Dhaka, Bangladesh
Silent spectators to criminality

Silent spectators to criminality

Writes Sarvesh Mathur

Most devout Indians believe that a dip in the Holy Ganga helps wash off all sins. There is good news for all like minded people. Now all sins can be washed away by a mere stroke of pen. Satyam is till today the biggest accounting fraud in the history of Corporate India. Amount alleged varies from Rupees 7,000 to 11,000 crores. What is undisputed is that Satyam’s balance sheet reflected over $1 billion (appx. Rs.4500 crores) in fictitious cash and bank balances. Additionally, thousands of fake invoices totalling over $1 billion were raised. Any student of accounting will confirm how easy it is easy to establish these offences. But not our Securities and Exchange Board of India (SEBI). Even after 8 years of the Satyam fraud being self confessed by its own Chairman in January 2007, the hard working SEBI is still grappling with its investigations against Price Waterhouse, the auditors of Satyam. Why it is taking so long is perplexing. As stated in one my earlier blogs, more than one Indian and American authorities have categorically ruled that the the Auditors, Price Waterhouse, were the cause of Satyam issuing misleading and false financial statements and had connived with Satyam’s management: The Serious Fraud Investigation office (SFIO), a multi disciplinary body under the Ministry of Corporate Affairs had found the Auditors, Price Waterhouse, involved in the falsification of accounts and had accordingly informed the Government as early as in April 2009. The SFIO had also submitted a 13,000 page report to the Government to back up their findings. The United States Securities and Exchange Commission (SEC) and the Public Companies Accounting oversight Board (PCAOB), had vide their separate orders of April 5, 2011 found the Price Waterhouse Auditors to be the cause of Satyam issuing false and misleading financial statements and had found them guilty, amongst others, of lacking “professional scepticism”. The said order also noted that a member of Pwc overseas network firm had repeatedly alerted the Indian firm that their process of verification of cash and bank balances was substantially deficient. Price Waterhouse chose to ignore it. Not surprisingly, Rs.4,500 crore cash and bank balances were found to be fictitious. More than 6000 fake invoices were raised and went undetected by the auditors. A special CBI Court had found Satyam management and Price Waterhouse Auditors guilty of falsification of accounts, collusion and sentenced them to 7 years jail term in April 2015. SEBI was castigated at the slow pace of its investigations by the Hon’ble Supreme Court in January 2017 and directed to finish the probe within six months of its order. SEBI has missed the deadline again but played a master cunning stroke. SEBI has, in February 2017, changed the consent rules. Para 5 of the relevant Regulations states that, “Provided that such an application may be considered in exceptional circumstances, such as the lapse of time since the commission of the alleged default, the weight of evidence against the applicant, etc and subject to the payment of such additional fees and/or interest on the settlement amount from the date of rejection of the earlier application till the date of payment of the settlement amount, as may be recommended by the high powered advisory committee.” Expectedly, the auditors, Price Waterhouse, moved SEBI last week to reach a settlement in the Satyam fraud as reported in TOI on Sep 9, 2017. What was perplexing till now has become obvious. SEBI has, prima facie, colluded with Price Waterhouse to intentionally delay its probe and has now come up with this master stroke to help Price Waterhouse. Cases are known to drag on for years. In one case, the Hon’ble Supreme Court had upheld the criminality involved in a bus conductor not depositing a few annas (less than a rupee) collected as fare but not deposited with the public sector undertaking. Supreme Court refused to condone the criminality. This hardly seems to matter to SEBI. Price Waterhouse has only made its application. It deserves to be rejected outrightly. Admittedly, SEBI is yet to take a call. However, if sane voices don’t rise against it, the result is a foregone conclusion. Will this travesty of justice stop here. Highly unlikely. Wrong precedent will be set. If the trailer is so ugly, imagine how dirty the whole movie will be. Next money launderers, tax evaders etc. will be given safe passage. Retrospective tax amendment are resisted and rightly so. But should amendments be made to allow washing off past sins. Satyam happened in 2007 and its Auditors, Price Waterhouse, should not be allowed to benefit from the amendment in SEBI rules of 2017.

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