The capital market regulator is going ahead with enforcement proceedings against audit firm Price Waterhouse, even as the firm moved a second consent application to reach an early settlement over the investigation into its role in the accounting fraud at Satyam Computer Services.
In March this year, the Securities & Exchange Board of India, or Sebi, had rejected the first consent application submitted by Price Waterhouse, the statutory auditor for Satyam, now known as Mahindra Satyam.
According to people in the know, the second consent application was filed after Sebi rejected the terms mentioned in the first plea.
After rejecting the first consent application, the regulator had decided to go ahead with the proceedings as it felt it would send out a wrong example for the market to settle such cases on consent terms, said the people familiar with the matter.
Consent applications are the equivalent of out-of-court settlement in the context of violation of securities laws. The terms, which are often the subject of intense haggling between the regulator and the alleged violator, may include punishment such as a fine or even a voluntary ban.
Negotiation for a consent application may include terms like settlement amount, disgorgement amount and a voluntary ban for one or more years, depending on the facts and circumstances of a case, said a securities lawyer. Investigators are still probing the extent of involvement of two partners from Price Waterhouse in the over Rs 7,000-crore Satyam fraud.
Doors open for re-negotiation
One of the two partners is currently behind bars in Hyderabad while the other has been released on bail by the Supreme Court.
In an order passed by Sebis whole-time member in March this year, the regulator had adjourned the hearing arising out of the show cause notice sent to the audit firm as it had requested additional time for filing its reply after completing the inspection of documents used by the regulator to build its case.
If the second consent application too is unsuccessful, Sebi will pass a final order after hearing the audit firm. Sebi orders can be challenged before the Securities Appellate Tribunal, or SAT.
In case of consent applications, typically a bargain is struck depending on the stand of the parties over the proceedings. At the end of the exercise, if the alleged violator is unable to meet Sebis terms, the regulator may not accept it.
Similarly, even if the internal committee of Sebi accepts the terms, a high-powered committee may still find it unacceptable. In either situation, it is always open to the parties seeking consent to make a fresh application with revised terms and seek re-negotiation.
Historically, Sebi has entertained second consent applications for review, provided the offer is an improved version of the previous offer.
For any consent application to be processed, there should be pending proceedings in connection with that case. Those pending proceedings can be either with Sebi, or SAT or even the Supreme Court.
In the case of UBS, the appeal was pending with Supreme Court when the consent terms were reached with UBS. After this, both partiesSebi and UBSmoved an application before the apex court and received an order to settle the matter.