New Delhi/ Mumbai: The erstwhile Satyam Computer Services’ new owner and its former auditor may have paid millions to settle lawsuits with investors and regulators in the US, but recompense is nowhere in sight for Indian investors.
The Securities and Exchange Board of India’s (Sebi) multiple investigations into Satyam and Price Waterhouse, the Indian arm of PricewaterhouseCoopers (PwC), are works-in-progress. In August, the Bombay high court ruled that Sebi has the power to investigate the role of PwC in the fraud, but the audit firm appealed to the Securities Appellate Tribunal, where the matter is pending. A second Sebi case against the individual PwC auditors involved is pending in the Bombay high court itself. And Satyam’s former chairman is yet to respond to a show-cause notice from the regulator. Sebi is clear it wants to take action against PwC and it has refused to consider a settlement.
Meanwhile, it isn’t clear what India’s ministry of corporate affairs (MCA), which spearheaded the investigation against the fraud at Satyam, is doing. “Thus far, MCA has not initiated any action which will give Satyam’s investors a right to claim money they have lost,” said Ved Jain, a government-appointed director on the board of Maytas Infra, a former associate of Satyam and since taken over by IL&FS Engineering and Construction Co. Ltd. Jain was the president of the Institute of Chartered Accountants of India (Icai) when the Satyam fraud surfaced.
An official at the ministry, who didn’t want to be identified, didn’t comment on whether MCA would take any step regarding Satyam in light of the recent developments.
And India’s apex body of audit firms, Icai has done nothing against PwC because it only has powers to take action against individuals and not against firms. Icai has asked MCA for powers to investigate firms and will likely get them through an amendment to the Icai Act, said Amarjit Chopra, past president of Icai and one of the authors of a report on strengthening audit regulation that the institute put out after the events at Satyam came to light. “We still have to hear from the ministry,” he added.
As a result, the Satyam case is all but resolved in the US, while almost nothing has happened in India, where losses on account of the fraud are certain to have been higher.
Satyam’s new management declined comment because a spokesperson said the company was in the silent period ahead of announcing its results for the three months ended 31 March.
In November 2008, around 120 mutual fund schemes held shares worth around Rs 760 crore in Satyam Computer Services. At the end of September 2008, around 72% of the company’s 673.48 million outstanding shares were held by the public. After the scam was unearthed, most of the public shareholders sold their shares and at the end of March 2011, 47.82% of the company’s equity was held by the public.
It is highly likely that many of these funds and investors lost money after Satyam’s shares plunged, first in December 2008 after an ill-fated attempt by its promoting Raju family to merge an associate company with it and a confession, in January 2009, by then chairman B. Ramalinga Raju that he had, over the years. fudged Satyam’s accounts to the tune of a little over Rs 7,000 crore.
Subsequent investigations pointed to the complicity or carelessness of a few other Satyam executives and the firm’s auditor PwC.
None of these investors has received compensation. An attempt by an investors’ association to go to consumer court was thrown out, with the court claiming it lacked the jurisdiction to prosecute the audit firm. A subsequent attempt by the same association to file a suit in the Supreme Court was dismissed for technical reasons.
Most mutual fund houses Mint spoke to weren’t too keen to discuss Satyam. All of them appear to have moved on. An executive at one said the fund house didn’t take legal recourse because it would have taken a long time for the case to be settled. An executive at a second fund house said the Satyam fraud coincided with a choppy period in the market when funds lost around 60% of their equity assets. An executive at a third fund house said a suit would have hurt funds and fund managers, who would have had to disclose the losses made on their investments in Satyam. None of the three wanted to be identified.
Interestingly, earlier this week PwC paid $25.5 million (Rs 114 crore today) to investors in Satyam who suffered losses because of the audit firm’s lapses, in the process settling litigation in the US over its role in the fraud. A few weeks earlier, the US Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board fined PwC’s associates in India $7.5 million. In February, Satyam, renamed Mahindra Satyam after a takeover by Tech Mahindra Ltd, paid $125 million to settle lawsuits with investors in the US and $10 million to settle a suit with SEC. The ability of Indian investors to take either Satyam or PwC to court is also limited because the current Companies Act doesn’t have any clear provisions?regarding class action suits.
“Neither Sebi nor Companies Act clearly defines a class action suit,” said an official at Midas Touch Investors Association, which tried the legal route to get recompense. The official confirmed that the Supreme Court dismissed Midas’ class action suit on Satyam on the grounds that the plea did not have the representation of 300,000 shareholders.
Virendra Jain, founder of Midas Touch, added that even the new Companies Bill, pending approval by Parliament, does not provide for a class action suit. “The Bill, while having paragraphs titled class action, deals mostly with oppression and mismanagement by companies and its promoters,” said Jain. He added, what Midas had recommended to MCA that there should be clearly defined provisions for compensation. “This is what the standing committee, which evaluated the Bill, has also suggested,” Jain added. The MCA official insisted that the new legislation would make class action suits possible. Jain said that Midas could consider filing a case after going through the final order of the US court, which is expected in September.
Aveek Datta in Mumbai and Yogendra Kalavalapalli in Hyderabad contributed to this story.