SAT: Repeal SEBI’s penalty on Auditors, absent “instrumental” role in preparing fabricated accounts
Securities Appellate Tribunal (SAT):
Securities Appellate Tribunal is a statutory body developed under the provisions of Section 15K of the Securities and Exchange Board of India (SEBI) Act.
Securities Appellate Tribunal was mainly established to hear an appeal against the order passed by the SEBI (Securities and Exchange Board of India) or by an adjudicating officer under the SEBI Act.
Facts of the Case:
Appeal filed by a Statutory Auditor and its Partner (collectively called as – Appelants) against the SEBI (Securities and Exchange Board of India) for order imposing a penalty of Rs. 15 Lakhs on Appelants.
SEBI imposed the penalty on the ground that Appelants failed to excersise due diligence and negligently certified the statutory audit of a company which had misutilized IPO proceeds.
According to SEBI, Appelants played a key role in preparing the accounts and remarks that IPO proceeds were not utilized for the objects stated in prospectus as due diligence is not carried by Appelants.
Decision of SAT:
SAT highlights that there is no finding that the Appellants were “instrumental” in preparing false and fabricated accounts or had connived in preparation or falsification of the books of account and declare that “In the absence of any inducement, the question of fraud committed by theappellants does not arise”.
Sec. 12A(a) & (b) of the SEBI Act is not applicable to the Appellants as they are not dealing in securities, SAT holds that there is no finding that the Appellants had manipulated the books of accounts with knowledge and intention, and accordingly, sets aside the SEBI order.
Further, SAT also concludes that in the absence of any connivance, deceit, or manipulation Regulation3 &4 of the PFUTP Regulations cannot be made applicable.
Basis of Decision:
As per the Ruling made in Price Waterhouse Co. vs. SEBI, SAT (Securities Appelate Tribunal) stated that a C.A. can be proceeded against if they are instrumental in preparing false and fabricated accountsotherwise SEBI has no power to proceed against them.
