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TMI Blog2022 (11) TMI 1430X X X X Extracts X X X X X X X X Extracts X X X X ..... nd therefore alleged that all the noticees including the appellant were engaged in dubious accounting practices to defraud the investors by manipulating the financial statements thereby violating the provisions of Section 12A(a), (b) (c) of the SEBI Act read with Regulation 3 and 4 of the SEBI - PFUTP Regulations - allegation against the appellant was that it colluded with noticee nos. 2 and 8 being CMD and Director (Finance) (ED) respectively HELD THAT:- As finding of the WTM that the appellant had colluded with noticee nos. 2 and 8 in the fraud perpetuated by the Company and manipulated financial statements of the Company is patently erroneous based on surmises and conjectures and is also perverse. The charge is, that directors have colluded in ensuring that Company s financials are misstated. The charge against the appellant that it was not only negligent in the certification of accounts but was also engaged in dubious accounting practices to defraud the investors by manipulating the financial statements. This charge of manipulating the financial statements by colluding noticee nos. 2 and 8 was required to be proved by the respondent SEBI. Merely by holding that the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, even though falsification of the certificate has not been taken into consideration, we are of the opinion that in the given facts and circumstances, the appellant is liable to be penalized for certifying an incorrect statement of the capital expenditure. Direction of the WTM restraining the appellant from issuing any certificate related to audit of listed companies etc. is reduced from one (1) year to three (3) months. The appeal is partly allowed. - Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member Mr. Kunal Katariya, Advocate with Mr. Khushil Shah and Ms. Jennifer Sanjana, Advocates i/b Zerick Dastur, Advocates and Solicitors for the Appellant. Mr. Vishal Kanade, Advocate with Mr. Abhishek Khare and Mr. Dhruwin Timbadia, Advocates i/b Khare Legal Chambers for the Respondent. Per : Justice Tarun Agarwala, Presiding Officer 1. The appellant is the auditor of Blue Bird (India) Limited ( BBIL for short) and has filed the present appeal questioning the directions issued by the Whole Time Member ( WTM for short) of the Securities and Exchange Board of India ( SEBI ) in its order of June 18, 2021 whereby the appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that these entities were directly or indirectly controlled by the CMD and other directors. The WTM found that the modus operandi of the Company was to defraud the bank of the money raised through working capital loans, letter of credits and cash credits. 6. Insofar as the appellant is concerned, the allegation against the appellant was that it colluded with noticee nos. 2 and 8, noticee no. 2 being CMD and noticee no. 8 being the Director (Finance) (ED). The WTM concluded that the appellant had colluded with noticee nos. 2 and 8 on the basis that the appellant was also the statutory auditor of the two entities which cooked up fictitious purchases and sales figures of BBIL and which was also reflected in the annual financial results of BBIL. The WTM noted that since the appellant was the auditor of the Company BBIL and was also the auditor of the two entities and controlled by noticee no. 2 the appellant did not raise any queries about the transfer of funds and therefore failed to raise red flags with respect to instances of fake transactions without calling for a any explanation either from the Company or from the two entities which was not only gross negligence but showed co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 collusion, in our opinion, is based on surmises and conjectures and is against the specific finding given by the WTM, namely, that the understatement was specifically designed and carried out by the promoters and the directors of the company. 18. In our opinion, in order to give a finding on collusion, there must be some material which could lead to an inference of collusion. Once a finding is given that the appellant was not involved in the fabrication and fudging of the books of accounts and the balance sheet and if the appellant had no intention or knowledge of such understatement being shown in the financials, the charge of fraud or collusion or connivance with the directors and promoters of the company cannot be levied, only on the ground that he was not diligent or cautious or did not check the outstanding loan details from the banks and through other sources. Lack of due diligence can only lead to professional negligence which would amount to a misconduct which could be taken up only by ICAI. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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