SEBI
has, for the first time to my recollection, debarred an Auditor (Chartered Accountant) from issuing
certificates for a wide range of entities and purposes.
has, for the first time to my recollection, debarred an Auditor (Chartered Accountant) from issuing
certificates for a wide range of entities and purposes.
The
matter concerned a listed company (“the Company”) that was alleged to have
carried out several accounting irregularities such as inflated revenues/profits,
misclassification of assets, etc. The report of the Auditors did not point such
things out. On a later date, the Company actually reversed the whole of the
revenues of two years by restatement of accounts. The price of the shares of the Company had moved from
Rs. 3.52 to Rs. 123.50 during the period that the Order covered. An earlier
Order of the SEBI on the Company gives more details of other alleged violations
by the Company.
matter concerned a listed company (“the Company”) that was alleged to have
carried out several accounting irregularities such as inflated revenues/profits,
misclassification of assets, etc. The report of the Auditors did not point such
things out. On a later date, the Company actually reversed the whole of the
revenues of two years by restatement of accounts. The price of the shares of the Company had moved from
Rs. 3.52 to Rs. 123.50 during the period that the Order covered. An earlier
Order of the SEBI on the Company gives more details of other alleged violations
by the Company.
SEBI
considered the requirements of Accounting Standards and Guidance Notes issued
by the Institute of Chartered Accountants of India and gave a finding that
these were not complied with.
considered the requirements of Accounting Standards and Guidance Notes issued
by the Institute of Chartered Accountants of India and gave a finding that
these were not complied with.
SEBI
thus held that the Auditors had aided and abetted the Company in committing the
alleged fraud. Accordingly, it debarred the Auditor, stating:
thus held that the Auditors had aided and abetted the Company in committing the
alleged fraud. Accordingly, it debarred the Auditor, stating:
“…
hereby prohibit Shri Shashi Bhushan, Proprietor of M/s. Bhushan Aggarwal &
Co. from, from, directly or
indirectly, issuing any certificate required under securities laws namely Securities Board of
India Act, 1992 (sic), the Securities Contract (Regulations) Act, 1956, the
Depositories Act, 1996, Rules, Regulations, Guidelines made thereunder, the
Listing Agreement and the applicable
provision of the Companies Act, 2013, the Rules, Regulations,
Guidelines made thereunder which are
administered by SEBI, with
respect to listed companies and the intermediaries registered with SEBI
for a period of one year.”
hereby prohibit Shri Shashi Bhushan, Proprietor of M/s. Bhushan Aggarwal &
Co. from, from, directly or
indirectly, issuing any certificate required under securities laws namely Securities Board of
India Act, 1992 (sic), the Securities Contract (Regulations) Act, 1956, the
Depositories Act, 1996, Rules, Regulations, Guidelines made thereunder, the
Listing Agreement and the applicable
provision of the Companies Act, 2013, the Rules, Regulations,
Guidelines made thereunder which are
administered by SEBI, with
respect to listed companies and the intermediaries registered with SEBI
for a period of one year.”
Some aspects need attention:-
– the
prohibition is on issue of certificates and not reports.
prohibition is on issue of certificates and not reports.
– The
certificate may be under the specified securities laws, viz., SEBI Act, SCRA
and Depositories Act and the rules, regulations and guidelines issued
thereunder.
certificate may be under the specified securities laws, viz., SEBI Act, SCRA
and Depositories Act and the rules, regulations and guidelines issued
thereunder.
– The
certificate may be even under the and
the applicable provision of the Companies Act, 2013,
the Rules, Regulations, Guidelines made thereunder which are administered by Securities and Exchange Board of India.
certificate may be even under the and
the applicable provision of the Companies Act, 2013,
the Rules, Regulations, Guidelines made thereunder which are administered by Securities and Exchange Board of India.
– The
certificate must be required
under the said specified laws.
certificate must be required
under the said specified laws.
– The
certificates may relate to listed companies as well as intermediaries
registered with SEBI.
certificates may relate to listed companies as well as intermediaries
registered with SEBI.
It is not uncommon for SEBI to find companies/intermediaries
engaging in accounting irregularities. This Order may become thus one of the
first of many such orders in the future.
While passing the Order, SEBI stated, “This
is also a fit case where SEBI needs to send a stern message to professionals
who associate themselves with securities market so as to prevent them from
indulging in such acts of omissions and commissions as found in this case.”. It
can be expected that such orders may also be passed against other professionals
such as Company Secretaries, lawyers, etc.
engaging in accounting irregularities. This Order may become thus one of the
first of many such orders in the future.
While passing the Order, SEBI stated, “This
is also a fit case where SEBI needs to send a stern message to professionals
who associate themselves with securities market so as to prevent them from
indulging in such acts of omissions and commissions as found in this case.”. It
can be expected that such orders may also be passed against other professionals
such as Company Secretaries, lawyers, etc.
It will thus be interesting to watch the progress of such orders. In
Price Waterhouse vs. SEBI ((2010) 103 SCL 96), the Bombay High Court had observed
that, “it cannot be said that in a given
case if there is material against any Chartered Accountant to the effect that
he was instrumental in preparing false and fabricated accounts, the SEBI has
absolutely no power to take any remedial or preventive measures in such a case.
It cannot be said that the SEBI cannot give appropriate directions in
safeguarding the interest of the investors of a listed Company….. If it is unearthed during inquiry before
SEBI that a particular Chartered Accountant in connivance and in collusion
with the Officers/Directors of the Company has concocted false accounts, in our
view, there is no reason as to why to protect the interests of investors and
regulate the securities market, such a person cannot be prevented from dealing
with the auditing of such a public listed Company.” (emphasis supplied).
Price Waterhouse vs. SEBI ((2010) 103 SCL 96), the Bombay High Court had observed
that, “it cannot be said that in a given
case if there is material against any Chartered Accountant to the effect that
he was instrumental in preparing false and fabricated accounts, the SEBI has
absolutely no power to take any remedial or preventive measures in such a case.
It cannot be said that the SEBI cannot give appropriate directions in
safeguarding the interest of the investors of a listed Company….. If it is unearthed during inquiry before
SEBI that a particular Chartered Accountant in connivance and in collusion
with the Officers/Directors of the Company has concocted false accounts, in our
view, there is no reason as to why to protect the interests of investors and
regulate the securities market, such a person cannot be prevented from dealing
with the auditing of such a public listed Company.” (emphasis supplied).
