IN THE SUPREME COURT OF INDIA

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M/s. Bulterworth LLP
PY Pvt. Ltd. (“PY”)
- Appellant(s)
v.
Securities and Exchange Board of India
- Respondent
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Mr. Mehtab Hans, a well-known technology entrepreneur based out of Bangalore, had
been one of the pioneers in the data analytics industry in India. Since early 2000s, he has
been working in this industry, building connections with various Indian and foreign
corporates as well as venture funds. Finally in 2006, the Smart Data Analytics Pvt. Ltd.
(“SDA Pvt. Ltd”) was incorporated with Mr. Hans as its promoter. He successfully raised
venture capital from Karantaka Value Fund (“KVF”) that same year. KVF played a crucial
role in preparing SDAL Pvt. Ltd for an Initial Public Offering (“IPO”). Finally in 2010, the
company went public and was rechristened as Smart Data Analytics Ltd. (“SDAL”). SDAL
was listed on NSE and BSE, with Mr. Hans as its Chief Executive Officer (“CEO”). The
next year it issued American Depository Receipts (ADRs), which are admitted to trading on
the New York Stock Exchange (“NYSE”).

In December 2014, a whistle-blower sent an anonymous email to one of the independent

directors of SDAL claiming that the sales revenue in SDAL’s audited accounts for the year
2011-12 were substantially inflated. The independent director forwarded the email for a
thorough review to the Indian statutory auditors of SDAL, M/s. Bulterworth LLP
(“Bulterworth”). Bulterworth is also a member of the international accounting network, PY
Pvt. Ltd. (“PY”), a private company limited by guarantee incorporated in London.
Bulterworth along with five other Indian chartered accountant firms provide auditing and
consulting services in India under the brand and banner of PY.

The statutory auditor, Bulterworth, reverted back in the next audit committee meeting in
March 2015 claiming that the allegation was incorrect and that the auditors have complied
with all applicable laws and regulations in preparing the audited accounts. However, the
damage was done. On February 23, 2015, a well-known New York based financial
newspaper, Brick Lane Journal (“BLJ”), picked up this story and published a detailed report
about this whistle blower incident. The report also mentioned another anonymous source
claiming that the audited financial statements of SDAL for the year 2011-12 reflected a
substantial cash-balance with Barns and York Bank (“BYB”) in New York, which was
actually non-existent. The market reacted to such negative media reports. Mr. Hans’ public
assurances that this is just a baseless rumour did not help much. The trading price of
SDAL ADRs in NYSE took a deep plunge, causing huge losses to ADR investors in US.

Given these developments, Securities and Exchange Board of India (“SEBI”) initiated a
suo moto investigation into the matter in March 2015. In December 2015, SEBI issued
show-cause notices to Mr. Hans, SDAL, Bulterworth and PY (jointly referred to as
“noticees”). SEBI alleged that Bulterworth in connivance with Mr. Hans and the
management of SDAL had manipulated financial statements of SDAL. SEBI highlighted
that as per the audited financial statements of SDAL the company held Rs. 1385 crores
(that is, 50% of the company’s net assets) in Fixed Deposits with BYB New York branch.
However, during investigation, BYB New York had confirmed to SEBI that the SDAL had
FDs worth only Rs. 50 crores. SEBI alleged that Bulterworth as statutory auditors should
have directly confirmed the veracity of the FDs with BYB New York branch. Instead, it
blindly relied on forged FD certificates produced by the management of SDAL.

After hearing all the parties, Mr. Garai, a Whole Time Member of SEBI passed an order
dated July 12, 2016 under section 11, 11B, 12A of the SEBI Act, 1992 read with Regulation
3 and 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 2003 (“PFUTP Regulations”). Accordingly, it directed:

(1) Entities/firms practicing as Chartered Accountants in India under the brand and banner
of PY including Bulterworth, shall not directly or indirectly issue any certificate of audit of
listed companies, compliance of obligations of listed companies and intermediaries
registered with SEBI and shall not directly or indirectly perform any attest function under
any law or regulation for a period of two years.

(2) Bulterworth shall be liable to pay a penalty of Rs. 20 crores as well as the disgorgment
of the wrongful gains of Rs. 10 crore which they earned as audit fees from SDAL with
interest calculated at the rate of 18% per annum from March 2015 till date of payment. The
said amount shall be paid within 45 days from the date of this Order either by way of
demand draft drawn in favour of ‘Securities and Exchange Board of India’, payable at
Mumbai or by e-payment to SEBI.

(3) Mr. Hans is prohibited from accessing the capital market directly or indirectly, for a
period of 10 years, from the date of this order.

The noticees appealed this order before the Securities Appellate Tribunal (“SAT”). SAT
vide its order dated November 25, 2017 allowed the appeal only on ground (3) but
dismissed the appeals on ground (1) and (2). Consequently, the noticees other than Mr.
Hans and SDAL have appealed the SAT order before the Hon’ble Supreme Court of India.
The appeal will now be taken up for final hearing by the Hon’ble Supreme Court of India
wherein the Court will hear arguments pertaining to both jurisdiction of SEBI as well as the
on the substantive merits of the matter itself.