Securities and Exchange Board of India (SEBI)
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Penalties, fines levied
Penalties, fines levied by SEBI, 2015-18.
Securities and Exchange Board of India (Sebi), under the finance ministry’s department of economic affairs stated that according to the Sebi Act, 1992 only the courts have the power to impose fines. Sebi, on the other hand, has the power to levy penalty and not fine.
Sebi lacks jurisdiction to ban audit firms: SAT/ 2019
In a relief for Price Waterhouse & Co (PW), Securities Appellate Tribunal on Monday quashed and set aside an order by markets regulator Sebi, which had banned the auditor and its 10 network firms from auditing listed companies for two years for its alleged role in the decade-old Satyam fraud case.
Terming Sebi’s order “cavalier”, the SAT held that there was “no shred of evidence to show that the auditor had fabricated or falsified or fudged the books of accounts in collusion with the top management of Satyam Computer Services”. The fraud had hit global headlines after founder B Ramalinga Raju’s disclosure that Satyam’s books did not reveal the fair picture. It, however, upheld Sebi’s decision to treat the fee of Rs 13 crore paid to the auditors as a “wrongful gain” due to “professional lapse”. While the two-year ban on firm has been removed, ICAI’s life ban on two PW auditors — Srinivas Talluri and S Gopalakrishnan — is not impacted by the order.
Sebi lacks jurisdiction to ban audit firms: SAT
The tribunal ruled that Sebi lacked jurisdiction to ban audit firms, which is a prerogative of ICAI, which regulates professionals. The 10 firms Sebi had banned are not dealing in securities market, but are auditors registered with ICAI with no evidence of revenue-sharing or of any role in Satyam audit, SAT said. “Fraud cannot be proved only on alleged gross negligence, carelessness or recklessness as amounting to collusion and connivance on a preponderance of probabilities,” it ruled.
In a 125-page ruling by presiding officer Justice Tarun Agarwala and member C K G Nair on Monday, SAT said, “We are of the opinion that mere admission on the part of the 10 firms that there is a network of PW firms would not make all the 10 firms guilty of fraud or manipulation of the books of accounts of SCSL.”
The entire basis of debarring the firms was the resource-sharing agreement, the brand PW and the networking of PW as a brand. “The approach adopted by the whole-time Sebi member is patently erroneous and is flawed,” SAT said.
A whole-time member of Sebi had last January passed four directions against PW. The first was that it can’t issue any certificates of audit of listed companies, second that its individual auditors S Gopalakrishnan and Srinivas Talluri shall not issue audit certificate for three years, third was that Gopalakrishnan, Talluri and Price Waterhouse Bangalore must “disgorge the wrongful gains of Rs 13 crore with 12% interest from January 2009” as audit fees received from Satyam, and fourth was that listed companies were told not to take services of the whole PW network, not just the Bangalore firm called Price Waterhouse & Co Bangalore LLP—a partnership firm registered with the ICAI.
Price Waterhouse, along with nine CA firms under its banner and the two individual auditors, filed separate appeals before SAT against the Sebi order. The counsel appearing for the auditors Price Waterhouse said unless they establish that the firm in Bangalore or its members were involved in a fraud by colluding with management of Satyam in writing up the books of account, they can’t be proceeded with under Sebi. For Sebi, its legal team argued that the auditors were involved and ought to be dealt with firmly. The SAT also said, “The international firm is called PwC and the Indian firm is PW. There is a world of a difference between PwC and PW,” adding that “using the brand PW does not make the 10 firms liable for the act done by one PW firm”.
SAT also significantly pulled up Sebi and termed its action “cavalier”. If the auditing firms violated provisions of the Companies Act, they can be prosecuted under it. “But the respondent cannot invoke Sebi laws in this cavalier fashion, which violates the appellants’ (PW’s) fundamental right to carry on business as envisaged under... the Constitution of India,” said the judgment.
Sebi order against PW auditor was “failure to seek external confirmation of bank balances, fixed deposits, failure to detect fake invoices without adopting the rigorous procedure mandated by Auditing and Assurance Standards draws an inference of gross negligence and inference of involvement in the fudging of the accounts”. Sebi said, “This gross negligence amounts to an act of commission of a fraud for the purposes of the Sebi Act.”
SEBI Act, offences punishable under
Sebi’s views must for SAT/ court to compound offence
Giving primacy and weightage to the market regulator’s view, the Supreme Court ruled that Securities Appellate Tribunal (SAT) or any court must mandatorily seek expert views of Sebi and “be wary” of proceeding contrary to it while deciding on cases of fraud and crimes related to stock markets, reports Dhananjay Mahapatra.
Rejecting an appeal for compounding of offences relating to stock price rigging in a 1996 IPO floated by Varanasi-based Ideal Hotels & Industries, a bench of Justices D Y Chandrachud and M R Shah said, “...before taking a decision on whether to compound an offence punishable under Section 24(1) of SEBI Act, the SAT or the court must obtain the views of Sebi for furnishing guidance to its ultimate decision”.
“These views, unless manifestly arbitrary or mala fide, must be accorded a high degree of deference. The court must be wary of substituting its own wisdom on the gravity of the offence..., while discarding the expert opinion of Sebi,” said Justice Chandrachud.