The Securities Appellate Tribunal (SAT) Monday overturned Sebi’s January 2018 order that banned Price Waterhouse (PW) from auditing listed firms for two years for its alleged role in the Rs 7,800 crore Satyam Computer Services Ltd (SCSL) scam of 2009.
“In the instant case, there is no shred of evidence to show that the auditor/audit firm had fabricated or falsified or fudged the books of account of SCSL in collusion with the top management of SCSL. Further, fraud cannot be proved only on alleged gross negligence, carelessness or recklessness as amounting to collusion and connivance on a preponderance of probabilities,” said a 125-page order of SAT passed by its presiding officer Tarun Agarwalla and member CKG Nair. On Friday, however, SAT partly allowed disgorgement of the Rs 13 crore fee from PW, the auditor of Satyam Computer when its chairman B Ramalinga Raju publicly admitted to an accounting fraud in 2009.
The tribunal said that only Institute of Chartered Account-ants of India (ICAI), the apex body of auditors, can take any action against its members, adding that fraud cannot be proved on the basis of negligence in auditing. “Sebi can only take remedial and preventative action. The direction issued is neither remedial nor preventive. But punitive,” SAT said.
It added if there was any dereliction of duties, it was on the part of the two partners for which PW’s other 10 associate firms can’t be banned just because they have resource sharing agreements.
“There is no evidence to indicate that the ten firms had any role to play in the audit of SCSL. These ten firms had nothing to do with the audit of SCSL. They had no knowledge of the day to day affairs of SCSL either directly or indirectly. There is not even a whisper of a finding in the impugned order against the ten firms about any connivance or collusion or intention or knowledge on their part in the audit of SCSL. The entire basis of debarring the ten firms is the resource sharing agreement, the brand PW and the networking of PW as a brand … the approach adopted by the WTM (whole-time member of Sebi) is patently erroneous and is flawed,” SAT said.
The order also said that during the pendency of the SAT proceedings, PW has been auditing listed companies “to the satisfaction of the shareholders and/or of the investors without any blemish”.
It added that over the last decade, PW has adopted extensive remedial measures as per Securities and Exchange Commission (SEC)/ Public Company Accounting Oversight Board (PCAOB) settlement orders. “The independent monitors appointed by SEC/PCAOB have certified that remedial measures have been successfully implemented, meaning thereby that the audit quality met with the requisite standards. Thus looking from this angle also, the order of debarment was not the appropriate choice.”