Sebi can probe Price Waterhouse in Satyam fraud case
August, 26th 2010
The Bombay High Court has ruled that capital market regulator Securities and Exchange Board of India, or Sebi, has the jurisdiction to investigate audit firm Price Waterhouse for its alleged involvement in the fraud at Satyam Computer Services, as it is a preventive action by the regulator to safeguard interests of investors.
The high court, however, said if it is found that there was omission without any connivance, then on the basis of such evidence, Sebi cannot give any further directions. But if there is evidence, the regulator can proceed by giving directions, the court ruled.
Price Waterhouse is likely to file an appeal before the Supreme Court soon. The high court has directed Sebi not to proceed with its inquiry against the audit firm for a period of four weeks. The division bench, comprising Justice PB Majmudar and RM Savant said if Sebi wishes to pass a final order against Price Waterhouse, it will have to determine if it has any power to give directions under the Sebi Act.
Amit Agarwal, a former lawyer with Amarchand Mangaldas says the judgement is fair. It seems the Bombay high court, has not provided the extent and scope of power over audit firms and their partners under section 11 & 12 of the Sebi Act.
The only rider is that Sebi cant extend its jurisdiction to issues already covered under the CA Act, he added.
Price Waterhouse had filed a writ petition before the Bombay high court seeking to quash the showcause notice issued by Sebi, contesting the jurisdiction of the regulator over chartered accountancy firms.
Such firms are governed by the Institute of Chartered Accountants of India . Ravi Kadam, advocate general of Maharashtra, supported by Shiraz Rustomjee appeared for Sebi; senior counsel Janak Dwarkadas represented Price Waterhouse.
The regulator had issued two show-cause notices to Price Waterhouse , asking them why they should not be debarred from carrying out auditing work for listed companies for a particular period.
In the notice, Sebi alleged that Price Waterhouse, by certifying false and overstated financial results as true, has misled investors. Price Waterhouse had moved couple of consent applications for an early settlement . However, Sebi refused to settle the case and decided to go ahead with proceedings.