The Securities and Appellate Tribunal (SAT) on Monday quashed an earlier order of Securities and Exchange Board of India (SEBI) to ban Price Waterhouse, an affiliate firm of PwC India, from auditing listed companies for two years due to its role in Satyam fraud about a decade back.
There is no shred of evidence that the auditors fabricated, fudged or were in collusion with the management of Satyam Computer Services, SAT ruled on Monday. The ruling went on to add that Sebi in fact has no jurisdiction banning any audit firm and that was the sole prerogative of Institute of Chartered Accountants of India (ICAI).
The SAT also ruled that negligence cannot amount to misconduct and Sebi action based on no direct evidence cannot be maintained. If the audit of Satyam was conducted in a careless or reckless way by the audit firm then action can only be taken under CA Act by the institute and not Sebi.
The firm was the auditor of Satyam Computer Systems when chairman B Ramalinga Raju publicly admitted to an accounting fraud in 2009. Sebi banned PwC network firms from auditing listed companies for two years in January 2018. The order was challenged by PwC in SAT.
In what could also impact the capital market regulator’s powers in future SAT ruled that SEBI should not “encroach” upon territories of other regulators or industry bodies like ICAI. As per the current regulations the main purpose of the market regulator was to protect interest of the investors and so the measures or action taken by SEBI have to be remedial and not punitive.
The two year ban of PW and other associated firms violates current regulations. Also to consider the ban as a remedial action is farfetched and cannot be accepted. Sebi’s action of banning PwC was “blatantly erroneous” SAT observed.
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