SAT quashed SEBI order debarring by Price Waterhouse firms/other auditors from auditing listed Companies and Directions to listed Companies not to engage
ABCAUS Case Law Citation:
ABCAUS 3145 (2019) (09) SAT
In the instant case, the appellant led by Price Waterhouse & Co had filed a group of appeals before the Securities Appellate Tribunal (SAT) questioning the legality and veracity of the impugned order passed by the Securities and Exchange Board of India (SEBI) under Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 (SEBI Act) in the matter related to audit for auditing the books of accounts of Satyam Computers Services Limited (SCSL).
The SEBi had inter alia ordered that entities / firms practicing as Chartered Accountant (CA) in India under the brand and banner of Price Waterhouse (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 under the applicable laws for a period of two years.
It had also been ordered that listed companies and intermediaries registered with SEBI shall not engage any audit firm forming part of Price Waterhouse network for issuing any certificate with respect to compliance of statutory obligations which SEBI.
Referring to the judgment of the Hon’ble Supreme Court, the SAT held that the principle that a citizen of India has a right to carry on a profession or business as envisaged by Article 19(1)(g) of the Constitution of India, squarely applicable in the instant case. If the appellants had violated the provisions of the Companies Act they can be prosecuted there under but the SEBI could not have invoked the SEBI laws in this cavalier fashion which violates the appellants’ fundamental right to carry on business as envisaged under Article 19(1)(g) of the Constitution of India.
The SAT held that a professional may be held negligent if he is not possessed of the requisite skill which he professed to have possessed or he did not exercise with reasonable competence. The standard to be applied for judging whether the person charged has been negligent or not, would be that of an ordinary competent person exercising ordinary skill in that profession. It is not necessary for that person to possess the highest level of expertise in that branch which he practices.
The SAT opined that there was no doubt that there had been a professional lapse on the part of the auditors in conducting the audit especially their failure to seek direct confirmation from the Bank relating to Bank Balances and fixed deposits. These lapses amounted to negligence but ICAI had already taken action against the auditors.
However the SAT in a detailed judgment running into more than 100 pages, had quashed the order of SEBI debarring the PW firms as well as the two auditors from auditing listed Companies. Directions to listed Companies not to engage any audit firm forming part of PW network was also quashed.
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