Case Law Details
Animish Pradip Raje Vs SEBI (Telangana High Court)
The present petition has been filed challenging the order dated 20.10.2020, passed by SEBI, appointing Grant Thornton Bharat LLP (GTB) as a Forensic Auditor in respect of the financial statements of the Prabhat Dairy Limited for the Financial Years 2018-19 and 2019-20 on the ground of conflict of interest and violation of the principles of natural justice when one of the independent directors of the Company was deeply connected with sister concern of Grant Thornton.
Held by High Court
The question that needs to be examined is whether GTB, tasked with the role of a financial auditor, should be above suspicion, like Caesar’s wife? This is where the principle of Nemo judex in causa sua, the rule against bias comes into play. There are several types of bias, including pecuniary bias, subject matter bias, Departmental bias, Institutional bias, preconceived notion bias etc. The underlying principle is maintaining objectivity in dealing with or deciding a matter. There can be no gainsaying the fact that an auditor, being a professional person/entity has to function with complete impartially and independently. A shadow cast on the independence of a financial audit, need not necessarily be backed with any specific instance of bias or mala fides. The looming cloud of doubt itself would be a persuasive factor for interference. As observed by the Supreme Court in Management of M/s. M.S.Nally Bharat Engineering Company Limited (supra), non-observance of natural justice would itself cause prejudice to a person and independent proof of prejudice, is unnecessary. Due to the blurring of lines between an administrative order and a semi-judicial order, the decision of the respondent No. 1/SEBI to appoint GTB as a forensic auditor of the respondent No. 2/company would attract the doctrine of natural justice, requiring the authority to act in a just and fair manner. Acceptance by the respondent No. 1/SEBI of the clarification offered by GTB on the aspect of bias, without offering any reasons for the same and continuing with GTB would, in our opinion, fall foul of the principles of natural justice. As noted above, the objection taken by the petitioner is not to an active role of Mr. Anoop Krishna in the financial audit to be conducted by GTB. The objection is to his very presence in the sister concern of GTB and the existence of an element of doubt as to the impartiality of GTB, which may result in improper interference, thereby vitiating the audit itself. The test is whether a shareholder of the respondent No.2/company could harbour a reasonable apprehension of bias attributable to the financial auditor and not whether the bias would actually affect the result of the audit.
The submission made by learned counsel for the respondent No. 1/SEBI that the rights of a minority shareholder are very limited and include only right the right to dividend, right to participate in the surplus funds during winding up of the company and right to vote at an AGM/EGM, cannot cut any ice when the respondent No. 1/SEBI has itself enumerated in the FAQs and guidelines uploaded on its website, several rights that are vested in a shareholder which include the right to receive an offer, in case of a takeover or a buyback under the SEBI Regulations. In the instant case, the respondent No. 1/SEBI has itself taken note of the complaints received against the promoters of the respondent No. 2/company alleging inter alia that they were trying to hoodwink the investors, by voluntarily deciding to delist from BSE and NSE and offering a pittance as the exit price, i.e., Rs.63.77 ps. per share, which was otherwise listed in the stock market at Rs. 113/- in January, 2021 and was discounted at 20% vis-à-vis the earlier day’s closing price. The allegations that are being examined by the respondent No. 1/SEBI also relate to whether the exit price fixed by the promoters of the respondent No.2/company for buying back shares from the public shareholders has been depressed to cause them pecuniary loss.
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