Investment Law Project.docx

Investment law project Topic : Legal issues related to security market in satyam case Submitted by Harshita Goel Unnati Madan - A11911115001 Rishika Ahuja Shubham Mishra - A11911115040 Sanskriti Balyana - A11911115011 Aayush Srivastava - A11911115053 Mrudula Mohan Gaurav Khosla - A11911115029 Course : B.A L.L.B (H) , 8TH Sem Submitted to Mr Vikas Gupta

First order of SEBI 1. SEBI has passed its first order on July 15,2014 against the noticees and the promoters/directors of SCSL-B.RAMALINGA RAJU and B. Rama Raju (Appellants), holding them liable for having violated sections 12(A) (a), (b), (c),(d),(e) of SEBI act; regulations 3(b) (c) (d) , regulations 4(1) and regulations 4(2) (a), (e), (f), (k)and (r) of SEBI ( Prohibition of Fraudulent and Unfair Trade Practices)Regulation 2003. 2. The order was passed in the context of their role in the falsified financial statements of SCSL disposing of the Show Cause notices dated March 09,2009; April28,2009; July 02, 2009; July 01,2009 and March 22,2010 3. An appeal was preferred against the SEBI order before the Securities Appellate Tribunal (SAT) and an order dates May 12, 2017 was passed by SAT. While the SAT order upheld the findings in the SEBI order on merits, as regards the directions of disgorgement and debarment passed in the SEBI order, it remanded the matter for a fresh decision on the quantum of illegal gain directed to be disgorged by the noticees and the period for which the appellants are restrained from accessing the securities market. 4. SAT had directed that a fresh order be passed within a period of 4 months from the date of its order. However the promoter/directors of the erstwhile SCSL namely B.Ramalinga Raju and B.rama Raju approached SAT for extension of period for passing for order by SEBI. Accordingly SAT allowed extension of time for SEBI to pass an order in the matter by four months from August 09,2017 for which he appeared in person. On his request, a further opportunity of personal hearing was granted on September 11,2017 wherein he along with his counsel Advocate KRVC Seshachalam appeared and made submissions . An opportunity of personal hearing was granted to

Noticee nos. 2and 3 i.e. G. Ramakrishna and Prabhakara Gupta on August 3,2017 and on August 22,2017 respectively. While Noticee number 2 appeared in person for the hearing , Noticee number 3 was represented by his counsel Advocate. Written Submissions were filed by noticee no.2 on 26 August ,2017 and by noticee number 3 on 22 September 2017. Noticee number 1 and 3 were given further opportunities of personal hearing on

November 17,2017 and November 27,2017 respectively, to elaborate on the data provided in the written submissions , after which they submitted written replies dated November 22,2017 and Novmeber28,2017 respectively , with additional documents . Noticee no.1 submitted three sets of written submissions dated August 25 , August 30 and September 19,2017.The Noticees submissions were stated to be without submission of violation of any of the securities law .

Submitted by Harshita Goel

ISSUE 2Challenges put before the Securities Appellate Tribunal in Satyam Case // Order of SAT over the Order of SEBI Facts 1. It was once known as the rising star of India. Formed in the year 1987 by Mr

Ramalinga Raju with just 20 employees. 2. The company boomed and developed through the period of 2003-2008 and by the end of March 2008, Satyam’s sales had reached a high of USD$467 an annual growth compound rate of 35% and it had much more achievements. 3. Six months after team ‘Satyam’ received the ‘Golden Peacock award’, on 6th January 2009, allegations of fraud were made and it was contended that he had been manipulating with the accounts of the company for years (Rs. 7,316 Crores). 4. This scandal is a complete display of one’s carelessness of fiduciary responsibilities, total collapse of ethnic standards; fierce competition and the need to impress stakeholders especially investors, analysts, shareholders, and the stock market; low ethical and moral standards by top management and, greater emphasis on short-term performance. Issue of law The charges under which the accused were booked by CBI, Hyderabad were various provisions of the Indian Penal Code- Section 120 B, 406, 420, 467, 471 and 477 A for violating various income tax laws. Aftermath of the revelation This led to a complete downfall of the company. The Citibank where Satyam maintained its bank accounts were frozen. Several arrests were made including Mr. Raju and his brother. The BOD was disbanded and the Central Government on its own motion appointed 10 new directors. Satyam was removed from Sensex and Nifty. CBI took over the investigation and filed three charge sheets. The next concern for the government after happening of such events of great concern was to somehow save this company. This was done through the selling of the company. The successful bidder in doing so was ‘Tech Mahindra’ which overtook ‘Satyam’ and now it is known as ‘Mahindra Satyam’. Mr. Raju was granted bail on the ground that the limitation period of filing the charge

sheet by the CBI had expired. Enforcement Directorate files a criminal complaint against 47 persons and 166 corporate entities headed by Ramalinga Raju. Ramalinga Raju and three others were given six months jail term by SFIO.

The Judge postponed the verdict citing voluminous documents. Ramalinga Raju and nine others, two of their family members, were sentenced to seven years rigorous imprisonment on Thursday in the country’s largest-ever corporate fraud. Mr. Raju along with the other convicted individuals were out on a bail given by a special court in Hyderabad. Judgment The accused were found guilty of bogus inflation of the company’s revenue, the accounts of the company were falsified, income tax return were falsified and the invoices of the transactions were fabricated. Mr Raju was granted bail on the ground that the limitation period of filing the charge sheet by the CBI had expired. Enforcement Directorate files a criminal complaint against 47 persons and 166 corporate entities headed by Ramalinga Raju. Ramalinga Raju and three others were given six months jail term by SFIO. The Judge postponed the verdict citing voluminous documents. Ramalinga Raju and nine others, two of their family members, were sentenced to seven years rigorous imprisonment on Thursday in the country’s largest-ever corporate fraud. Mr Raju along with other convicted individuals were out on a bail given by a special court in Hyderabad. The accused were found guilty of bogus inflation of the company’s revenue, the accounts of the company were falsified, income tax return were falsified and the invoices of the transactions were fabricated. There were 10 accused in total and all were found guilty under Section 120-B and Section 420 of IPC, A1 and A2 were found guilty under 409 of IPC, A3, A4, and A7 were founder guilty under Section 406 of IPC, A4,A5 and A7 were found guilty under

Section 419 of IPC, A1 to A5 and A6 to A9 were found guilty under Section 467, Section 468 of IPC, Section 471 and 477A of IPC. The ten accused were:- Ramalinga Raju, Rama Raju, Vadlamani Seinivasu, Subramani Gopalakrishnan, Talluri Srinivas, Byrrarju Suryanarayana Raju, G, Ramakrishna, D. Venkapathi Raju, Ch.Srisailam and V.Suryanarayana Prabhakar Gupta. SAT (Securities Appellate Tribunal) Securities Appellate Tribunal is a statutory body which was established under the provisions of Section 15K of the Securities and Exchange Board of India Act, 1992. Its main function looks after the appeals in reference to the orders by the SEBI or any adjudicating officer under the SEBI Act and to exercise jurisdiction, powers, and authority conferred on the Tribunal by or under this Act or any other law for the time being in force.

PwC (PricewaterhouseCoopers) PricewaterhouseCoopers is a multinational professional services network headquartered in London, United Kingdom. It is the second largest professional services firm in the world. It deals with the auditing work of huge organizations and is the most reliable option. In January 2009 PwC was criticised along with the promoters of Satyam, an Indian IT firm listed on the NASDAQ, in a $1.5 billion fraud. PwC wrote a letter to the board of directors of Satyam that its audit may be rendered “inaccurate and unreliable” due to the disclosures made by Satyam’s (ex) Chairman and subsequently withdrew its audit opinions. In the order given by SEBI on 10th January 2018, SEBI has come hard on PwC with this order. It has imposed a ban on all the firms in the PwC network from auditing listed companies and intermediaries for a period of two years held guilty under the Satyam scam. The 108-page SEBI’s order said that they were not complying with the auditing

standards and did not report such a wide gap developing in the balance sheets of Satyam and PwC was deceitful along with the main parties involved in the biggest corporate fraud. The order against PwC was passed as per Section 11 of the SEBI Act and the Prevention of Fraudulent and Unfair Trade Practices(UFTP). Section 11 of the SEBI Act gives authority to SEBI to pass orders in the favor of the investors. Following the ban on PwC, in an email conversation, the spokesperson of the firm said, “We are disappointed with the findings of the SEBI investigations and the adjudication order. The SEBI order relates to a fraud that took place nearly a decade ago in which we played no part and had no knowledge of”. The Bombay High court had ruled in the year 2010 that ‘no direction can be issued against PwC if there is only some omission without proof of connivance and intent to fraud’, SEBI was probing the audit firm’s role in the accounting fraud. PwC was appointed as the auditor of Satyam between 2000-2008. PwC showed a complete negligence and carelessness while performing its practice of auditing. According to SEBI, PwC showed a total disregard of stipulated auditing practice which indicated their complicity in the manipulation. Following these developments, PwC had decided to challenge the order passed by SEBI in the SAT (Securities Appellate Tribunal).. SAT ORDER Securities and Exchange Board of India (SEBI) then passed an order against several

members of Satyam’s senior management for their role in perpetrating the colossal financial fraud involving the company. In its order, SEBI found several individuals guilty of violating various regulations issued by SEBI, and restrained them from accessing the capital markets for a period of 14 years and required them to disgorge the wrongful gains made to the extent of nearly Rs. 1,850 crores (Rs. 18.5 billion) with interest @ 12% per annum from January 7, 2009 till the date of payment.

Against this, the senior management, including Mr. Ramalinga Raju, the former chairman of the company, preferred an appeal to the Securities Appellate Tribunal (SAT). the SAT passed its order on the appeal wherein it concurred with SEBI’s findings on the breaches of various SEBI regulations by the senior management, but overturned the sanctions imposed by SEBI and remanded the matter to SEBI for a review of the sanctions afresh. While the fulcrum of SEBI’s findings on the merits stand, its order on the consequences and sanctions has suffered a setback. In its order, the SAT considered three issues, of which the first two were held in SEBI’s favour, and the third in favour of Satyam’s management. The first issue related to procedure and the question of natural justice. The individuals against whom SEBI passed the order argued that they were not conferred adequate opportunity to present their case, such as to cross-examine witnesses. However, the SAT refused to entertain the arguments and concurred with SEBI’s findings that the individuals sought adjournments to prolong the proceedings, and that their interests were not adversely affected. Second, on the merits of the case too, the SAT had no difficulty in finding that SEBI’s order is sustainable. SAT’s finding was also well-supported in this regard by the facts of the case, because the chairman himself had confessed to wrongdoing in his well-known letter of January 9, 2009. Similarly, the other members of the top management who had been arraigned were also party to the wrongdoing or had knowledge of the same. It is the third issue pertaining to the sanctions to be imposed on the top management where the SAT disagreed with SEBI’s findings, and effectively quashed that portion of SEBI’s order. For instance, the SAT found no basis for SEBI’s order that debarred the individuals for accessing the capital markets for 14 years. Moreover, the sanction was

imposed uniformly on all of them, without any regard to their individual levels of complicity in the wrongdoing. Similarly, the SAT found some discrepancies in the precise amounts in respect of which SEBI had passed an order for disgorgement of

profits. For example, in the case of Mr. Ramalinga Raju and Mr. Rama Raju, the disgorgement order covered the two individuals as well as other entities connected with them. SEBI had in addition passed disgorgement orders against the connected entities thereby causing some amount of double-counting. For these and other reasons, the SAT decided to overturn the sanctions, and asked SEBI to reconsider these and pass an order expeditiously within four months. This state of affairs reveals significant concerns relating to SEBI’s investigation of cases of such magnitude. While SEBI’s investigation efforts on the merits of establishing a violation have been upheld it raises questions about the extent to which SEBI must support its sanctions with logic and reasoning. For instance, the Securities and Exchange Board of India Act, 1992 and the relevant regulations provide considerable discretion to SEBI while passing its orders. However, when it comes to imposing sanctions such as restraining persons from capital markets for as long as 14 years, it must be supported by strong reasoning. While some may argue that there could have been no better case than Satyam that warranted such stiff sanctions, the issue relates to one of equity in whether all the individuals concerned were equally responsible or whether some were required to shoulder a greater burden. It is the absence of such considerations in the SEBI order that may have led to its fatality on this count. Similarly, disgorgement of profits can be a rather complicated exercise. Courts in several jurisdictions have sought to set out principles on how to compute wrongful profits or gains in case of securities offences such as insider trading or market manipulation, but this area is riddled with controversies. In the end, it might be necessary for SEBI to etablish clearer guidelines on determining sanctions so that the outcome experienced in the Satyam case can be avoided in the future.

Submitted by Unnati Madan

REPLY NOTICE • No reason have been provided in the SEBI order as to how the quantum of punishment has been arrived at • A delayed reply was filed on 14th October but the submissions therein were not considered by SEBI • The person was the notice was behind the bars for more than 2 years he sought adjournments which was duly agreed to by the SEBI. Therefore the SEBI order accused him of adopting dilatory tactics even though adjournments were given. • He was not given the opportunity of cross examination to dispute the statements of others on the grounds on which he was implicated • There were two aspects of the fraud in SCSL bogus invoices and inflated bank balances. However he had no knowledge or role in the deposit related aspect of the fraud. • The notice was just an employee of SCSL. He was reporting to the chairman he joined SCSL in 1995.However he was never appointed as CFO of the company there was no board resolution in this regard. • There was clerical errors in the table indicating the calculation of the illegal gain to be disgorged. The needs to be rectified • He submitted that since investigating agencies had earlier raided the house and seized documents he may be unable to submit complete details with respect to his transactions.

WRITTEN SUBMISSION The noticee was behind the bars for a period of 3 years and has not been trading in the securities market in any manner from the date of arrest • SAT observation made it clear in the first order that he had not played any role in respect of allegation of creation of fictitious bank • It was further stated by the SAT that it was Mr G Ramakrishna who had the admin keys for the software that creates invoices which were later held to be fictitious in nature • Cross examination of the witnesses whose statements had been relied upon must be permitted so that their statements can be appropriately tested • He has not dealt in the stock markets in the last 9 years in view of the various restrictions imposed by other investigating agencies •

The allegation is that the share prices are inflated by publishing inflated results

• It is fair and equitable to consider the following basic criteria to arrive at the disgorgement amount. Amount to be disgorged

Rs Nil

Total sale value received

Rs 13.68 crores

Intrinsic value Rs 8.23 crores Cost of acquisition Taxes paid

Rs 4.74 crores

Rs 0.80 crores

Interest expenses

Rs 0.43 crores

Wrongful gain Rs (-)0.50 crores Amount be disgorged Rs Nil Sale value received

Rs 22.40 crores

SCOPE OF LIMITED REMAND Ascertaining the period of involvement in the fraud i find that V.SRINIVAS and G RAMAKRISHNA were having frequent interactions and meeting with Ramalinga Raju and were aware of the intentions of the senior management to inflate the results from the very beginning from the very beginning they all formed the coterie which was functioning with common intentions and understanding .V SRINIVAS has advanced the argument that his period of involvement should only from the period of his having held the position of CFO which is 2006 onwards He has argued that his period of liability should be computed from 20.02.2002 thereby stating that the benefit of 2002 amendment in insider trading regulations that was brought into force from the date should be allowed in his favour.

Submitted by Rishika Ahuja

REPLY NOTICEE AND WRITTEN STATEMENT AND REMAND BY G.RAMAKRISHNA& PRABHAKRA GUPTA:-

Written Submissions of notice No.3 :-

1Show causenotices dated April 28, 2009, July 1, 2009 and March 22, 2010 do not set out any directions proposed to be passed against the Notice.

2Notice No. 3 summerised the individual allegations laid out in the show cause notices as follows:

(a) Audit observations were not brought to the notice of the Audit Committee and they were not persuedfor reconciliation, leading to an inference of participation in fraud and irregularities at Satyam. (b) The current account balances at Bank of Baroda - New York Branch was not included for the purpose of Internal Audit leading to the allegation of lack of professional scepticism as required under SA 200(AAS1) (audit standards).

(c)

Differences in TDS figures did not arouse the suspicion of the Notice.

(d) Bonus issue, ADS issue and Buy back of shares were carried out by SCSL on the basis of manipulated financial information. Notice No. 3 was aware of this and thereby he misled investors and permitted the issue and announcements on the basis of false and manipulated financials.

(e) Notice No.3 was in possession of unpublished price sensitive information i.e. falsified and manipulated accounts and poor financial health of the Company and his trading while in possession of UPSI is in violation of the SEBI (Prohibition of Insider Trading) Regulations, 1992 ("PIT Regulations")

(f) Notice No. 3 participated in the fraud and therefore violated SEBI (Prohibition of Fraudulent and Unfair Trades Practices) Regulations, 2003 ("PFUTP Regulations")

(iii) To each of the aforesaid allegations, Notice No. 3 referred to the defences made out in his replies dated July 23, 2009, February 13, 2012, November 13, 2009, his statements recorded on January 16, 2009, March 31, 2009 October 07, 2009 and arguments made before SAT. (iv) Notice submitted that the allegations/findings at sub-number (b), (c) and (d) in sub- para no. (ii) above were not upheld by SAT.

(v) The following was also submitted-

(a)Notice No. 3 had reported to the Audit Committee and they determined Order in the matter of SCSL Page 13 of 27 and approved the annual audit plans. The Committee had far more inputs and sources of information. If the Audit Committee could be fooled, it is only reasonable and logical to accept that the Notice too was misled and kept in the dark

(b)SEBI has not considered audit observations or reports from 2001 to 2009 except the three reports submitted by the Notice to SEBI voluntarily to help the investigation. Therefore there is no ground to assume that audit observations were not reported to audit committee or that these were closed in an irregular manner.

(c) All audits were conducted by professional team members and reviewed by professional team leaders none of whom appear to have been examined by SEBI.

(d)Mr. Ramalinga Raju's confessional statement dated January 07, 2009 stated clearly that the Notice is one among the 17 persons who were not aware of the real situation as against the books of account.

(e)Audit reports released prior to July 2007 were not examined nor considered to appreciate the internal audit process. The statements of Malla Reddy, VVK Raju or Suresh Kumar were not considered and they were not proceeded against.

(vi) Notice submitted that he has been prohibited from accessing the securities market for more than 3 years apart from his self imposed abstention from dealing in securities and therefore this fact may be taken into account while passing directions.

(vii) In the context of determining the quantum of disgorgement of ill- gotten gain, the Notice also submitted ESOP allotment details, frequency of sale of shares, reasons for the sale of shares and taxes paid on the sale of shares.

SCOPE OF LIMITED REMAND

The Hon’ble Appellate Tribunal has given its verdict on facts confirming the liability of the three Notices herein for “fraud” in Satyam, as concluded by SEBI in its July 2014 order and proceeded to hold that they have traded during the relevant period on the basis of the UPSI. Accordingly, the Hon’ble Appellate Tribunal has upheld SEBI’s order on merits concurring with SEBI on its findings with respect to the involvement of each of the notices in the fraud perpetrated by them attracting the provisions of the SEBI Act, PFUTP Regulations and PIT Regulations. Hence I understand that the findings on merits cannot be reopened while the matter is being taken up for consideration on a direction of limited remand. The relevant part of the SAT Order reads as:

‘In these circumstances, we set aside the impugned order to the extent it relates to the period for which the appellants are restrained from accessing the securities market and the quantum of illegal gain directed to be disgorged by the appellants and remand the matter to the file of the WTM of SEBI for passing fresh order on merits and in accordance with law…..” (emphasis supplied)

5. Thus, in accordance with the SAT directive, this order would delve into the merits of the case only to the limited extent of

(i) and

reviewing the period of debarment commensurate with the culpability of the noticees

(ii) assessing the amount to be disgorged with respect to each notice. Staying within the scope of the limited review of facts, I now proceed to consider afresh the quantum of disgorgement and the period of debarment that would be proportionate to the level of involvement of each notice in the fraud. Order in the matter of SCSL Page 15 of 27 6. Specific Reasons for Remand: Para 33(k) and 34(c) of the SAT order inter alia contains the reasons as to why SAT has remanded the SEBI order in respect of the Notices back to WTM, SEBI. The three main grounds are as below: i. The amount of disgorgement has been arrived at on the basis of the closing price on the dates of sale and not the actual sale proceeds; ii. The cost of acquisition and taxes paid are not deducted; and

(iii) Absence of reasons for the decision to uniformly restrain the Appellants from accessing the securities market for 14 years without assigning justifiable reasons. 7. Before getting into the merits of the matter in detail, some commonalities as well as certain dissimilarities in SAT’s findings in respect of the notices cursorily noticed from the SAT order which upheld SEBI’s findings are listed below: i. All the Notice-employees were working in Satyam between 2001- 2008; ii. They all held significant positions in Satyam during the relevant period; iii. In both the cases of V. Srinivas and G.Ramakrishna, SAT has relied on their own admissions as well as the recorded statements of other persons, especially the statement of one against the other;

iv. In the case of V. Srinivas and G. Ramakrishna, their knowledge of fraud has been traced back to 2001-08, relying on the close and frequent interactions they had with Ramalinga Raju and Rama Raju wherein different aspects, such as, special banking arrangement with BoB, New York Branch; the need to show inflated results to attract customers/employees; reliance on monthly bank statements for accounting purposes, etc were discussed. All such meetings have been traced back to the period around 2001.

v. As opposed to the above commonalities, V Prabhakara Gupta, has been identified to be part of the fraud based on an isolated/specific act of closure of an audit observation in 2007. 8. Upon an appreciation of the written replies and the oral submissions made by the Notices in the above background, I feel that the following aspects need fresh consideration in this order: i. Based on the observations of SAT, to rework the illegal gains to be disgorged Order in the matter of SCSL Page 16 of 27 and the suitable period of market-restraint to be imposed, fix the exact period from which each notice can be said to have become aware of or got involved in the fraud with certainty; ii. The method of computation of illegal gains of the notices i.e. whether intrinsic value to be considered or not; iii. Whether besides the acquisition cost and taxes, other outgoes such as interest on loan availed for the acquisition,

brokerage etc. can also be deducted from the gains to arrive at the illegal gains; iv. Whether interest on disgorgement can be levied from the time of accrual of illegal gains or not; v. Whether the period of restraint should vary and bear some proportion to the quantum of illegal gains or the volume transacted etc. While the issues at (i) and (v) above will be assessed with respect to each notice, the remaining issues will be dealt with in general without reference to any particular notice

V Srinivas:-

As far as ascertaining the period of involvement in the fraud is concerned, I find that V. Srinivas and G. Ramakrishna were having frequent interactions and meetings with Ramalinga Raju and Rama Raju and were aware of the intentions of the senior management to inflate the results from the very beginning. From their own statements, it emerges that they all formed a part of the coterie which was functioning with common intentions and understandings. V. Srinivas has advanced the argument that his period of involvement should be taken only from the period of his having held the position of CFO, which is 2006 onwards. I do not find this argument tenable because a change in designation did not result in a change in the nature of the role played by the Notice. V Srinivas was the senior V P - Finance of Satyam before becoming its CFO and was essentially overseeing the departments of Finance, Legal, Secretarial and Corporate Services during the relevant period. 10.V Srinivas has alternatively argued that his period of liability should be computed from 20.02.2002, (relying on the order of SAT dated 11th August, 2017 in the matter of Jhansi Rani Vs SEBI,) thereby stating that the benefit of 2002 Amendment in Insider Trading Regulations that was brought into force from that date should be Order in the matter of SCSL Page 17 of 27 allowed in his favour. In my opinion, the amendment substituting the expression “when in possession” in the place of the expression “on the basis of” in the context of UPSI in Insider Trading Regulations, is irrelevant as far as Srinivas is concerned as he was an insider by virtue of the position he held in Satyam at the relevant time. V Srinivas further argued that the period of fraud only commenced from April 01, 2001 onwards and therefore only amounts gained from sale of shares sold after that date should be computed. As the evidence of the manipulation in the financial statements extracted in SEBI order relates to the years 2001-08 and does not specifically advert to any manipulation in the last quarter of 2000, I am inclined to interpret 2001 to mean the Financial Year 2001 and I hereby remit the last quarter of FY ending March 31, 2001 from the period of liability for the fraud.

G Ramakrishna:-

also took a stand that was similar to that of V Srinvas, as regards his period of liability in the fraud and stated that he became Vice President – Finance only in June 2006 and the imputation of having knowledge of the UPSI has been made against him because of his position in Satyam. This argument also deserves to be dismissed, as he was all along in the Finance Department and was reporting to Srinvas in his earlier postings also. Further, G Ramakrishna has canvassed the point that he can be only held responsible for the sales inflation from 2003 onwards. This in my opinion cannot be accepted, as he was admittedly aware of the banking arrangement of BoB, NY as well as the intricate manner in which the bank balances were to be falsified since 2001. In such circumstances, the invoice manipulations would coincide with such bank balance manipulations. Hence, I am inclined to calculate his liability to start running from April 2001 onwards, on the lines of V. Srinivas.

PrabhakaraGupta :-

As regards V Prabhakara Gupta, I find that he was not privy to any interaction with Ramalinga Raju or Rama Raju or V Srinivas or G Ramakrishna. There is no evidence to show that he was aware of the company’s books being manipulated until he came across a few discrepancies which he noted in his report. In my opinion, the primary act of bringing out the discrepancies in his internal audit Order in the matter of SCSL Page 18 of 27 report sets him apart from other Notices. The fact that he had brought out the discrepancies on record and closed it subsequently, as per the instructions of Rama Raju, the MD of SCSL shows that his role in the fraud was limited in nature. Prabhakara Gupta detected differences in invoices in the IMS and OFS in the case of three clients – Agilent on August 10, 2007, Citigroup on August 22, 2007 and Bear Stearns on September 1, 2007 and noted these in his report. Subsequently, the internal audit team was denied access to the OFF module in OF to verify the discrepancies in invoices. However, based on instructions from the Managing Director, Rama Raju in July 2008, he closed the audit observations. As the overall facts and circumstances implicating Prabhakara Gupta, as reflected in the order of SAT, indicates that his role in the fraud started only from August 2007 onwards, I am inclined to take the same to be the period from which he can be held liable for the fraud.

In the Satyam Computer scam, Sebi Tuesday passed a partially-modified order with respect to the period of debarment from securities market and disgorgement of illegal gains made by three officials of the erstwhile IT firm. The latest directions pertain to three officials -Vadlamani Srinivas (ex-CFO), G Ramakrishna (ex-vice president) and VS Prabhakara Gupta (Ex-Head of Internal Audit) -- at the company. In July 2014, the regulator passed an order against various entities, including the three officials, in the nearly Rs 9,000 crore Satyam scam. They were barred from the securities market as well as asked to disgorge illegal gains. The three officials challenged the ruling at the Securities Appellate Tribunal regarding the calculation of amounts to be disgorged and the period of restraint from securities market. Then, the tribunal asked Sebi to make a fresh decision on the quantum of illegal gains to be disgorged and restraint period. According to Sebi's order issued on Tuesday, Srinivas and Ramkrishna have been barred from the securities market for seven years while the ban on Gupta is for four years.

The debarment period would include the years of ban already undergone by these individuals. While Srinivas has been ordered to disgorge Rs 15.65 crore, Ramakrishna and Gupta have been directed to pay Rs 11.5 crore and Rs 48 lakh, respectively along with 12 per cent annual interest from January 7, 2009 till the date of payment. The scam came to light on January 7, 2009. In July 2014, the watchdog barred erstwhile Satyam Computers' founders -- B Ramalinga Raju and B Rama Raju -- along with the three officials from the securities market for 14 years. Besides, they were together to disgorge Rs 1,849 crore worth of unlawful gains with interest. Passing the order, Sebi Whole Time Member G Mahalingam said it would be come into effect from such date as would be directed by the Supreme Court. "Till such decision of the Supreme Court, the noticees (three officials) shall continue to abide by their undertakings submitted to the Supreme Court in the ... appeals," Mahalingam said in the 27-page order. The details about the appeals before the Supreme Court were not mentioned in the order. With regard to period of restrain, the regulator said as employees holding senior level positions in Satyam, Srinivas and Ramkrishna played a role in operationalising the fraud masterminded by Ramalinga Raju and Rama Raju. Noting that the role of Gupta was different and he did bring out three instances of lack of reconciliation in invoices but had to abide by the instructions of Ramalinga Raju as the latter was managing director of the firm. The regulator said that it would be appropriate to consider the role of Gupta as 'less incriminating than that of Srinivas and Ramkrishna in timely detection of falsification of accounts. Submitted by Shubham Mishra

Sanskriti Balyana

INTEREST PAYABLE ON ILLEGAL GAIN In July 2014, the regulator passed an order against various entitiesfor nearly Rs 9,000 crore scam and barred them from the securities marketSEBI in its order dated in 2014, with respect of the notices ordered the defaulters to pay simple interest of 12% per annum on amount disgorged since January 2009, the year when B Ramalinga Raju confessed to SEBI of fraud in accounts and balance sheet. The order was uphold by SAR in 2017. Where the noticee contented based on prior SAT order that the interest levied must be only after the time provided for disgorgement of amount is completed1. Therefore, interest on disgorgement amount must be placed only from post SEBI order and not from January 2009. SEBI clears that there are three instances from which the interest can be levied: 1. Actual date of fraud or the date from which noticeeknowlingly commits the fraudulent act 2. From the date of confession of fraud 3. From the date of order of SEBI SAT while upholding the order of SEBI referred to 2017 Supreme Court judgement2 Table 1. Fabricated balance sheet and income statement of Satyam: as of Sept 30, 2008. Items Rs. in crore

Actual

Reported

Difference

Cash and Bank Balances

321

5361

5040

Accrued Interest on Bank Nil Fixed Deposits

376.5

376

Understated Liability

1230

None

1230

Overstated Debtors

2161

2651

490

Total

Nil

Nil

7136

Revenues (Q2 FY 2009)

2112

2700

588

Operating Profits

61

649

588

1

Shailesh S Jhaveri V. SEBi Appeal no. 79 of 2012

2

Dushyanth N Dalal V. SEBI (2017) 140 CLA 0275

SAT further, hold V. Srinivas, G.Ramakrishna and VS Prabhakara Gupta along with Ramalinga Raju who were ex-CFO, ex-vice president,Ex-Head of Internal Audit3 of Satyam Computers ltd. Company separately liable for the penalty. V. Srinivas and G. Ramakrishna was held liable for fraud from April 2001 whereas V.S. Prabhakara Gupta from August 2007 onwards.Srinivas was ordered to disgorge Rs 15.65 crore,while Ramakrishna and Gupta have been directed to pay Rs 11.5 crore and Rs 48 lakh, respectively along with 12 % interest perannum from January 7, 2009 till the date of payment4. Table shows commutation of interest payable by V.Srinivas Total illegal gain as per SEBI and SAT 2,95,088,263.30 Less: Cost of Acquisition(ESOP strike prise) 94,612,710.00 Less: Capital Gain Tax 37,739,277.78 Less : STT (avg STT for relevant period 2,95,088.24 0.100) Less: gain made in FY 2000-01 5,843,200.00 Net Illegal gain made 1,56,597,987 G. Ramakrishna Though does not present any documents that could have prescribed the acquisition or tax paid during personal hearing, SAT by relying upon SEBI findings hold him liable to pay 11,50,00,000 No. of Shares 1,33,947 Value of shares sold 6,337,0434 Illegal gain 11,05,26,264 Prabhakara Gupta submitted that shares held by him were of the nature of ordinary ESOP held in ordinary course of business without any preferential or undue allotment and he sold out most of shares to fund purchase immoveable property and submitted letters SCSL dated June 2001, October 2004, December 2006 and bank statements to support his claim of cost of acquisition Total illegal gain as per SEBI and SAT Less: Cost of Acquisition(ESOP strike prise) Less: Capital Gain Tax Less : STT (avg STT for relevant period 0.100) Less: gain made in FY 2000-01

5,12,65,122.28 4,36,15,678.79 28,49,338.51 Nill Nill

“Satyam Computer scam: Sebi bans Ramalinga Raju, others for 14 yrs; seeks Rs 1,849 cr.” file.scirp.org. http://file.scirp.org/Html/2-2670015_30220.htm (accessed February 27, 2019). 3

Mondal, dipak. “Over 3000 jobs at stake after two-year SEBI ban on PwC in Satyam case.” file.scirp.org. https://www.businesstoday.in/, 1 Nov. 2018. Web. 27 Feb. 2019. . 4

Net Illegal gain made

48,00,105,

Submitted by Mrudula Mohan

Period of restraint and directions Market regulator Sebi has barred PricewaterhouseCoopers from issuing any audit certificate to any listed company in the country for a period of two years.

The 108-page order, issued by Sebi's whole-time member G. Mahalingam, stems from the Satyam scandal of January 2009.

The unprecedented order covers the 11 entities that operate under the PwC umbrella: two PwC entities in Bangalore; two in Calcutta; two in Delhi and one in Chennai; Lovelock and Lewes affiliates in Hyderabad and Mumbai; and two Dalal & Shah firms in Mumbai and Ahmedabad.

The order will come into force with immediate effect. However, the market regulator said: "For removal of operational difficulties, this order will not impact audit assignments relating to the financial year 2017-18 undertaken by the firms forming part of the PWC network."

The regulator also ordered the disgorgement of over Rs 13-crore wrongful gains from the audit major and its two erstwhile partners - S. Gopalakrishnan and Srinivas Talluri - who had worked on the IT major's accounts.

The Sebi order said they would be "liable, jointly and severally, to 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." They will have to pay the amount within 45 days. According to the Sebi order on Wednesday, 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 a period of three

years.#"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 the certifications issued under the brand name of the network," the order said.

PwC has consistently challenged the Sebi's right to suspend its licence to practise, maintaining that such action can only be taken by the Institute of Chartered Accountants of India (ICAI). In the light of that stand, it is expected to challenge the Sebi order. PwC's response to the Sebi's late-night order could not be obtained. ORDER UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 AND REGULATION 11 OF THE SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELAT ING TO SECURITIES MARKET) REGULATIONS, 2003 IN THE MATTER OF PRICE WATERHOUSE AND ORS. RELATING TO THE CASE OF SATYAM COMPUTER SERVICES LIMITED In respect of: Sl.No. Noticees /Name of the entities PAN 1 M/s. Price Waterhouse, Bangalore (ICAI Registration No. 007568S) AAEFP5579P 2 M/s. Price Waterhouse & Co., Bangalore (ICAI Registration No. 007567S) AADFP9359C 3

M/s. Price Waterhouse & Co. Kolkata (ICAI Registration No. 304026E) AAHFP0187A 4 M/s. Lovelock and Lewes, Hyderabad (ICAI Registration No. 301056E) AABFL5878L 5 M/s. Lovelock and Lewes, Mumbai (ICAI Registration No. 116150W) AAFFL0866Q 6 M/s. Price Waterhouse, Kolkata (ICAI Registration No. 301112E) AAEFP3641G 7 M/s. Price Waterhouse, New Delhi (ICAI Registration No. 12754N) AAFFP3698A 8 M/s. Price Waterhouse & Co., Chennai (ICAI Registration No. 50032S) AAAFP8828M Page 2 of 108 9 M/s. Price Waterhouse & Co., New Delhi (ICAI Registration No.16844N)

AAEFP1428R 10 M/s. Dalal & Shah, Ahmedabad (ICAI Registration No. 102020W) AAAFD6520G 11 M/s. Dalal & Shah, Mumbai (ICAI Registration No. 102021W) AAAFD0907D 12 S Gopalakrishnan (ICAI Membership No. 018863) ATAPS1319R 13 Srinivas Talluri (ICAI Membership No. 029864) ABAPT0642E

SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: M. S. SAHOO, WHOLE TIME MEMBER SHOW CAUSE NOTICES dated 1. February 14, 2009 to M/s. Price Waterhouse & Ors. 2. August 26, 2009 to M/s. Lovelock & Lewes & Ors. 3. February 19, 2010 to M/s. Price Waterhouse & Ors. 4. February 19, 2010 to M/s. Dalal & Shah & Anr. IN THE MATTER OF SATYAM COMPUTER SERVICES LTD. (SATYAM) Date of Hearing: March 30, 2010 Appearances: For Noticees: 1. M/s. Price Waterhouse, Bangalore (Reg. No.007568S) 2. M/s. Price Waterhouse & Co., Bangalore (Reg.No.007567S) 3. M/s. Price Waterhouse & Co., Kolkata (Reg. No.304026E) 4. M/s. Lovelock and Lewes, Hyderabad (Reg. No.301056E) 5. M/s. Lovelock and Lewes, Mumbai (Reg. No.116150W)

6. M/s. Price Waterhouse, Kolkata (Reg. No.301112E) 7. M/s. Price Waterhouse, New Delhi (Reg. No.12754N) 8. M/s. Price Waterhouse & Co., Chennai (Reg. No.50032S) 9. M/s. Price Waterhouse & Co., New Delhi (Reg.No.16844N) 10. M/s. Dalal & Shah, Mumbai (Reg. No.102021W) 11. M/s. Dalal & Shah, Ahmedabad, (Reg No. 102020W) Mr. Zerick Dastur, Advocate Ms. Sharmila A. Karve, Partner, Price Waterhouse For SEBI: Mr. Shiraz Rustomjee, Advocate Mr. J. Ranganayakulu, Executive Director Mr. S.V. Krishnamohan, Legal Adviser Dr. Pradnya Saravade, Officer on Special Duty Mr. Sunil Kumar, General Manager Ms. Geetha G., Deputy Legal Adviser Mr. Pradeep Ramakrishnan, Asst. General Manager, and Ms. Kshama Wagherkar, Asst. Legal Adviser. ORDER 1. The hearing commenced today with the preliminary submissions by the Learned Advocate for the noticees. 2. The Learned Advocate for the 11 noticees submitted that the noticee, Price Waterhouse, Bangalore (FRN 007568S) would file a detailed reply and the other 10 noticees would file a supplementary reply to the show cause notices issued to them. All the 11 noticees would Page 2 of 2 like to avail of the opportunity of a personal hearing. He requested for additional time for

filing the reply and adjournment of the hearing as the inspection of the documents is not yet complete. He stated that the noticees are yet to complete inspection of copies of 7,561 invoices and copies of cheques and bank statements showing receipts by Satyam. They are also yet to receive a list of 5,889 invoices (“S” series reconciled in the OF) from SEBI. 3. It was mutually agreed by the Learned Advocates for the parties that: a. SEBI shall provide the balance documents, as stated in Para 2 above, for inspection. The Advocates for the noticees shall inspect the same from tomorrow (31st March, 2010) and complete the same by 2nd April, 2010. b. SEBI shall provide the list of 5,889 invoices to the Advocate for the noticees by tomorrow (i.e. 31st March, 2010) by email. c. The noticees shall submit the detailed reply for Price Waterhouse, Bangalore (FRN 007568S) and supplementary replies for the other 10 noticees at the latest, by 26th April, 2010. d. The personal hearing with regard to the show cause notices may be held on 3rd May, 2010. 4. Accordingly, the hearing is posted for 3rd May, 2010.

Quamtum of Illegality PROCEEDINGS OF THE WHOLE TIME MEMBER APPOINTING INVESTIGATING AUTHORITY WHEREAS The Securities and Exchange Board of India (the Boa rd) is satisfied that it is in the interest of investors and public interest to in vestigate into the affairs relating to buying, selling or dealing in the shares of Saty am Computer Services Ltd and more particularly to ascertain whether the provisio ns of the SEBI Act, 1992 and following Rules and Regulations made there under ha ve been violated: a. whether there are any circumstances which would render any person

guilty of having contravened any of the regulations of the SEBI (Prohibition of Fraudulent and Unfair Trade Practic es relating to the Securities Market) Regulations, 2003; b. whether any provision of the SEBI (Prohibition o f Insider Trading) Regulations, 1992 has been violated by any person; c. whether any Merchant Banker is guilty of having contravened the provisions of the SEBI (Merchant Bankers) Rules and Regulations, 1992; d. whether any violation of SEBI (Substantial Acqui sition of Shares and Takeovers) Regulations, 1997 has taken place; e. whether any violation of Securities Contract (Re gulations) Act, 1956 and Rules and Notifications made there under has ta ken place. The Whole Time Member has therefore, in exercise of the powers conferred upon him under Section 19 of the SEBI Act 1992 read with: (i) Regulation 7 of the SEBI (Prohibition of Fraudu lent Unfair Trade Practices relating to the Securities Markets) Regul ations, 2003; (ii) Sub-regulation (1) of Regulation 5 of the SEBI (Prohibition of Insider Trading) Regulations, 1992; (iii) Sub-regulation (1) of Regulation 29 of the SE BI (Merchant Bankers) Regulations, 1992; (iv) Regulation 38 of the SEBI (Substantial Acquisi tion of Shares and Takeovers) Regulations, 1997. hereby appoints Shri Sunil K umar A, General Manager as the Investigating Authority to investigate into the affairs relating to buying, selling or dealing in the shares of Satyam Computer Services Ltd. and submit a report to the Board at the earliest, vide order d ated January 7, 2009. The Investigating Authority may seek the assistance of officers of the Board and any other person and these persons shall be bound t o render such assistance. The Investigating Authority is also emp

owered to exercise the powers under Section 11 (3) and 11C of the SEBI Act , 1992 for the purpose of investigation. SEBI is further satisfied that in the interest of t he investors and in public interest / securities market, no notice to the pers ons to be investigated should be given and therefore it is ordered that in terms of the provisions of the said regulations the above investigation may be conducte d without such notice. It shall be obligatory upon the persons being inves tigated to extend cooperation and furnish such information and material as may be required by the Investigating Authority in accordance with the Regulations referred herein above. Dated at Mumbai this 7th day of January 2009