SAT Gives Major Relief To PwC In Satyam Computers’ Audit Case

Mumbai, September 9 2019: The leading audit and consulting firm Price Waterhouse (PwC) got a big relief from the Securities Appellate Tribunal (SAT) on Monday. The Tribunal quashed an order issued by the Securities and Exchange Board of India (Sebi) to ban from auditing listed companies for two years due to its role in Satyam fraud about a decade back. Price Waterhouse is an affiliate firm of PwC India.

There is no shred of evidence that the auditors fabricated, fudged or were in collusion with the management of Satyam Computer Services, SAT ruled on Monday. The ruling went on to add that Sebi in fact has no jurisdiction banning any audit firm and that was the sole prerogative of Institute of Chartered Accountants of India (ICAI).

SAT also ruled that negligence cannot amount to misconduct and Sebi action based on no direct evidence cannot be maintained. If the audit of Satyam was conducted in a careless or reckless way by the audit firm, then action can only be taken under CA Act by the ICAI and not the Sebi.

PwC was the auditor of Satyam Computer Systems when chairman B Ramalinga Raju publicly admitted to an accounting fraud in 2009. Sebi banned PwC network firms from auditing listed companies for two years in January 2018. The order was challenged by PwC in SAT.

In what could also impact the capital market regulator’s powers in future, SAT ruled that Sebi should not “encroach” upon territories of other regulators or industry bodies like ICAI. As per the current regulations the main purpose of the market regulator was to protect interest of the investors and so the measures or action taken by Sebi have to be remedial and not punitive.

The two year ban of PwC and other associated firms violates current regulations. Also to consider the ban as a remedial action is farfetched and cannot be accepted. Sebi’s action of banning PwC was “blatantly erroneous” SAT observed.

The order comes at a time when three of the big four are already under investigations for their role in auditing Infrastructure Leasing and Financial Services (IL&FS) and its subsidiaries. The Serious Fraud Investigations Office (SFIO) and other regulators are already investigating the role of affiliate Indian audit firms under the Deloitte, KPMG and EY umbrella.

The order means that PwC can continue auditing the listed companies but Sebi still has an option of approaching the Supreme Court, say legal experts.