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2010 (8) TMI 173 - HC - Companies LawWhether the Securities and Exchange Board of India ( the SEBI ) has power to issue show-cause notices to the Chartered Accountants in connection with the work which they have undertaken for a listed Company in the matter of maintaining accounts and balance-sheets? Held that - The SEBI in the instant case, on the basis of show-cause notices, has jurisdiction to inquire into and investigate the matter in connection with manipulating and fabricating the books of account and balance-sheets of the Company. The powers of the SEBI are, therefore, independent and it cannot be said that it can encroach upon the powers of the Institute under the CA Act. The question of jurisdictional fact depends upon the facts which may be available at the time of evidence before the SEBI. SEBI will have to answer the question as to whether on the basis of evidence on record, it has any power to give directions as provided under the SEBI Act. This aspect will depend upon the evidence which may be available at the time of inquiry. All these aspects are therefore left to the consideration of SPBI at the time of passing final order in the inquiry.Since we have only interpreted the provisions of the SEBI Act and the CA Act, in our view, no substantial question of law of general importance is involved and hence the prayer for leave to appeal to Supreme Court is rejected.
Issues Involved:
1. Whether SEBI has the power to issue show-cause notices to Chartered Accountants regarding their audit work for a listed company. 2. Whether SEBI's actions encroach upon the regulatory powers of the Institute of Chartered Accountants of India (ICAI). 3. Whether SEBI can regulate the profession of Chartered Accountants. 4. Whether SEBI's jurisdiction extends to investigating the conduct of Chartered Accountants in relation to securities market fraud. 5. Whether SEBI can take preventive and remedial measures against Chartered Accountants in the interest of investors and the securities market. Issue-wise Detailed Analysis: 1. SEBI's Power to Issue Show-cause Notices to Chartered Accountants: The petitions challenge SEBI's authority to issue show-cause notices to Chartered Accountants for their audit work for a listed company. The court examined the provisions of the SEBI Act, particularly sections 11, 11B, and 11(4), which empower SEBI to protect investors' interests and regulate the securities market. The court noted that SEBI's powers are broad and include the ability to take measures to prevent fraudulent and unfair trade practices. The court concluded that SEBI has the jurisdiction to issue show-cause notices to Chartered Accountants if their activities are detrimental to the interests of investors or the securities market. 2. SEBI's Actions and ICAI's Regulatory Powers: The petitioners argued that SEBI's actions encroach upon the regulatory powers of ICAI, which is the statutory body responsible for regulating the profession of Chartered Accountants under the Chartered Accountants Act, 1949. The court acknowledged that while ICAI regulates the profession, SEBI's actions are aimed at protecting investors and regulating the securities market. The court emphasized that SEBI's actions do not amount to regulating the profession of Chartered Accountants but are preventive and remedial measures to safeguard the interests of investors and the securities market. 3. SEBI's Ability to Regulate the Profession of Chartered Accountants: The petitioners contended that SEBI cannot regulate the profession of Chartered Accountants. The court agreed that SEBI cannot regulate the profession per se but clarified that SEBI can take steps to protect investors and the securities market, which may include actions against Chartered Accountants if their conduct affects the market. The court noted that SEBI's powers under the SEBI Act are distinct from ICAI's regulatory powers and are aimed at ensuring the integrity of the securities market. 4. SEBI's Jurisdiction to Investigate Chartered Accountants: The court examined whether SEBI has jurisdiction to investigate the conduct of Chartered Accountants in relation to securities market fraud. The court referred to the provisions of the SEBI Act, which allow SEBI to conduct inquiries and investigations into activities that may harm investors or the securities market. The court concluded that SEBI has the jurisdiction to investigate Chartered Accountants if there is prima facie evidence of their involvement in fraudulent activities that affect the securities market. 5. SEBI's Preventive and Remedial Measures: The court considered whether SEBI can take preventive and remedial measures against Chartered Accountants in the interest of investors and the securities market. The court highlighted SEBI's duty to protect investors and regulate the securities market, which includes taking necessary measures to prevent fraud and ensure market integrity. The court affirmed that SEBI can issue directions to Chartered Accountants to prevent them from auditing listed companies if their conduct is found to be detrimental to the market. Conclusion: The court concluded that SEBI has the jurisdiction to issue show-cause notices to Chartered Accountants, investigate their conduct, and take preventive and remedial measures in the interest of investors and the securities market. The court emphasized that SEBI's actions do not encroach upon ICAI's regulatory powers but are necessary to protect market integrity. The petitions were dismissed, and SEBI was directed to proceed with the inquiry in accordance with the law. The court also rejected the petitioners' request for a certificate to appeal to the Supreme Court, stating that no substantial question of law of general importance was involved.
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