SEBI on Wednesday barred Price Waterhouse from auditing listed companies in the country for two years, after a probe into a nearly decade-old accounting fraud case in a software services company Satyam’s case that became India’s biggest corporate scandal.

Relevant Text of the 108 Page SEBI Order is as follows :-

Directions under Sections 11(4) and 11B of the SEBI Act, 1992 for market frauds

201. The Hon’ble Supreme Court in its judgment dated April 26, 2013 in the matter of N. Narayanan v. SEBI, specifically cautioned SEBI in the following words,

“43. SEBI, the market regulator, has to deal sternly with companies and their Directors indulging in manipulative and deceptive devices, insider trading etc. or else they will be failing in their duty to promote orderly and healthy growth of the Securities market. Economic offence, people of this country should know, is a serious crime which, if not properly dealt with, as it should be, will affect not only country’s economic growth, but also slow the inflow offoreign investment by genuine investors and also casts a slur on India’s securities market. Message should go that our country will not tolerate “market abuse” and that we are governed by the ‘Rule of Law”. Fraud, deceit, artificiality, SEBI should ensure, have no place in the securities market of this country and ‘market security’ is our motto. People with power and money and in management of the companies, unfortunately often command more respect in our society than the subscribers and investors in their companies. Companies are thriving with investors’ contributions but they are a divided lot. SEBI has, therefore, a duty to protect investors, individual and collective, against opportunistic behavior of Directors and Insiders of the listed companies so as to safeguard market’s integrity.”

(emphasis supplied)

202. As laid down by the Hon’ble Supreme Court, it is incumbent on SEBI to take stern view of market abuse and fraudulent practices, particularly when persons tasked with protecting the interest of investors are themselves hand- in-glove with the main perpetrators of the fraud. It is in this context that these proceedings must be viewed.

203. It needs to be borne in mind that PW firms have benefited from the relationship from SCSL, by having collectively received a fee of 23,31,60,070/- during the years 2000-2008. Out of this amount, 713,09,01,664/- was paid towards PW Bangalore (FRN 7568S) for the audit of SCSL, as submitted by it. Given that this remuneration was the identifiable monetary gain made by PW in its association with the audit of SCSL, it is clear that this wrongful gain is liable to be disgorged. Though the legal portions of that gain or costs such as taxes paid are required to be reduced, the noticees have not provided details of such costs or expenses in their replies. Consequently the entire gain made from PW’s relationship with SCSL shall be treated as wrongful gain liable to be disgorged.

204. Any enforcement measure taken by SEBI with a preventive and remedial object, as envisaged under section 11B of the SEBI Act, would not serve the purpose unless the directions bring within its fold the PW Network operating in India. The objective of insulating the securities market from such fraudulent accounting practices perpetrated by an international firm of repute will be ineffective if the directions do not bring within its sweep, the brand name PW. The network structure of operations adopted by the international accounting firm should not be used as a shield to avoid legal implications arising out of the certifications issued under the brand name of the network.

205. In view of the above, in exercise of the powers conferred upon me under sections 11 and 11B of the SEBI Act, and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003, read with section 19 of the SEBI Act, 1992, I hereby pass the following directions:-

i.  Entities/firms practicing as Chartered Accountants in India under the brand and banner of PW, shall not directly or indirectly issue any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with SEBI and the requirements under the SEBI Act, 1992, the SCRA 1956, the Depositories Act, 1996, those provisions of the Companies Act 2013 which are administered by SEBI under section 24 thereof, the Rules, Regulations and Guidelines made under those Acts which are administered by SEBI for a period of two years.

ii. Noticee Nos. 12 and 13, shall not directly or indirectly issue any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with SEBI and the requirements under the SEBI Act, 1992, the SCRA 1956, the Depositories Act, 1996, those provisions of the Companies Act 2013 which are administered by SEBI under section 24 thereof, the Rules, Regulations and Guidelines made under those Acts which are administered by SEBI for a period of three years.

iii. Noticee No. 1 along with Noticee Nos. 12 and 13 shall be liable, jointly and severally, to disgorge the wrongful gains of 713,09,01,664/- with interest calculated at the rate of 12% per annum from January 07, 2009 till the date of payment. Noticees shall pay the said amounts within 45 days from the date of this Order either by way of demand draft drawn in favour of `Securities and Exchange Board of India, payable at Mumbai or by e-payment to SEBI account as detailed below:

Name of the Bank Branch Name RTGS Code Beneficiary Name Beneficiary Account No.
Bank of India Bandra Kurla Branch BKID 0000122 Securities and Exchange Board of India 012210210000008

iv. Listed companies and intermediaries registered with SEBI shall not engage any audit firm forming part of the PW Network, for issuing any certificate with respect to compliance of statutory obligations which SEBI is competent to administer and enforce, under various laws for a period of two years.

206. This order shall come into force with immediate effect. For removal of operational difficulties, this order will not impact audit assignments relating to the financial year 2017-18 undertaken by the firms forming part of the PW network.

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