SAT Quashes SEBI’s two-year ban on PricewaterhouseCoopers in Saytam Case
The Securities Appellate Tribunal (SAT) has overturned the 2-Year ban imposed by market regulator SEBI (Securities & Exchange Board of India) on Price Waterhouse & Co (PwC).
 
Last year, SEBI had barred PwC from undertaking any fresh audit or issuing any certificate of audit to listed companies following an investigation related to the Satyam Computer Services Ltd (SCSL) scam. 
 
In a hard hitting order, the SAT bench of Justice Tarun Agarwala and Dr CKG Nair, questioned SEBI’s authority to regulate auditing firm and said that a fraud cannot be proved on the basis of recklessness or negligence in audit. All audit firms in the country are regulated by Institute of Chartered Accountants of India (ICAI).
 
Coming down heavily on the market regulator, the Tribunal says, "The show cause notice was issued on 14 February 2009 and 26 August 2009. The impugned order was passed on 10 January 2018. It took SEBI nine long years to complete the proceedings and the fault lay entirely on SEBI. The request of the appellants to cross examine certain individuals whose statements were relied upon by SEBI was rejected. This Tribunal on 1 June 2011  allowed  the  appeal  and  directed  SEBI  to  allow cross examination. SEBI did not do so and took the matter to the Supreme Court and kept it pending for six years. The Supreme Court on January 2017 held that the stand of SEBI was incorrect and directed that cross examination and inspection should be allowed to the appellants."
 
According to a report from the Economic Times, SAT has ruled that there is no shred of evidence that the auditors fabricated, fudged or were in collusion with the management of SCSL. 
 
“SAT also ruled that negligence cannot amount to misconduct and SEBI action based on no direct evidence cannot be maintained. If the audit of Satyam was conducted in a careless or reckless way by the audit firm then action can only be taken under CA Act by the Institute and not by SEBI,” the report says.
 
Last year in January, SEBI had also asked PwC, its partners S Gopalakrishnan and Srinivas Talluri to pay a fine of Rs13.09 crore along with an interest of 12% from 7 January 2007 for fudging account books and reports of SCSL.
 
SAT, however, sustained the order by SEBI for disgorging the amount. It says, "...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. In the light of the aforesaid, the WTM found that for this negligence, the auditors and the firms benefitted by way of charging a fee amounting to Rs13.09 crore. The WTM was of the opinion that this wrongful gain was liable to be disgorged. We find that for this professional lapse, there has been a breach of duty and failure to maintain that standard of care. For this lapse / negligence, we are of the opinion that the appellants were not justified to retain this amount. In our opinion, the WTM was justified in disgorging the said amount along with interest. The power was rightly exercised under Section 11 and 11-B of the SEBI Act to persons who in some way was associated with the securities market as well as under the Companies Act." 
 
Immediately after the SEBI order, PwC had moved to the SAT, which in January 2018, while declining any stay on the order had allowed the auditing firm to continue with its (the then) existing audit assignments for FY17-18 and also for the calendar year 2018.
 
In a 108-page order G Mahalingam, whole-time member of SEBI, had said, "The investigation found that certain directors and employees of SCSL had connived and collaborated in the overstatement, fabrication, falsification and misrepresentation in the books of account and financial statements of SCSL. The published books of account of SCSL contained false and inflated current account bank balances, fixed deposit balances, fictitious interest income revenue from sales and debtors’ figures and for several years. The investigation also noted that the statutory auditors of SCSL had connived with the directors and employees of SCSL in falsifying the financial statements of SCSL."
 
The auditors' report, balance sheets and profit and loss accounts of SCSL were signed by S Gopalakrishnan, CA between April 2000 to March 2007. He was a partner in PwC and Lovelock and Lewes.
 
The auditors’ report, balance sheets and profit and loss account of SCSL between April 2007 to September 2008 were signed by CA Srinivas Talluri on behalf of PwC.
 
The SEBI order had said PwC firms have benefited from the relationship from SCSL, by having collectively received a fee of Rs23.31 crore during 2000-2008. Out of this amount, Rs13.09 crore was paid towards PwC, Bangalore for the audit of SCSL, as submitted by the audit firm. 
 
“Given that this remuneration was the identifiable monetary gain made by PwC in its association with the audit of SCSL, it is clear that this wrongful gain is liable to be disgorged. Though the legal portions of that gain or costs such as taxes paid are required to be reduced, the noticees have not provided details of such costs or expenses in their replies. Consequently the entire gain made from PwC's relationship with SCSL shall be treated as wrongful gain liable to be disgorged,” SEBI had said.
 
Both Mr Gopalakrishnan and Mr Talluri were also banned from issuing any audit certificated to any listed entity for the next three years.
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    COMMENTS

    VASANT KULKARNI

    1 month ago

    OPERATION SUCCESSFUL, PATIENT DIED.

    nadeem

    1 month ago

    ICAI can take action.... but will not !

    K V RAO

    1 month ago

    SAT has ruled that ICAI can only hold PWC under CA Act and not SEBI. Then the question arises why ICAI has not taken action against PWC? Is it ICAI is afraid of BIG FIVE ? Now that SAT has ruled, will ICAI proceed against PWC or SAT's observations will remain in paper?

    Sun Pharma Admits Forensic Audit Underway as per SEBI Order; But Fails to Disclose It to the Bourses
    While admitting that Securities and Exchange Board of India (SEBI) had indeed ordered a forensic audit for three years between 2015-16 and 2017-18, Sun Pharmaceutical Industries Ltd (Sun Pharma), however, has failed to explain why it did not disclose this price sensitive information to stock exchanges. 
     
    Last week, a report from Business Standard had said, that SEBI inquiry had cleared Sun Pharma as it could not find merit in allegations of fraud by a whistleblower. On Wednesday, the same newspaper reported that the market regulator had ordered a forensic audit against Sun Pharma to look into allegations of financial irregularities and lapses in corporate governance standards. This news resulted in the company scrip falling about 5% to Rs416.85 per share. 
     
    Quoting sources, a report from Moneycontrol.com, too had talked about SEBI ordering forensic audit against India’s largest drugmaker to look into allegations of financial irregularities and lapses in corporate governance standards. This report also discarded clean chit given by SEBI to Sun Pharma as reported in Business Standard. Quoting a retired official from SEBI, Moneycontrol says, "In such (big) cases, SEBI will always prefer to go with a forensic audit."
     
    Sun Pharma has now clarified that a forensic audit has been going on for some time but it did not inform the exchanges. "...you may also note that a forensic audit has been ordered by SEBI w.r.t. the financial statements of Sun Pharmaceutical Industries for the financial years ending 31 March 2016, 31 March 2017 and 31 March 2018. The said forensic audit is presently ongoing," Sun Pharma said in a regulatory filing on 5 September 2019
     
    On 3rd September, Moneylife wrote to the SEBI chairman pointing out that regulatory action on Sun Pharma was ‘market sensitive’ information and SEBI needs to clarify which of the two reports, clean chit or forensic audit was correct. We did not get a response from SEBI.  
     
    This leads to speculation about whether SEBI officials understand the price sensitivity of their actions, or are happy to stand by and permit the fluctuations, which often catch investors on the wrong foot.
     
    As reported by Moneylife in November 2018, a whistleblower had sent SEBI complaints about alleged wrongdoings by Sun Pharma promoters Dilip Shanghvi and Sudhir Valia. 
     
    The whistleblower had filed first complaint in September last year. In a sensational 150-page document, the whistleblower had alleged numerous irregularities against Sun Pharma, its main promoter Mr Shanghvi and his brother-in-law Mr Valia, as well as Mr Valia’s independent financial operations, Fortune Financial and Investment Trust of India and Dharmesh Doshi, an associate of Ketan Parekh who has been convicted of wrongdoing in the stock market scam of 2001. 
     
    Around December-January, the whistleblower sent second complaint to SEBI. This 172-page document had lot of details about the controversial Aditya Medisales, a company that Sun Pharma suddenly decided to declare as a related party only last year.
     
    In January this year, Mr Shanghvi met SEBI chairman Ajay Tyagi. Moneylife learned that time that Mr Shangvi was likely to assert that all the information contained in the two complaints filed by a whistleblower submitted to SEBI, were old information pertaining to a period of 10-15 years ago, and had no relevance today. We gather that the Sun Pharma CMD was likely to point out that the complaints have been instigated by business rivals.
     
    Separately, at that time Sun Pharma had said that SEBI has indeed asked the company for replies on two queries, but the company was not in a position to comment whether these queries were related to the whistleblower complaints.
     
    Moneylife alone has the whistleblower complaints and we could affirm from the documents that information pertains to the past few years and not to 10-15 years ago.
     
    It may be recalled that in the conference call held in early December also, Sun Pharma had tried to characterise the swirling questions about its governance as more than a decade old. 
     
    At 12.07 Friday, Sun Pharma was trading 3% down at Rs419.30 on the BSE, while the benchmark Sensex was marginally up at 36,875.
     
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    Economic outlook cloudy in FY20: RBI annual report
    The Reserve Bank of India (RBI) said on Thursday that the overall economic outlook of the country appeared clouded for 2019-20 and advised to prioritise the revival of consumption and private investment and structural reforms.
     
    "Overall, the outlook appears clouded as the Indian economy begins its course through 2019-20," the RBI said in its annual report released on Thursday.
     
    The central bank also expressed concern over falling rural demand amidst some surge in indices.
     
    "Rural demand, however, was affected by moderation in agricultural growth as reflected in tractors and two-wheelers sales. Indicators of urban demand revealed a mixed picture in contrast. Air passenger traffic recorded its lowest growth in the last five years.
     
    "Passenger vehicles sales were the lowest in five years on account of increase in insurance costs, volatile fuel prices and lack of financing options due to the liquidity stress in the non-banking sector. The production of consumer non-durables slumped to its lowest level in the past three years," the report highlighted.
     
    The central bank in its review said that external demand operated as a drag for the second successive year while deficit south-west monsoon and depleted reservoirs dented the performance of the agriculture sector.
     
    The rate of gross domestic savings had increased marginally to 30.1 per cent of gross national disposable income (GNDI) in 2017-18 from declines in the previous two years.
     
    The household financial savings -- the most important source of funds -- had increased by 0.3 percentage points of GNDI, though it had remained much lower than 7.3 per cent during 2011-16.
     
    The rate of gross domestic investment in the Indian economy, measured by the ratio of gross capital formation (GCF) to GDP at current prices, had risen to a peak of 39.8 per cent in 2010-11 before a prolonged slowdown set in, taking it down to 30.9 per cent in 2016-17. 
     
    A modest recovery was seen in the following year. Although data on gross domestic investment are not yet available for 2018-19, movement in its constituents suggests that the uptick could not be sustained.
     
    Growth in fixed investment collapsed to a 14-quarter low in Q4 of 2018-19 as production of capital goods registered a sharp contraction while imports nosedived in a coincident manner.
     
    However, the industrial sector posted resilient growth, mainly driven by manufacturing in the first half, while the momentum in construction and financial services sustained the healthy growth of the overall services sector, the RBI said.
     
    "Going forward, priority should be accorded to revive consumption and private investment while continuing with structural reforms," the RBI said.
     
    On job creation, the RBI said that official estimates suggest more regularisation of employment in 2017-18 and the various initiatives undertaken by the government are expected to create avenues for employment.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Prakash

    2 months ago

    RBI independence not exist now.Central Govt eye on reserved liquid cash with RBI ,how to take the rights of some portion of RBI reserve main intention .To counter the crisis RBI and its board ,regularly researching how to make good to RBI ,by taking the rights of individual deposit with different bank in the country .It may be so,the PSU bank would be their first target. because private banker may shout immidietely if adverse to their reserve ,being senced.Loading on general public through service charge an example of RBI .Now giving away to loss making bank ,a technology to subverce the bank by different method of recovery to NPA.It is only bank has made ,their bank loss .No general public is party to it ,but load on all the account holder are charged .Economy goes nose drive slowly .This shows on giving free permission to fDI in many sector .Things will be reflected as of like automobile sector in the country . Let's wait ,how fast nose drive. ,being experiencing Indian economy .

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