SEBI debars Auditor

has, for the first time to my recollection, debarred an Auditor (Chartered Accountant) from issuing
certificates for a wide range of entities and purposes.
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.
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.
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
, 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:-
prohibition is on issue of certificates and not reports.
certificate may be under the specified securities laws, viz., SEBI Act, SCRA
and Depositories Act and the rules, regulations and guidelines issued
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 must be required
under the said specified laws.
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.

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).

About the author

CA Jayant Thakur

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