Hyderabad: Software maker Satyam Computer Services Ltd’s founder B. Ramalinga Raju has confessed to inflating the strength of the workforce by one-fourth and siphoning off large sums of cash from the company, a public prosecutor told a Hyderabad court on Thursday. The defence lawyer contested the claims.
The Hyderabad-based company has about 40,000 staff against the 53,000 it claimed to employ, prosecutor K. Ajay Kumar said, seeking an extension of the custody of Raju and two other Satyam executives because the investigations were continuing.
More confessions? Satyam founder B. Ramalinga Raju. Madhu Kapparath / Mint
“Every month an amount of (Rs20 crore) was being drawn in the name of non-existent employees,” said Kumar, adding that investigators needed to find out where the money had been diverted and in whose name.
Satyam is at the centre of India’s biggest corporate governance scandal after Raju on 7 January confessed to doctoring the accounts of the firm to the tune of Rs7,136 crore. The former chairman, his brother and former managing director Rama Raju, and former chief financial officer (CFO) Srinivas Vadlamani have been arrested.
Raju confessed during police interrogation that he and his family members had bought thousands of acres of land in 400 deals spending the company’s money, the prosecutor said. The three accused also confessed to forging fixed deposit certificates to show thousands of crores of rupees had been put in several bank accounts, he said.
The police are yet to obtain details from the trio pertaining to all the people associated with fudging of accounts and forging of bank deposit certificates, the prosecutor said while seeking extended custody. “There are more documents to be seized and the accused will have to be confronted with those documents,” Kumar said.
“The charge of diversion of funds is nothing but imagination,” Raju’s lawyer S. Bharat Kumar told reporters. “All through the interrogation, there were no questions about any diversion of funds, laundering of funds.” And there were no admissions by his clients, Bharat Kumar said.
Judge D. Ramakrishna ruled at the end of the hearing that investigators from the Andhra Pradesh state police could detain Raju until 4pm on Friday to complete their questioning.
Petitions filed by capital market regulator Securities and Exchange Board of India, and the ministry of corporate affairs through the Registrar of Companies and the Serious Fraud Investigation Office for custody of Raju have been posted for hearing on Friday.
Bharat Kumar said his “client was pained and disturbed at the malicious campaign launched against him in a section of media”, taking “strong objection to the trial by media”. He threatened legal action against publication of “such malicious, concocted and distorted reports”.
Satyam’s new, six-member, government-appointed board began a two-day meeting on Thursday to look at how to secure emergency funding. The board is also expected to consider appointing an investment banker to aid the rescue effort, as well as pick a chief executive (CEO) and a CFO.
JPMorgan and Goldman Sachs are among banks shortlisted to advise Satyam, according to banking executives, and could be asked to find a strategic investor.
“The top priority at this point is to ensure that customers are not impacted because of this scandal,” said Avinash Vashistha, CEO at consultant Tholons Inc. “Then, you have to assure employees they will be paid and the company will not collapse tomorrow.”
According to a person familiar with the government’s plans for Satyam, private equity firm Carlyle may team up with Larsen and Toubro Ltd (L&T) to take control of the company. In the event the move comes through, L&T and Carlyle together would function as the promoter of Satyam and be entitled to seats on the board and a say in choosing a new management team to head to company, said the person, who didn’t want to be named. Mint could not independently confirm the plan.
Meanwhile, the engineering and construction firm denied media reports that it was presenting a revival plan to the board of Satyam. L&T, which holds at least a 4% stake in Satyam, has been seen as a potential suitor for the firm. But an L&T spokesman said reports that it planned to present a revival plan were not correct.
State-owned Life Insurance Corp. of India (LIC), which too has a 4% stake in Satyam as well as a board representation in L&T, said on Thursday that the IT firm was still valuable and could be revived with the right leadership.
“We have an investment there (Satyam). If better returns come from a sale, then we (will) go for a sale,” LIC chairman T.S. Vijayan told PTI, but added that he would not give any instruction to the two nominees that the insurer has on the L&T board on the issue. LIC also ruled out any intention to acquire Satyam.
“We don’t have the expertise to run an IT company. We are clear on Satyam issue that we are an investor... We are not interested in controlling the company. We are interested in the prosperity of the company as our money is still there,” Vijayan said.
Satyam shares rose Rs1.85, or 6.7%, to Rs.29.60 on the Bombay Stock Exchange on Thursday.
PTI, Reuters and Bloomberg contributed to this story.