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TMI Blog2023 (12) TMI 381X X X X Extracts X X X X X X X X Extracts X X X X ..... d a forensic audit report to SEBI in which various irregularities in the financial statements made by Arvind Remedies Limited ("ARL/ Company" for convenience) was highlighted. On the basis of the forensic audit report, a preliminary examination was undertaken by SEBI to ascertain as to whether the books of accounts of the Company was manipulated during the financial years 2011 to 2015. It was observed that the Company had shown purchases and sales with controlled entities which appeared to be circuitous transactions without actual movement of goods and that the annual reports indicated inflated figures of sale and purchase of goods. It was observed, that the financial results disclosed false and fabricated and such abnormal figures was not noticed by the statutory auditors and the statutory auditor was negligent in certifying the accounts of the Company and failed to maintain professional standards audit thereby enabling the Company and its directors to perpetrate and manipulate a fraud on the securities market. 3. Accordingly, an ad-interim ex-parte order on February 16, 2017 was passed against the Company and its Managing Directors. Subsequently, a detailed investigation was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financials of the Company. 7. Inspite of coming to the aforesaid conclusion the WTM instead of dropping the proceedings disposed of the proceedings advising the appellants to be careful while dealing in the securities and for the glaring misconduct and dereliction of duties and abhorrence of due diligence forwarded a copy of the order to the ICAI and NFRA for appropriate action. 8. We have heard Shri Sagar Ghogre, the learned counsel for the appellants and Shri Pradeep Sancheti, the learned senior counsel for the respondents. 9. In our view, the scope of inquiry by SEBI is very limited and is confined only to the charge of conspiracy of involvement of the appellant in the fraud, if any, and to take consequential action if there is connivance or conspiracy with the appellant and its directors. Only then, SEBI could take action under the SEBI Act and the PFUTP Regulations otherwise it is not open to SEBI to inquire into any charge of professional negligence of the auditor since the audit firm is not dealing directly in securities. 10. The scope and jurisdiction of SEBI to conduct an inquiry against a Chartered Account or a Chartered Accountant Firm was considered by the Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI has absolutely no power to take any remedial or preventive measures in such a case. It cannot be said that the SEBI cannot give appropriate directions in safeguarding the interest of the investors of a listed Company. Whether such directions and orders are required to be issued or not is a matter of inquiry. In our view, the jurisdiction of SEBI would also depend upon the evidence which is available during such inquiry. It is true, as argued by the learned counsel for the petitioners, that the SEBI cannot regulate the profession of Chartered Accountants. This proposition cannot be disputed in any manner. It is required to be noted that by taking remedial and preventive measures in the interest of investors and for regulating the securities market, if any steps are taken by the SEBI, it can never be said that it is regulating the profession of the Chartered Accountants. So far as listed Companies are concerned, the SEBI has all the powers under the Act and the Regulations to take all remedial and protective measures to safeguard the interest of investors and securities market. So far as the role of Auditors is concerned, it is a very important role under the Companies Act. As p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and remedial and preventive measures are required to be taken in this behalf. It is required to be noted that in the instant case the inquiry is still pending and ultimately the decision is required to be taken by SEBI on the basis of available evidence on record. However, in order to determine the jurisdiction of SEBI, the contents of the show cause notice which is the first step of initiating proceedings are required to be seen. Reading the contents of the show cause notices and the relevant statutory provisions, it cannot be said that the SEBI has no jurisdiction at all to enquire into the affairs of the petitioners in so far as it relate to Satyam. In the case of Government contracts, the Government is entitled to blacklist a particular tenderer with a view to see that such a tenderer is not allowed to participate in the future tenders the same is done by following appropriate procedure in that behalf. In our view, it cannot be said that the show cause notices issued by SEBI are, on the face of it, not sustainable on the ground that the SEBI has no jurisdiction to enter into the affairs of the petitioners or that it lacks jurisdiction to go into such questions." 11. The Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d connived and were in collusion with B. Ramalinga Raju and had fabricated the books of accounts of balance sheet, then SEBI can proceed in the matter and take appropriate steps against CA by preventing the CA from auditing the books of accounts of such listed Companies. (iv) SEBI can take into consideration the accounting standards provided under the CA Act to see whether a CA has violated any norms but upon conclusion of enquiry, if no evidence is available regarding fabrication, fabrication or fudging the books of accounts etc. then SEBI cannot issue any direction. (v) SEBI would adjudicate whether other Price Waterhouse firms had any role to play and if it is found that there was some omission on their part without any mens rea or connivance with anyone, then on such evidence SEBI cannot issue any further direction." 14. From the aforesaid it becomes clear that the jurisdiction of SEBI would depend upon the evidence which is available and if there was some omission without any mens rea or connivance with anyone, in any manner then SEBI cannot issue any further direction and was required to drop the proceedings. 15. In the instant case, the WTM has given a categorical find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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