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Big win for PW, setback for SEBI in Satyam Case

The bench of SAT ruled that SEBI can not take action against auditors, only ICAI as per law has the power to do so.

Big win for PW, setback for SEBI in Satyam Case

Appellate Authority of (Securities and Exchange Board of India’s) SEBI, SAT has quashed the order passed by market regulator SEBI in Price Waterhouse's (PW) Satyam Computer Services audit case. At a time when audit firms are facing a challenging time due to various cases filed against them, it seems a big relief to one of the Big 4 audit firms. While announcing its order SAT said fraud and collusion on the part of PW was not probed hence ban is not sustainable.

The bench of SAT ruled that SEBI can not take action against auditors, only ICAI as per law has the power to do so. SAT further said SEBI can not look into the quality of audit services, also if any negligence was there on the part of auditors only ICAI can take any action not SEBI.  Bench also noted that there is no basis to ban the entire PW audit firms just because they had the resource sharing pact. SAT observed that the order passed by whole time member to ban PW is ‘erroneous’.

SAT also said when the erstwhile management of Satyam Computer Services publicly owned everything on itself and announced that no one was aware of the wrongdoings how can auditors be held liable for fraud. B Ramlingaraju then Chairman of Satyam Computers had publicly admitted in 2009 about the wrong doings in company and took the entire blame on himself.  

SEBI had banned PW in January 2018 alleging that the auditors were in collusion with the erstwhile directors and staff of Satyam Computers and accounts were fudged in connivance with the auditors. SEBIs 2 year audit ban on PW included listed firms or any intermediary under it regulation. SEBIs whole time member G Mahalingam in his 108 page order had written that “ 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”.

PW later challenged the SEBI order in SAT. SAT had initially upheld the SEBI two-year ban on the audit firm’s business in the country beyond March 2019. But the final order brought a big relief to PW and its auditor partners. The impact of SEBI ban on PW was seen in many audit assignments, where auditors sensing any trouble started putting in papers or raising more questions to the management to ensure that they do not meet the PWs fate.