Mumbai: In a U-turn of sorts, Indian information technology services firm Mahindra Satyam has filed a lawsuit in a New York court against British telecom software maker Upaid Systems Ltd, seeking enforcement of a legal settlement agreement between the two signed in December.
At issue is the tax liability on the settlement amount—estimated to be in the range of $21 million (Rs97 crore), and which Satyam claims is Upaid’s responsibility under the December agreement. Upaid couldn’t be reached for comment late Tuesday evening.
In the lawsuit, filed on Monday, Satyam has asked the court to confirm that Upaid is responsible for any tax liability arising from the settlement.
On 9 December, Satyam agreed to pay $70 million—an initial payment of $45 million and another $25 million after necessary regulatory approval of the agreement—to settle all outstanding legal disputes with Upaid.
According to a Satyam spokesperson, the firm approached the court after trying and failing to reach an agreement on the matter through talks with Upaid.
As part of implementing the December agreement, Satyam claims to have entered into an escrow agreement with Upaid on 10 December and to have deposited the entire settlement amount of $70 million into an escrow account.
“Normally, in such settlements, a final amount that is arrived with no separate tax liability over and above that,” said an analyst with a Mumbai based institutional investment advisory firm that tracks Satyam.
“However, if the liability falls on Satyam, that means further outgo, which is negative news. In any case, legal charges in the US are expensive,” added the analyst who did not want to be identified.
In its fresh lawsuit, Satyam also sought the court’s assistance in ensuring that it gets what it is entitled to as part of the agreement—release of claims, licence to certain disputed intellectual property and dismissal of all pending litigation.
Satyam has not sought any compensatory damages against Upaid but expects the same to be determined during the trial.
“Usually, in out-of-court settlements, the issue of tax liability is dealt with in the settlement agreement,” said Anand Prasad, partner at Trilegal, a New Delhi-based law firm. “If the agreement is that the payer would bear the tax liability, then the settlement amount should have been paid after deducting the tax amount.”
The original legal dispute between Upaid and Satyam goes back to April 2007 when Upaid filed a lawsuit against Satyam in the US, alleging fraud, forgery, misrepresentation and breach of contract relating to transfer of intellectual property rights.
The disputes related to a project that the firms jointly worked on in the late 1990s. Upaid had sought damages of at least $1 billion for the cumulative losses it claimed to have suffered as a result of Satyam’s actions. Satyam was an outsourcing vendor for Upaid at that time. Since then, Satyam has been jolted by a corporate fraud perpetrated by its founder Ramalinga Raju, and has changed hands—it is now controlled by Tech Mahindra Ltd.
The regulatory filing regarding the fresh lawsuit was made to Bombay Stock Exchange (BSE) after trading hours on Tuesday.
Shares of the firm remained flat on Tuesday and closed at Rs96.85 on BSE, a gain of 0.1% on a day when the Sensex gained 0.3% to close at 16286.32.