The Securities Appellate Tribunal (SAT) today directed the capital market watchdog to allow audit firm Price Waterhouse to cross-examine certain individuals, including Satyam Computer Services founder B. Ramalinga Raju, who had given statements to Sebi during its inquiry into the country’s biggest accounting fraud.

Sebi had relied on their statements to issue a showcause notice to the auditor which had earlier challenged the market watchdog’s right to question an audit firm regulated by the Institute of Chartered Accountants of India.

“It has become necessary to intervene because the violation of principles of natural justice is writ large on the face of the impugned (Sebi) order,” the SAT said today.

Initially, Sebi had accepted Price Waterhouse’s plea to cross-examine some witnesses even as it provided it a few documents. However, the regulator rejected requests to cross-examine key witnesses, including Raju. This had prompted Price Waterhouse to appeal to the SAT against the Sebi order.

On Wednesday, a three-member bench of the SAT comprising Justice N.K. Sodhi and members P.K. Malhotra and S.S.N. Murthy directed Sebi to allow Price Waterhouse to cross-examine the persons named by it in an application given on November 22 last year. It also asked the regulator to furnish copies of their statements to Price Waterhouse if they had not been given earlier.

The market watchdog was also directed to complete the inquiry within four months from the date of the order.

“I hold that the Board (Sebi) was not justified in allowing partial inspection of the material to the appellants and that they should have been given access to the entire material collected during the investigations. Not having done this, the principles of natural justice have been violated,” Justice N.K. Sodhi said.

Price Waterhouse was the auditor of Satyam from April 1, 2000, to September 2008. S. Gopalakrishnan, a partner of the firm, had certified the audit reports for the period from April 2000 to March 2007 and Srinivas Talluri, another partner of the firm, had certified the audit report for the period from April 2007 to September 2008.

It was alleged that Price Waterhouse had not properly audited the financial statements of Satyam and the financial statements presented did not present fairly and accurately the financial position of Satyam which was manipulated and false.