The Telangana High Court has cleared the decks for the audit firm PricewaterhouseCoopers (PwC) to sue B Ramalinga Raju, the disgraced founder of Satyam Computers (now merged into Tech Mahindra), for Rs 100 crore for the loss caused to its reputation and business.
PwC, which was the statutory auditor of Satyam Computers between 2000 and 2009, had sued Raju and associates for the damages it suffered ever since his confession to India’s largest accounting fraud in January 2009. The audit firm claimed that owing to the fraud perpetrated by Raju and associates and their deceitful conduct, it had suffered a huge loss of clients and profits, and irreparable commercial damages.
The division bench of the High Court comprising justices P Naveen Rao and Nagesh Bhimapaka on Tuesday dismissed a civil revision petition filed by Ramalinga Raju against the decision of a civil court in Hyderabad. The trial court in 2012 had rejected the plea of Raju against the claims of PwC.
The decision of the HC to dismiss the civil revision petition by Ramalinga Raju will now enable the civil court to resume hearing the suit filed by PwC for Rs 100 crore against Raju and associates.
Simultaneously, decks are also cleared for Tech Mahindra, which took over the fraud-hit Satyam Computers in 2009, to proceed with seeking Rs 223 crore of damages from Raju and associates for the damages suffered by it. K Vivek Reddy, counsel for Tech Mahindra said Tech Mahindra filed a petition seeking to consolidate with the suit of PwC since they arise out of the same issue. The High Court has allowed the petition, he said.
Raju argued that the suit of PwC was not maintainable since the audit partnership firm was not registered and that Section 69(2) of the Partnership Act, 1932 imposes clear prohibition to institute a suit to enforce a right arising out of a contract.
PwC argued that when serious allegations of fraud were made, the said provisions of the Partnership Act are not applicable. Moreover, the relationship between an auditor and the company was professional and not contractual and the auditor has a fiduciary relationship with shareholders.
The division bench of Telangana High Court viewed that it would be incorrect to interpret that the duties and responsibilities of an auditor arise from a contractual obligation. Rather the duties, roles and obligations of auditors purely flow from the statute and the duty is to conduct an independent, transparent and clean audit for the welfare of the shareholders in particular and the public at large.
The division bench also viewed that Section 69(2) of the Partnership Act was not attracted in this case and that PwC was appointed under the provisions of the Companies Act and that there was no scope to assume any contractual relationship between Raju and the auditors.
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