Pricewaterhouse Coopers v. SEBI: SC issues notice in challenge to SAT judgment related to Satyam Scam

Pricewaterhouse Coopers v. SEBI: SC issues notice in challenge to SAT judgment related to Satyam Scam

Aditya AK

The Supreme Court has issued notice in an appeal filed by the Securities and Exchange Board of India (SEBI) challenging the judgment of the Securities Appellate Tribunal (SAT) which granted relief to accounting firms under the Pricewaterhouse Coopers aegis.

In September this year, the SAT had set aside a 2018 order of the Securities Exchange Board of India (SEBI) barring the operation of accounting firms under the PricewaterhouseCoopers aegis for two years for their alleged role in the Satyam Scam.

In its appeal filed before the Supreme Court, SEBI has contended that the SAT has failed to appreciate that the regulator had found a total abdication by the Pricewaterhouse Coopers firms of their duty to follow the Accounting Standards prescribed by the Institute of Chartered Accountants of India (ICAI) and the minimum standards of diligence and care expected from a statutory auditor.

It has also been contended that SAT has ignored the findings of the Bombay High Court to the effect that SEBI had jurisdiction over Chartered Accountants and that exercise of this power does not come into conflict with the provisions of Section 24 of the ICAI Act, 1949. On this aspect, the SAT had held that action against a Chartered Accountant can be taken only in terms of the Chartered Accountants Act, 1949 and SEBI cannot interpret the auditing standard on a standalone basis. The order further states,

“The auditing standards can only be related to the professionalism of a Chartered Accountant vis-à-vis its professional misconduct which can only be considered by the ICAI.”

Thus, it was prayed that the Supreme Court set aside the judgment of the SAT dated September 9.

The matter came up for hearing yesterday before the Bench of Justices Arun Mishra and Indira Banerjee. Attorney General for India KK Venugopal, instructed by Pratap Venugopal, appeared on behalf of SEBI. Senior Advocates Mukul Rohatgi, Sidharth Luthra, and Counsel Somasekhar Sundaresan were instructed by Ruby Singh Ahuja of Karanjawala & Co on behalf of the Pricewaterhouse Coopers firms. 

After hearing both sides, the Court issued notice in the matter and stayed the operation of paragraph 78 of the SAT judgment. In this para, the SAT had noted that SEBI’s action against the firms can only be remedial in nature, not punitive. The decision of SEBI to bar the accounting firms was violative of Article 19(1)(g) of the Constitution of India, the SAT had held.

Back in January 2018, SEBI had barred global accountancy firm PricewaterhouseCoopers and its network entities from issuing audit certificates to any listed company in India for two years.

The regulator had also asked PwC to pay Rs 13.09 crore, along with interest at 12% per annum from January 2009 (approximately Rs 14 crore) for wrongful gains. Two former PwC partners – S Gopalakrishnan and Srinivas Talluri – were also barred from issuing audit certificates to listed companies for three years.

The 2018 SEBI order stems from the Satyam scandal of January 2009. The order came nine years after the scam at Satyam Computer Services Limited (SCSL) came to light and after two failed attempts by PwC to settle the case through the consent mechanism. On January 7, 2009, Chairman of Satyam Software Services Ramalinga Raju confessed to an Rs. 7,136 crore fraud committed by him and a few others at the company.

In February 2009, SEBI had issued show-cause notices to the PricewaterhouseCoopers firms directing them to show cause as to why directions under Section 11, 11(4) and 11B of the SEBI Act should not be issued for violation of provisions of the SEBI Act and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.

Subsequently, petitions were moved before the Bombay High Court in 2010, challenging the jurisdiction of the SEBI to issue show-cause notices against the firms. However, the High Court had dismissed the petitions, stating that the jurisdiction of SEBI would depend upon the evidence gathered during the investigation and that only if there was some omission without any mens rea or connivance with anyone would the SEBI be barred from issuing any further directions.

Read Order

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