9911796707
TMI Blog2022 (2) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... FICER 1. The present appeal has been filed against the order dated December 31, 2019 passed by the Whole Time Member (hereinafter referred to as 'WTM') of Securities and Exchange Board of India (hereinafter referred to as 'SEBI') whereby the appellant who is a statutory auditor / chartered accountant has been prohibited from issuing any certificate of audit and has been restrained from rendering any other auditing services to any listed companies and intermediaries for a period of one year. 2. The facts leading to the filing of the present appeal is, that pursuant to an investigation a common show cause notice was issued to Deccan Chronicle Holdings Ltd. (hereinafter referred to as 'DCHL'), its promoters, directors and to the appellant wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er considering the submission of the company and its directors as well as of the appellant came to a conclusion that the company had made wrong misleading or inadequate disclosures to the stock exchange and had understated the outstanding loans and interest and financial changes in the annual returns of 2008-09, 2009-10 and 2010-11 and had violated Section 12A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations. The WTM, on the issue of the company diverting a substantial portion of the loan liability from the books of company to the books of DCM on the last date of each of the pre-financial year, held and concluded in paragraph no. 16A(6) as under :- ".... By not disclosing such private and discreet arrangement between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t colluded with the other noticees i.e. the company and its promoters and directors. 6. We have heard Mr. Chetan Kapadia, the learned counsel with Mr. Rahul Sarda, Mr. KRCV Seshachalam, Ms. Sabeena Mahadik, Mr. Aayush Kothari, Mr. Sagar Hate, the learned counsel for the appellant and Mr. Pradeep Sancheti, the learned senior counsel with Mr. Abhiraj Arora, Mr. Karthik Narayan, Mr. Harshvardhan Nankani, Mr. Shourya Tanay, the learned counsel for the respondent through video conference. 7. The stand of the appellant is, that the preparation and presentation of the financial statement and the job to ensure that they are free from material misstatement whether due to fraud or error is the responsibility of the management. The appellant as a st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestors in securities and to promote the development and to regulate the securities marked by such measures as it thinks fit. The Bombay High Court held that while exercising the powers under the SEBI Act, it is not open to SEBI to encroach upon the powers vested with the Institute under the Chartered Accountant Act, 1949. However, in a given case, if there is material against the C.A. to the effect that he was instrumental in preparing false and fabricated accounts in connivance, then SEBI is entitled to pass appropriate orders under section 11(4) of the SEBI Act in the interest of the investors or securities market and is entitled to take measures as prescribed in the said section. Further, appropriate directions can be given under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt out to the professional negligence which would amount to a misconduct to be taken up only by ICAI. 13. In the instant case, the show cause notice alleged that the company did not utilize the IPO proceeds and that it was diverted to different entities in the guise of making payments towards the objects stated in the prospectus. The focus in the show cause notice was to examine the role of the appellant as the statutory auditor with regard to due diligence done by it by certifying the expenditure incurred by the company towards the IPO expenses out of the IPO proceeds. The appellants certified the amount was utilized as per the prospectus. The A.O. however found that there were lapses on the part of the appellant and due diligence was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only known to the promoters and directors of the DCHL with regard to the understatement of loans and liabilities in the annual accounts of DCHL, it is clear that the appellant as a statutory auditor was not responsible for the preparation and falsification of the books of accounts, the financials of the company and the balance sheet of the company. 17. We are further of the opinion that once the appellant is not found responsible for the preparation of the financials of the company merely because he was not cautious or did not carry out due diligence properly will not suggest that the appellant colluded with the promoters and the directors of the company. This finding of conclusion, in our opinion, is based on surmises and conjectures and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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