The Hindu Business Line : SAT faults Price Waterhouse report

Mumbai, July 29 The Securities and Appellate Tribunal has criticised chartered accountant firm Price Waterhouse for a report that was “vague” and contained “obscure observations.”

The Tribunal had appointed Price Waterhouse to examine the dealings related to the preferential allotment of shares in Aastha Broadcasting Network to some entities by the promoters of that company.

Earlier investigations by BSE and SEBI had indicated that the promoters had allotted the preferential shares in 2000 without receiving the full consideration from the allottees. SEBI had found that the preferential allotment by Aastha to different entities was illegal. It was alleged that Aastha had received only a part of the preferential allotment funds which were then re-circulated using layers of related entities to create an impression of subscription for the remaining amount. The allottees (including the appellants in this case) were barred from accessing the market by a SEBI order dated September 6, 2005. SEBI’s order freezing the preferential shares till January 14, 2007, was upheld by SAT in February 2006.

Counsel for the appellants had contended before SAT that though Aastha did not receive the proceeds of the preferential allotment in 2000-01, it received the entire amount in the subsequent year, which was what Price Waterhouse was eventually appointed to examine.

(In the meantime, SEBI filed a civil suit seeking annulment of the illegally allotted shares before the High Court of Bombay. But the same was dismissed. To prevent the contamination of the market with tainted shares, SEBI passed a permanent freeze order on January19, 2007. This is the subject matter of the present SAT order which confirms SEBI’s order of permanent freeze .)

With the consent of the parties, SAT appointed Price Waterhouse to examine the records and books of accounts of the concerned entities to find out whether the funds had actually been received in the subsequent year or not.

But the SAT order in the matter issued on July 22, 2009, observed that Price Waterhouse sought time on a few occasions which delayed the disposal of the appeal, and ultimately submitted its detailed report on June 27, 2008.

SAT expressed its displeasure on the content of the Price Waterhouse report in its order, “We have perused that report carefully and find that it is as vague as it could be and does not specifically respond to the query posed in our order dated 14.3.2008.”

“The report shows that there was circuitous movement of funds for allotment of preferential shares but Price Waterhouse has obscured all their observations with severe scope limitations and it is not possible to accept the report because it cannot be relied upon for drawing any meaningful conclusion about receipt and utilisation of the funds.”

Price Waterhouse said, in a statement, “As is evident from the SAT’s order we were appointed by consent of the parties to those proceedings. We worked on the mandate within the framework of facts and co-operation made available to us, using customary scope limitations that we use as part of our best practices. We cannot comment on this any further as we do not comment on issues relating to clients’ mandates.”

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