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Regulator Sebi has imposed a one-year ban on K P Joshi & Co from auditing any listed company for preparing fake and inflated financial results of Coral Hub Ltd.
Besides, K P Joshi, proprietor of the audit firm, has also been barred for one year.
The regulator has restrained listed companies and registered intermediaries from engaging audit firm wherein Joshi is associated directly or indirectly for issuing any certificate for one year.
This is the first order passed by Sebi on an auditor after the Supreme Court in November stayed an order of the Securities Appellate Tribunal (SAT) which had held that markets watchdog does not have the power to bar auditors.
This comes after Sebi had challenged SAT's decision to quash a two-year ban that was imposed on PwC in connection with the Rs 7,800 crore Satyam fraud.
In the present case, an investigation was undertaken by Sebi from April, 2008 to June, 2010 into the matter of manipulation of revenues and profits of Coral Hub Ltd (CHL).
The probe found that the company and its directors had inflated its sales which led to false and misleading reporting of financial results in the annual reports of the company.
KP Joshi & Co was the statutory auditor of the company during the investigation period.
The regulator's investigation unearthed that annual sales figures reported in the annual financial statements of the company for 2008-09 and 2009-10, with respect to two of its customers, were inflated by over Rs 70 crore.
Joshi did not cross check or verify the sales with purchasing parties and instead chose to accept whatever sales figures were reported to him by the director and CFO of the company.
Sebi said Joshi, in connivance and in collusion with the management of CHL, concocted false accounts during the period of investigation.
Such manipulated and misleading results were reported in the company's annual reports and were also disseminated to the public through the stock exchanges which in turn misled the investors into investing in securities of the firm.
However, Joshi in his submission to the regulator denied all the allegations.
"I have no hesitation to conclude that the alleged acts of the noticee (Joshi) as an auditor of a listed company are found to be in violation of provisions of...Sebi PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) Regulations," Sebi's Whole Time Director S K Mohanty said in his 19-page order passed on Friday.
Accordingly, Sebi said, "noticee (Joshi) shall not directly or indirectly issue any certificate of audit and render any other auditing services including issuances of certificates of compliances, whatsoever, to any listed companies and intermediaries registered with Sebi...for a period of 1 year".
The regulator has clarified that such directions may not impact ongoing audit assignments already undertaken by Joshi and he shall complete such ongoing audit assignments as expeditiously within six months.
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