In the case of Price Waterhouse and Co. v. SEBI, SAT (Securities Appellate Tribunal) has set aside two years ban on the Price Water House (PWC) imposed by the SEBI (Securities and Exchange Board of India) in the wake of Satyam Scam. An appeal was made to SAT against the order passed by SEBI’s Whole Time Members under Section 11 and 11B of SEBI Act, 1992 which empowered SEBI to issue direction in the nature of remedy in the interest of investors. The directions were issued for the violation of Section 12 of SEBI act read with Section 3 and 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) PFUTP Regulations, 2003. Also, a writ petition was filed in the Bombay High Court by PWC stating that SEBI does not have jurisdiction as they are Charter Accountant firms. The court ordered that the jurisdiction of SEBI in the present case cannot be barred just because it is a CA firm but the Hon’ble HC put a limit as to the extent SEBI can exercise power under Section 11 and 11B of SEBI act and Regulation 11 of SEBI PFUTP Regulations to act against the CA Firm. The court restricted the jurisdiction of SEBI only to the charges of conspiracy and involvement in the fraud.
After hearing the appeal, SAT held that there is no evidence as to indicate that the CA firm has colluded or had any knowledge or intention to manipulate the books of accounts. Hence, SEBI does not have jurisdiction to impose any ban on the firm for its professional misconduct. The tribunal further said that
“If the appellants have violated the provisions of the Companies Act they can be prosecuted there under but the respondent cannot invoke 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.”
Further, the court held that Regulation 3 and 4 of PFUTP Regulation applies to the person dealing with the securities and can be extended to the people who are associated with the securities. The appellants in the present case are auditors and are neither directly or indirectly involved in dealing with the securities. But the tribunal said that there were professional lapses and failure to maintain the standard of care and hence it upheld the disgorgement order passed by SEBI for the wrongful gains made by the firm.
Judgment link: http://sat.gov.in/english/pdf/E2019_JO20186_1.PDF
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