2010 Supreme(Bom) 1162

2011 (5) ALLMR 305
High Court of Judicature at Bombay
P.B. MAJMUDAR & R.M. SAVANT
Price Waterhouse & Co. & Others
Versus
Securities and Exchange Board of India & Another
WRIT PETITION NO. 5249 OF 2010 WITH WRIT PETITION NO. 5256 OF 2010
Decided on: 13-08-2010

Headnote:Constitution of India - Articles 19(1)(g) and 226-Securities Exchange Board of India Act, 1992, Section 11(1)(4)-Chartered Accountants Act, 1949, Section 24-Companies Act, 1956, Section 227-Jurisdiction of SEBI-Show-cause notices issued by SEBI to Chartered Accountant Firm working for listed company-Issuance of show-cause notice within jurisdiction of SEBI-SEBI empowered to take preventive and remedial stops to safeguard interest of investors and securities market-SEBI has power to debar any C.A. auditing books of listed company while safeguarding interest of investors-Exercise of such power not conflicts with powers of Institute under C.A. Act-By exercising such powers, it cannot be said that SEBI trying to regulate profession of C.A.- SEBI’s powers are restricted only in connection with taking care of the interest of the investors and safeguarding the interest of the investors and also to regulate the share market. SEBI has therefore, all the powers to give appropriate directions in the aforesaid field. By initiating the proceedings, it cannot be said that the SEBI is encroaching upon the rights of the Institute or prohibiting a Chartered Accountant from practicing as a Chartered Accountant. It is natural that SEBI has no power to pass an order prohibiting a particular Chartered Accountant from practicing as a Chartered Accountant or cannot debar a Chartered Accountant from practicing as Chartered Accountant but SEBI can definitely take regulatory measures under the SEBI Act in the matter of safeguarding the interest of the investors and securities market and in order to achieve the same, it can take appropriate remedial steps which may include keeping a person a person including a Chartered Accountant at as safe distance from the securities market. SEBI can always take preventive as well as remedial measures in this behalf. Exercising such powers, therefore, cannot be said to be in any way in conflict with the powers of the Institute under the CA Act. If ultimately any decision is taken by debarring any particular person from auditing the books of a listed company, such direction can always be said to be within the powers of SEBI and that is in the aid of regulating the affairs in connection with the investors interests and the interest of the securities market. By exercising such powers, it cannot be said that the SEBI is trying to regulate the profession of Chartered Accountants in any manner and in that view of the matter, in Court’s view, it can never be said that it is in conflict with Section 24 of the CA Act.

       Constitution of India - Articles 19(1)(g) and 226- Securities Exchange Board of India Act, 1992, Sections 11(B) and 11(1)(4)-Chartered Accountants Act, 1949, Section 24- Jurisdiction of SEBI-Debarring C.A. as Auditor-Audit Norms prescribed by Institute under C.A. Act-Violation of by C.A.-SEBI has power to debar G.A. to act as an Auditor of listed company.-As per the show-cause notices, the petitioners have been asked to show cause as to why the petitioners should not be debarred from carrying out the auditing work of a listed company for a particular period. As stated above, the jurisdiction and powers of the SEBI in this behalf are only restricted to the field of listed companies only. It is like a preventive action by which the SEBI wants to safeguard the interest of the investors. In the instant case, there is prima facie material available with the SEBI for holding such an inquiry. In view of the same, the decision of the Supreme Court cited above has no relevance to the facts of the present case.

       Constitution of India - Articles 19(1)(g) and 226-Securities Exchange Board of India Act, 1992, Sections 11(B) and 11(1)(4)-Chartered Accountants Act, 1949, Section 24-Chartered Accountant-Right to practice profession-Not an absolute right-Subject to reasonable restrictions-Jurisdiction of SEBI-Restricted to listed companies-Violation of Audit Norms by Chartered Accountant-C.A. can be debarred by SEBI from acting as an Auditor of listed company-No infringement of Article 19(1)(g) of Constitution.-In the instant case, as pointed out earlier, if according to the SEBI, it is not advisable and safe to have any particular person to be an Auditor of a listed Company, if he is found that he has committed any misdeeds or fraud qua the interest of investors or the securities market, it can always regulate its affairs by preventing such person from carrying on such work for particular period and exercising of such powers can be said to be in any way infringement of Article 19(1)(g) of the Constitution of India. At this stage it is required to be noted that the jurisdiction of SEBI is restricted only to the listed companies. However, if it is found in a given case that the Chartered Accountant has violated the audit norms prescribed by the Institute under the CA Act, the SEBI can certainly consider the said aspect in order to find out as to whether such a professional person should be allowed to continue to function as an Auditor of a listed Company if by continuing such person as an Auditor of a listed Company, it may hamper the interest of the investors of such a listed Company. Considering the matter from the aforesaid angle and considering the provisions of the SEBI Act, Companies Act and CA Act, it can never be said that the SEBI has absolutely no jurisdiction and that professionals like Chartered Accountants cannot be subjected to any inquiry or proceedings by the SEBI on the ground that it is only the Institute which can take care of such a situation.

       Constitution of India - Articles 19(1)(g) and 226-Securities Exchange Board of India Act, 1992, Sections 11(B) and 11(1)(4)-Chartered Accountants Act, 1949, Section 24-Leave to appeal-Jurisdiction of SEBI-Issuance of show-cause notice to C.A.-Substantial question of law of general public importance-Not involved-Leave to appeal deserves to be rejected.-Since, Court have only interpreted the provisions of the SEBI Act and the CA Act, in view, no substantial question of law of general importance is involved and hence the prayer for leave to appeal to Supreme Court is rejected.

       Constitution of India - Articles 19(1)(g) and 226-Securities Exchange Board of India Act, 1992, Sections 11(B) and 11(1)(4)-Chartered Accountants Act, 1949, Section 24-Companies Act, 1956, Section 227-Jurisdiction of SEBI-Issuance of show-cause notice to Chartered Accountants Firm working for listed company-Balance sheet of company prepared by C.A.- Balance sheets prepared has direct bearing in connection with interest of investors and stability in securities market-SEBI has jurisdiction to issue show-cause notice as a step to safeguard interest of investors.-Normally an investor would like to invest his money in the shares of a Company on the basis of reflection of Company’s financial health as disclosed in the balance-sheet of the Company and he may consider that it is safe to invest money in a particular company, if the balance-sheets have been certified by reputed Chartered Accountants and it reflects that the financial position of the Company is sound. An investor is likely to be guided by the audited balance-sheet of the Company and would presume that the facts incorporated in the balance-sheet are true and correct. Considering the said aspect, even though the petitioners may not have direct association in the share market activities, yet the statutory duty regarding auditing the accounts of the Company and preparation of balance-sheets may have a direct bearing in connection with the interest of the investors and the stability of the securities market.

       Constitution of India - Articles 19(1)(g) and 226-Securities Exchange Board of India Act, 1992, Section 11(1)(4)-Chartered Accountants Act, 1949, Section 24-Companies Act, 1956, Section 227-Jurisdiction of SEBI-Removal of Auditor-Power of SEBI under Section 55-A and 227 of Act, 1956 independent of powers available under SEBI Act-SEBI has power under Section 11 of Act, 1992 to remove Auditor.-It cannot be said that the SEBI has no power to take remedial measures as provided under Section 11 of the SEBI Act. It is required to be noted that so far as the powers of the Institution are concerned, the same are in connection with prohibiting the Chartered Accountant from practicing and removing his name from the roll which cannot be said to be similar to the powers prescribed under Section 11 and 12 of the SEBI Act as well as the Regulations framed thereunder. For example, under Section 24 of the SEBI Act, SEBI is even entitled to take penal action which powers are not available with the Institute in any manner. At this stage even the provisions of the Consumer Act may also be taken into account whereunder in the matter of deficiency in service, an appropriate order can be passed even against a professional but that would not mean that while exercising such powers the forum under the Consumer Protection Act is encroaching upon the powers of either the Institute of Chartered Accountants or for that reason powers prescribed under any other Act. It is true, as argued, that powers conferred on the SEBI must flow from the statutory provisions. But reading the provisions as indicated above, it cannot be said that there is lack of such power or that such power is not available with the SEBI.

       Constitution of India - Articles 19(1)(g) and 226-Securities Exchange Board of India Act, 1992, Sections 11(B)and 11(1)(4)-Chartered Accountants Act, 1949, Section 24-Companies Act, 1956, Section 227-Jurisdiction of SEBI-Show-cause notices to Chartered Accountant Firm-Power to cause-Firm carried out accounts work of listed company-Company Showed inflated account with non-existent cash will-SEBI can taken remedial measures to safeguard itself of investors and regulate securities market under Section 11 of Act-SEBI has jurisdiction to issue show-cause notices.-It is required to be noted that by taking remedial and preventive measures in the interest of investors and for regulating the securities market, if any steps are taken by the SEBI, it can never be said that it is regulating the profession of the Chartered Accountants. So far as listed Companies are concerned, the SEBI has all the powers under the Act and the Regulations to take all remedial and protective measures to safeguard the interest of investors and securities market.

       The SEBI has got inherent powers to take all ancillary steps to safeguard the interest of investors and securities market. The powers conferred under various provisions of the Act are wide enough to cover such an eventuality and it cannot be given any restrictive meaning as suggested by the counsel for the petitioners. It is the statutory duty of the SEBI to see that the interest of the investors are protected and remedial and preventive measures are required to be taken in this behalf. It is required to be noted that the instant case the inquiry is still pending and ultimately the decision is required to be taken by SEBI on the basis of available evidence on record. However, in order to determine the jurisdiction of SEBI, the contents of the show causes notice which is the first step of initiating proceedings are required to be seen. Reading the contents of the show-cause notices and the relevant statutory provisions, it cannot be said that the SEBI has no jurisdiction at all to enquire into the affairs of the petitioners in so far as it relate to Satyam. In the case of Government contracts, the Government is entitled to blacklist a particular tenderer with a view to see that such a tenderer is not allowed to participate in the future tenders the same is done by following appropriate procedure in that behalf. It cannot be said that show-cause notices issued by SEBI are, on the face of it, not sustainable on the ground that the SEBI has no jurisdiction to enter into the affairs of the petitioners or that it lacks jurisdiction to go into such questions.