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April 2022

JURISDICTION OF SEBI IN TAKING ACTION AGAINST PRACTISING CHARTERED ACCOUNTANTS

By Robin Shah, Advocate
Reading Time 13 mins
BACKGROUND

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 secur
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