor after the Institute of Chartered Accountants of India (ICAI) initiated proceedings and even cancelled the registration of the auditing firm.

“We may further point out that ICAI had initiated proceedings against the auditors under the CA Act and cancelled their licence to practice as CA. Once their licence has been cancelled, there was no need for SEBI to issue an order of debarment,” it added.

The tribunal further said that the capital markets watchdog acted against PW even though it was not able to establish any fraud or connivance on the part of the auditing firm or its partners.

“There is not even a whisper of a finding in the impugned order… about any connivance or collusion or intention or knowledge on their part… No evidence of any misconduct of any kind has surfaced with regard to any member of the engagement team,” it said.

“SAT has held that there is no shred of evidence to show that Price Waterhouse had fabricated or falsified or fudged the books of account of Satyam in collusion with its top management,” said Sumit Agrawal, founder, Regstreet Law Advisors and a former SEBI law officer.

“This judgment is likely to have impact on cases where an intermediary is charged for not doing its ‘due diligence’ or the cases where SEBI routinely questions the accounting and fundamentals of companies and directs forensic audit in its discretion. Threshold of proof for charging a person for fraud is at the root of controversy,” he added.

The tribunal has, however, upheld the disgorgement order that was passed against Price Waterhouse.