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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 ..... dealing directly in securities. The scope and jurisdiction of SEBI to conduct an inquiry against a Chartered Account or a Chartered Accountant Firm was considered by the Bombay High Court in Price Waterhouse Co. Another vs. SEBI [ 2010 (8) TMI 173 - HIGH COURT OF BOMBAY] it is not open to SEBI to encroach upon the powers vested with the Institute under the CA Act and if there is any material against the Chartered Accountant to the effect that he was instrumental in preparing false and fabricated accounts then SEBI has powers to take remedial or preventive measures under the SEBI Act. The Bombay High Court held that the jurisdiction of SEBI would also depend upon the evidence which is available during such inquiry and if it is found that a particular Chartered Accountant has concocted false accounts in connivance and in collusion with the Officers / Directors of the Company then SEBI could take action. 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. In the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conducted by SEBI in which it was observed that the Company had inflated both the purchases and sales by entering into transactions with connected companies and making entries which were either reversed or routed in a circular manner without movement of goods. It was also noticed that the appellants being a statutory audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bombay High Court in Price Waterhouse Co. Another vs. SEBI 2010 SCC OnLine Bom 1197 wherein the Bombay High Court held as under: 32. So far as the question as to whether the SEBI has jurisdiction to issue such show cause notices to the petitioners are concerned, we have already pointed out various pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 posited in Section 227 of the Companies Act, every auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the Company, whether kept at the head office of the company or elsewhere, and shall be entitled to require from the officers of the Company such infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction 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 Bombay High Court held in the aforesaid paragraph that it is not open to SEBI to encroach upon the powers vested with the Institute under the CA Act and if there is any material against the Chartered Accountant to the effect that he was instrumental in preparing false and fabricated accounts then SEBI has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI 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 finding in paragraph 40 of the impugned order that there is no evidence showing fraud or connivance by the appellants with the officers or directors of the Company. The WTM has further given a finding that there is insufficient evidence to hold that the appellants had actually ..... X X X X Extracts X X X X X X X X Extracts X X X X
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