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TMI Blog2022 (2) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... or was responsible to express an opinion on the financial statement based on the internal audit and was not involved in the preparation of the books of accounts of the company or the misstatement in the balance sheet by the company. HELD THAT:- 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. A.O. however found that there were lapses on the part of the appellant and due diligence was not carried out by them while certifying that the IPO proceeds were utilized for the objects stated in the prospectus. We find that the A.O. has only found that due diligence was not carried out by the appellant. There is no finding that the appellants were instrumental in preparing false and fabricated account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith no order as to costs. - Justice Tarun Agarwala, Presiding Officer And Justice M. T. Joshi, Judicial Member For the Appellant : Mr. Chetan Kapadia, Advocate with Mr. Rahul Sarda, Mr. KRCV Seshachalam, Ms. Sabeena Mahadik, Mr. Aayush Kothari, Mr. Sagar Hate, Advocates i/b. Visesha Law Services For the Respondent : Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr. Karthik Narayan, Mr. Harshvardhan Nankani, Mr. Shourya Tanay, Advocates i/b. ELP ORDER PER : JUSTICE TARUN AGARWALA, PRESIDING OFFICER 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 Hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the DCHL were privy, have kept the shareholders in dark about the understatement of such huge amounts of loans and liabilities in the annual accounts of the DCHL. 4. A specific finding was a given by the WTM that the promoters and the directors of the company was privy to the private and discreet arrangement made between the DCHL and DCM which they were privy too and made the understatement of the loans and liabilities in the annual accounts of the DCHL thereby keeping shareholders in dark. 5. The WTM after giving the aforesaid finding went on to hold that the appellant under Sections 224 and 227 of the Companies Act, 1956 (hereinafter referred to as Companies Act ) owes an obligation towards the shareholders to report true and correct facts about the financials of the company and audit is cause to report correctly and faithfully under Section 227 of the Companies Act. The WTM held that the appellant overlooked the reporting of the outstanding loans and that he was not diligent and cautious and that it was his obligation to check the outstanding loans details from the bank and through other independent sources which he failed to do so and thereby did not adhere to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous provisions contained in the SEBI Act and Regulations it is the duty of the Board to protect the interest of investors 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 section 11-B. 11. The Bombay High Court further held that if on conclusion of enquiry if no evidence is available regarding fabrication and falsification of accounts, then SEBI cannot give any direction in any manner. The Bombay High Court held that SEBI has jurisdiction to inquire into and investigate the matter in connection with manip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge and intention, in the absence of which, there is no deceit or inducement by the appellants. In the absence of any inducement, the question of fraud committed by the appellants does not arise. This Tribunal in Price Waterhouse (supra) has categorically held that a C.A. can be proceeded against them if they are instrumental in preparing false and fabricated accounts otherwise SEBI has no power to proceed against them. 15. Section 12A(a) (b) of the SEBI Act is obviously not applicable to the appellant as they are not dealing in the securities. Similarly, Section 12(c) cannot be made applicable because no fraud has been carried out by the appellant. Further, in the absence of connivance, deceit, or manipulation Regulation 3 4 of the PFUTP Regulations cannot be made applicable. 16. In view of the aforesaid, when a specific finding has been given by the WTM in the impugned order that the promoters and the directors of the DCHL had a private and discreet arrangement between the company and DCM which was 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 appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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