April 2022


Robin Shah, Advocate


With the onset of the infamous Satyam scam of 2008-2009, where major accounting frauds were exposed, SEBI initiated a detailed investigation in the books of accounts of Satyam. Post investigation, SEBI issued a Show Cause Notice to the statutory auditor of Satyam, namely Price Waterhouse Co. (PWC). The power of SEBI to issue such a Show Cause Notice to a Chartered Accountant (firm) was challenged by PWC before the Hon’ble Bombay High Court (Writ Petition No. 5249 of 2010) under Article 226 of the Constitution. The Hon’ble Bombay High Court (vide its order of 13th August, 2010) put the controversy to rest by allowing SEBI to initiate action and bring Chartered Accountants within its fold - subject to not encroaching on the ICAI’s powers under the Chartered Accountants Act, 1949 (CA Act).

The Hon’ble Bombay High Court emphasized the fact that only if the Chartered Accountant was involved in falsification and fabrication of books of a listed company, then SEBI could invoke its powers under Section 11(4) r.w.s. 11B of the SEBI Act, which reads as under:

Section 11B.

(1)    Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary:

(i)    in the interest of investors, or orderly development of securities market; or

(ii)    to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors or securities market; or to secure the proper management of any such intermediary or person

it may issue such directions:

(a)    to any person or class of persons referred to in section, or associated with the securities market; or

(b)    to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market.

An important facet of the aforesaid definition is whether an auditor of listed companies (and registered intermediaries) can be considered to be a ‘person associated with the securities market’ and thereby under the jurisdiction of SEBI. The Hon’ble Bombay High Court clarified that if SEBI concludes that there was no ‘mens rea or connivance’ to fabricate and fudge the books of accounts, then SEBI ought not to issue any direction(s) against the auditor.

Within the aforesaid contours, the proceedings (qua PWC) continued at the SEBI level and finally concluded with an Order against PWC (on 10th January, 2018), inter-alia, imposing a restraint on PWC on issuing a certificate to a listed company for two years, amongst other directions. PWC challenged the SEBI


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