PwC-Satyam case: SC restores Sebi's power to restrain erring auditing firms

The Supreme Court on Monday stayed the observations made by the Securities Appellate Tribunal (SAT) that the Securities and Exchange Board of India (Sebi) had no power to debar auditors from auditing the books of a listed company.

The apex court made the observation while hearing an appeal by the market regulator against an order passed by the SAT in the Price Waterhouse Coopers (PwC) matter. Sebi had debarred PwC from auditing any listed company for two years in connection with the decade-old Satyam scandal.

“In a given case, a measure of debarring a person from entering the securities market will be justified, but in our view, banning an audit firm or an auditor from auditing the books of a listed company or from certifying any report of a listed company cannot be justified,” the SAT had observed on September 9, while quashing Sebi’s order in the PwC matter.

The apex court move comes as a big relief to Sebi as the SAT order had led to jurisdictional ambiguity when it came to passing strictures against entities, such as audit firms, which are primarily governed by separate regulatory bodies.

“Debarment of auditors comes within the purview of the Companies Act, so the SC move has helped in streamlining of the regulatory action,” said Vidisha Krishnan, partner, MV Kini & Co.

Legal experts said many were waiting for the SC to give a final word in this matter as SAT observations had led to a lot of uncertainty.

The regulator had used its powers under Section 11 and 11B of the Securities and Exchange Board of India Act, 1992, which allow it to take action against any entity to protect the interests of investors in the securities market.

In January 2018, Sebi had issued an order banning PwC firms and a couple of its auditors from providing audit services to listed companies and market intermediaries for two years for their involvement in the multi-crore accounting scam at Ramalinga Raju-promoted Satyam.

The scandal involving overstatement of bank and cash balances by over Rs 3,300 crore had come to light in January 2009.

Sebi had also ordered disgorgement of over Rs 13 crore. The SAT partially upheld the disgorgement, stating PwC wasn’t justified in retaining the fee it earned from Satyam.

The apex court on Monday also issued notices to PwC, its associate audit firms and two of its auditors on the appeal filed by Sebi against the SAT order. The court will take up the matter once all parties submit their replies.