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TMI Blog2022 (1) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... . (hereinafter referred to as "PPL" / "Company"). The gist of allegations are that the appellants being a statutory auditor failed to exercise due diligence and negligently certified the statutory audit though the Company has misutilized IPO proceeds. Hence, the penalty was imposed for violation of the provisions of Section 12 A (a), (b) and (c) of the SEBI Act, 1992 and Regulations 3 (a), (b), (c), (d), 4(1), 4(2)(f), 4(2)(k) and 4(2)(r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations' for short). 3. In the show cause notice as well as in the impugned order various instances of alleged lapses caused by the present appellants in auditing the accounts of the Company are enumerated. 4. Heard Shri Mr. Ravichandra Hegde, the learned counsel for the appellants and Shri Vishal Kanade, the learned counsel for the respondent. 5. The appellants submitted that there is a delay in launching the proceedings. The appellants carried out audit of the financial statements of the Company based on the information provided by the management. In the process of the audit, the appellants endeavor was to obtain audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 8,03,18,880/- dated May 7, 2011. However, no invoice or bill was raised by the said engineering company and two bills dated May 25, 2011 were provided to the appellants. The payment did not reflect that it was an advance, if any. The appellants did not specifically reply as to why it had not raised any objection in this regard. 9. As regards the payment made to one Mega Marketing of Rs. 2,41,31,250/- besides the fact that the name of this vendor did not find place in the prospectus, it was found that the payment was made on May 7, 2011 while the bill was raised by the said entity on May 16, 2011. The appellants replied that there is no practice to make the invoice in particular fashion and therefore finding that the invoice matched with the payment, the same was certified. 10. As regards the payment made to one Nirvani Enterprise of Rs. 98,36,670/- on May 7, 2011 it was stated that it was an advance payment though the bill was already raised by the entity on May 4, 2011. Even the bill was for more amount than the payment. Proof regarding the balance payment was not supplied by the Company still the appellants certified the said payment. The appellants submitted that the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the entity not being listed remained there. 17. As regards the payment made to one Heidelberg India Private Limited for an amount of Rs. 84, 00,925/- was paid to it on September 12, 2018. However, no payment proof invoice evidence was submitted to the appellants still the appellants had certified the payment without any document or invoice. The Learned AO, therefore, observed that the appellants had wrongly certified the utilization of this amount. 18. As regards the expenses made over the head long term working capital requirement, it was found that an amount of Rs. 4,24,01,890/- was referred to in the object of the IPO. The appellants, however, certified the expenses over the head though the amount was shown to have been utilized for statutory dues like PF, ESIC, TDS and Professional Tax, etc. besides payment made to the vendors. The Learned AO therefore did not accept the submission of the appellants that the expenses as done for specific project related payment was not possible. 19. On the count of issue expenses also the certification by the appellants was flagged by the Learned AO. As regards some of them though the internal auditor has not provided any proof evidencing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member, Securities and Exchange Board of India passed order dated April 30, 2019 in the matter of National Stock Exchange of India Limited and Ors. 23. To buttress the submissions on due diligence and on the role of the auditors the appellants relied on the following two decisions:- (a) Chander Kanta Bansal vs Rajinder Singh Anand (2008) 5 SCC 117; (b) Tri-Sure India Ltd. vs A.F. Ferguson and Co. and Others, 1985 SCC OnLine Bom 342; 24. It is to be noted that through the show cause notice was issued after 8 years of the raising of the funds through IPO, no prejudice is shown to have been caused to the appellants by the delay. On the other hand, all the facts are admitted and only the explanation that the appellants have taken a reasonable care was forwarded before the Learned AO. Therefore, on facts we find that the delay has not caused any prejudice to the appellants. 25. The issue therefore would be as to whether the appellants can be penalized under Section 12A of SEBI Act and Regulations 3 and 4 of PFUTP Regulations which reads as under:- " 12A. No person shall directly or indirectly- (a) use or employ, in connection with the issue, purchase or sale of any secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors; (r) planting false or misleading news which may inducesale or purchase of securities" 29(A). In writ petition no. 5249/2010 Price Waterhouse Co. Vs SEBI decided by the Bombay High Court on 13.08.2010, (which is quoted in the order of this tribunal in the case of Price Waterhouse cited supra) the question raised was whether SEBI has power to issue a show cause notice to the Charted Accountants in connection with the work which they have undertaken for a listed company in a matter of maintaining accounts and balance sheets. It was urged that SEBI had no jurisdiction to proceed against the Charted Accountants who are members of the C.A. institutes and therefore SEBI lacked inherent jurisdiction to inquire into the conduct of the C.A.s who are professionals. 29(B). The Bombay High Court held that in view of the various 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 carried out by them while certifying that the IPO proceeds were utilized for the objects stated in the prospectus. 29(F). 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 accounts or have connived in preparation or falsification of the books of account. There is no finding that the appellants had manipulated the books of accounts with knowledge 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 Waterh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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