SEBI debars Auditor from issuing certificates for a wide range of entities and purposes

SEBI has, for the first time, debarred
< http://www.sebi.gov.in/cms/ sebi_data/attachdocs/ 1455718832970.pdf> 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
< http://www.sebi.gov.in/cms/ sebi_data/attachdocs/ 1452743817719.pdf> 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.
 
SEBI 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.”
 
Some aspects need attention:-
 
- the 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.
- 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*.
- The certificate must be *required*under the said specified laws.
- The 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 collusionwith 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.*”