Finding Price Waterhouse guilty of collusion in the multi-crore Satyam Computer Services scam, the Securities & Exchange Board of India on Wednesday entities of its network from issuing audit certificates to any listed company in India for two years.
Sebi also ordered PW Bangalore and its two erstwhile partners to disgorge wrongful gains of Rs13.09 crore with an interest of 12 per cent per annum from 7 January 2009, till the date of payment.
The market regulator's order comes after nine years after the accounting fraud at Satyam - regarded as India's biggest corporate fraud - came to light and after two failed attempts by audit major Price Waterhouse to settle the case through the consent mechanism.
This is also one of the most stringent orders passed by any regulator against a Big Four audit firm.
''Entities / firms practicing as chartered accountants in India under the brand and banner of PW shall not directly or indirectly issue any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with Sebi ... for a period of two years," Sebi whole-time member G Mahalingam said in a late night order on Wednesday.
Any enforcement measure taken by Sebi with a preventive and remedial object, as envisaged under Section 11B of the Sebi Act, would not serve the purpose unless the directions bring within its fold the PW network operating in India. The objective of insulating the securities market from such fraudulent accounting practices perpetrated by an international firm of repute will be ineffective if the directions do not bring within its sweep the brand name PW," Sebi said in a 108-page order.
"The network structure of operation adopted by the international accounting firm should not be used as a shield to avoid legal implications arising out of the certifications issued under the brand name of the network," it added.
Besides, Price Waterhouse Bangalore and its two erstwhile partners - S Gopalakrishnan and Srinivas Talluri - have been directed to jointly and severally disgorge the wrongful gains of ''Rs 13,09,01,664 with interest calculated at the rate of 12 per cent per annum from January 7, 2009 till the date of payment''.
Price Waterhouse said in a statement, ''We are disappointed with the findings of the Sebi investigations and the adjudication order … we are confident of getting a stay before this order becomes effective.''
Sebi noted that the order would not impact audit assignments relating to the financial year 2017-18 undertaken by the firms forming part of the PW network.
Gopalakrishnan and Talluri have been restrained from directly or indirectly issuing any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with Sebi for three years.
After consent pleas were rejected, PW had approached the Supreme Court challenging Sebi's jurisdiction over auditors. The apex court had asked the regulator to expeditiously pass an order in the matter after giving due opportunity, including access to documents, to the parties concerned.
Matters related to Satyam were also looked into by US regulators as the company shares were listed there. However, the authorities there agreed to settle case.
Sebi said the objective of insulating the securities market from such fraudulent accounting practices perpetrated by an international firm of repute will be ineffective if the directions do not bring within its sweep the brand name PW.
The network structure of operations adopted by the international accounting firm should not be used as a shield to avoid legal implications arising out of certifications issued under the brand name of the network, the order said.
''As we have said since 2009, there has been no intentional wrong doing by PW firms in the unprecedented management-perpetrated fraud at Satyam, nor have we seen any material evidence to the contrary.
''We believe that the order is also not in line with the directions of the Bombay High Court order of 2011 and so we are confident of getting a stay before this order becomes effective,'' Price Waterhouse said in the statement.
It also noted that the order relates to a fraud that took place nearly a decade ago in which it played no part and had no knowledge of.
Further, the statement said that Price Waterhouse Network firms in India has learnt the lessons of Satyam and invested heavily over the last nine years in building a robust and high quality audit practice.
The scam came to light in January 2009 after Satyam Computer's chairman B Ramalinga Raju admitted to large-scale financial manipulations in the company's books of accounts (See: Satyam's Raju admits to fraud and resigns). http://www.domain-b.com/companies/companies_s/Satyam_Computers/20090107_raju_fraud_resigns.html
According to Sebi, it needs to be borne in mind that PW firms have benefited from the relationship from Satyam Computer Services by having collectively received a fee of over Rs23 crore during 2000-2008 period.
Out of this amount, over Rs13 crore was paid towards PW Bangalore for the audit of Satyam Computer Services as submitted by it, the regulator added.
''Given that this remuneration was the identifiable monetary gain made by PW in its association with the audit of SCSL, it is clear that this wrongful gain is liable to be disgorged… the entire gain made from PW's relationship with SCSL shall be treated as wrongful gain liable to be disgorged,'' it said.
The show-cause notices were issued to a total of 13 entities and it was alleged that certifying the financial statements of Satyam Computer Services for the period from 2000 to 2008, they acted in violation of the duties as auditors.