2022 (10) TMI 1216 - AT - SEBI

Power of SEBI to initiation action against Chartered Accountant (CA) / Auditor of the company - Professional negligence by Auditor/CA - IPO proceeds were utilized for the objects other than those mentioned in the prospectus - Sebi alleged actual utilization of IPO proceeds was significantly different from the certificate issued by the appellants and the utilization certificate did not carry any qualification even though the appellants had access to bank statements and books of accounts of the Company - Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market - HELD THAT - AO has only established that the appellants have falsely certified the Unqualified Utilization Certificate. There is no finding that the appellants were party to preparation of false and fabricated accounts. There is no finding that the appellants had manipulated the books of accounts with knowledge and intention in the absence of which the appellants cannot be accused of fraud. There is also no finding by the AO on collusion with the Company in the absence of which the charge of aiding and abetting the Company cannot be sustained. It is an admitted fact that the appellants had qualified the annual accounts on the matter of utilization of funds of the IPO and such a qualification is mentioned in the Annual Report which is in the public domain. In absence of a finding that there was deceit or inducement, the appellants can only be held guilty for professional lapse or negligence for which the appropriate authority to take action is ICAI. SEBI has already made a complaint to the ICAI in the instant case and ICAI is holding an inquiry against the appellants. Section 12(A)(a) (b) of SEBI Act is not applicable to the appellants as they are not dealing in securities. Further, in absence of proof of fraud, connivance, deceit or manipulation Section 12(c) of SEBI Act and Regulation (3) and (4) of PFUTP Regulations are not applicable.Thus, for the reasons stated aforesaid, the impugned order cannot be sustained and is set aside.

Summary

Issues:
Violation of SEBI Act and PFUTP Regulations by appellants in certifying utilization certificate without qualifications.

Analysis:
1. The appeal was filed against SEBI's order imposing a penalty on the appellants for violating SEBI Act and PFUTP Regulations by certifying a utilization certificate without qualifications.
2. The appellants, as statutory auditors, certified the Company's utilization of IPO proceeds in an unqualified certificate, which SEBI found significantly different from the actual utilization.
3. SEBI issued a Show Cause Notice alleging the appellants' certification was misleading and contained distorted information, influencing investors' decisions.
4. The appellants argued their certification was factual and did not involve opinion, as per ICAI's Guidance Note on Audit Reports.
5. The Adjudicating Officer concluded that the appellants falsely certified the utilization certificate, aiding in disseminating false information to investors.
6. During the hearing, the appellants denied aiding in fraudulent acts and highlighted the lack of findings implicating them in preparing false accounts.
7. SEBI contended that the appellants' certification aided the Company in disseminating false financial information to investors.
8. The Tribunal previously held the Company misutilized IPO proceeds, raising the issue of penalizing the appellants under SEBI Act and PFUTP Regulations.
9. Referring to past judgments, the Tribunal clarified that without evidence of fraud, deceit, or manipulation, the appellants could not be penalized under relevant provisions.
10. The Tribunal found that the appellants were not involved in securities dealings and lacked proof of fraud or connivance, thus overturning the impugned order.
11. The Tribunal set aside the impugned order, allowing the appeal with no costs, directing all parties to act on the digitally signed copy of the order.

This detailed analysis of the judgment highlights the issues, arguments presented, findings, and the Tribunal's decision, providing a comprehensive understanding of the case.