27 August 2010

Auditors owe a duty to all shareholders -Businessline

Court raps SEBI for not acting on Price Waterhouse petition.

Our Bureau

Mumbai, Aug 25

The SEBI Act (Section 11) has wide amplitude and empowers the regulator SEBI to take within its sweep a CA, if his activities are detrimental to the investors or the securities market, the Bombay High Court observed in its order on the Price Waterhouse vs SEBI case.

The order was made available on the Court's Web site on Wednesday.

The Court on August 13 had ruled that SEBI can regulate the securities market but cannot regulate the profession of Chartered Accountants. SEBI has the powers to issue show cause notices to CA firms and individual CAs.

High Court proceedings

Among the observations made by the High Court was that "by taking remedial and preventive measures in the interest of investors and for regulating the securities market, if any steps are taken by the SEBI, it can never be said that it is regulating the profession of the Chartered Accountants." SEBI was also empowered by law so far as listed Companies were concerned, said the Court order.

"The auditors on their part have been appointed by shareholders by majority and they owe a duty to all shareholders and are required to give a correct picture of the financial affairs of the company," observed the High Court.

The High Court also rapped SEBI for not acting on the petition given to it by PW which prompted the audit firm to move court. The High Court observed that, as a result, the question as to whether the SEBI has committed error in not passing any order on the application has become academic.

In sum, the Court said that a CA firm like PW by virtue of being auditors of Satyam which was at one point considered a blue chip company with a defining influence on the securities market can be said to be persons associated with the securities market within the meaning of the SEBI Act.

While SEBI had no powers to debar a CA firm or a CA from practising, it could safeguard investor interest by taking appropriate remedial steps including keeping a person (including a CA) at a safe distance from the securities market.

The PW petitions were rejected and their prayer for leave to appeal to Supreme Court was also rejected. SEBI has been directed not to undertake inquiry proceedings against PW for a period of four weeks so that the audit firm could file a special leave petition against this High Court order in the Supreme Court.

Satyam case

PW which had been issued a show cause notice by SEBI in the Satyam fraud, had sought direction from the High Court on whether SEBI has jurisdiction over CA firms and CAs in this matter as they were governed by ICAI.

SEBI had initiated proceedings against PW in the Satyam case under provisions of Section 11,11B and 11(4) of the SEBI Act against PW with respect to fabrication and falsification of accounts, non compliance with auditing standards and dissemination of misleading and spurious information.

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