PRICE WATERHOUSE A PARTNERSHIP FIRM REGISTERED WITH THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA BEARING REGISTRATION NO. 007568S Vs. SECURITIES AND EXCHANGE BOARD OF INDIA

JUDGEMENT

(1.) THE short question that arises in these two connected Appeals No. 8 and 9 of 2011 arising out of the same order is whether the Appellants are entitled to the copies of the statements / documents referred to / relied upon in the show cause notice issued by the Securities and Exchange Board of India (hereinafter referred to as 'the Board') to the Appellants and whether they are also entitled to cross -examine the persons whose statements are either relied upon or referred to in the show cause notice. Before we deal with this issue, it is necessary to refer to the background in which these appeals have been filed.

(2.) THE Board, among others, received on January 7, 2009 an email from one B. Ramalinga Raju, the then Chairman of Satyam Computer Services Limited (for short 'Satyam') revealing that statements of accounts of Satyam furnished to the stock exchanges were not true and fair. The email, inter alia, stated that balance -sheet of Satyam as on September 30, 2008 had inflated (non -existent) cash and bank balances of Rs. 5040 crores as against Rs. 5361 crores reflected in the books, accrued interest of Rs. 376 crores which was non -existent, understated liability of Rs. 1230 crores on account of funds arranged by him and overstated debtor position of Rs. 490 crores as against Rs. 2651 crores reflected in the books. The email also mentioned about the artificial cash and bank balances for the quarter ending September 30, 2008 and that the gap in the balance -sheet had arisen on account of inflated profits over a period of last several years. On receipt of this email, the Board ordered investigations into the affairs of Satyam in order to ascertain whether the provisions of the Securities and Exchange Board of India Act, 1992 (for short the Act) and the rules and regulations made there under had been violated. The Board also ordered inspection of the books of accounts of Satyam. Since Price Waterhouse, the Appellant in Appeal No. 8 of 2011, was the auditor of Satyam, the Board ordered inspection of the documents that were available with the Appellant also. Investigations revealed that Satyam had more than 125 bank accounts with different banks including the Bank of Baroda, New York Branch. Since the email had stated that the balances as reflected in the books of accounts were not correct, the Board sought confirmation of the balances from the banks including the Bank of Baroda, New York Branch. It transpired that there was substantial difference in the balance as per the books and the balance as per the confirmation sent by the bank. Investigations further revealed that Satyam received two sets of bank statements - daily bank statement and monthly bank statement and that the daily bank statement received through email was printed and filed in the accounts wing and the monthly bank statement was being received through internal courier from the office of Ramalinga Raju (the then Chairman of Satyam). The Board found that the debit and credit entries in the two sets of statements were substantially different and that the books of account of Satyam were being prepared on the basis of monthly statements which were incorrect. Investigations also revealed that sales/revenue were inflated through insertion of large number of fictitious invoices raised in respect of fake customers and/or transactions and that the Appellants had obtained direct bank confirmations on 13 occasions from various banks during six quarters. The bank confirmations received by the auditors from Satyam and which had been relied upon by them showed balances which were at variance with those given in the confirmations directly received from the banks. Price Waterhouse, the Appellant in Appeal No. 8 of 2011 is a partnership firm registered with the Institute of Chartered Accountants of India (ICAI) with its office in Bangalore and it was the auditor of Satyam from April 1, 2000 to September, 2008. S. Gopalakrishnan, a partner of the firm had certified the audit reports for the period from April, 2000 to March, 2007 and Srinivas Talluri, another partner of the firm had certified the audit report(s) for the period from April, 2007 to September, 2008. Since the inaccurate financial results of Satyam were being published quarter after quarter, this, according to the Board, distorted the decision of millions of investors and induced them to trade in the securities of Satyam. It is, therefore, alleged that the Appellant had not properly audited the financial statements of Satyam and there was no reasonable basis for the opinion expressed by it in its report in view of the serious irregularities. The financial statements presented, did not present fairly and accurately the financial position of Satyam which was manipulated and false. It is further alleged that the Appellant did not maintain control over the process of sending and receiving confirmations, ignored the differences between the two sets of confirmations and the discrepancies in the indirect confirmation, did not make any examination or enquiry in this regard in violation of stipulated norms and practices which indicates its complicity or acquiescence in misreporting and manipulating the books of accounts of Satyam. It is further alleged that the Appellant is liable to be treated as having participated in the fraud perpetrated by Ramalinga Raju, Chairman of Satyam and others or as having aided and abetted the same. Accordingly, the Appellants were asked to show cause as to why appropriate action should not be taken against them under Section 11 and 11B of the Act and Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (for short the FUTP Regulations).

(3.) STATEMENTS of the following persons have been recorded by SEBI and have been sought to be interpreted and relied upon in the Show Cause Notices and the Applicant seeks the right to examine/cross - examine the said persons: