Hyderabad: Two days after shocking the country by admitting to Rs7,000-crore fraud, Satyam founder Ramalinga Raju and his brother Rama Raju were arrested Friday evening as part of the crackdown by state authorities and the central government, which disbanded the tainted IT firm’s board on a day of fast-paced developments.
Raju was arrested and has been booked in a case of financial irregularities, Additional Director General of CB-CID A.S. Shivnarayan said minutes after the police action. “Both are in our custody. A case has been registered and we will produce them before the court within 24 hours,” Kaumudi told reporters outside the office Director General of Police, Andhra Pradesh.
The 54-year-old Raju, who stepped down as chairman after admitting to the fraud Wednesday, and Rama Raju, who resigned as CEO and MD of the company, were arrested under five sections of the Indian Penal Code—section 120B for criminal conspiracy, section 420 for cheating, section 409 for criminal breach of trust, section 468 for forgery and also section 471 for falcification of records. All the charges are non-bailable offences.
However, Ramalinga Raju’s resignation has not been accepted yet.
Ending speculactions about his location, the scam-hit Satyam chairman presented himself before the office of the Andhra Pradesh police S.S.P. Yadav around 10pm.
While the police is questioning the two brothers, Yadav said the company’s Chief Financial Officer Valdamani Srinivasan would be arrested Saturday.
Earlier Friday evening, the .Corporate Affairs Minister Prem Chand Gupta announced 10 directors would nominated to the new board, which would meet within a week.
The swift police action, which could lead to the Satyam chairman getting imprisonment of up to 10 years, along with monetary penalties, came within hours of the central government disbanding the board on the eve of its scheduled meeting.
The government barred Satyam’s board from holding its scheduled meeting on Saturday, which was called to consider options such as inviting a takeover or strategic investor and appointing an investment banker.
Earlier Friday evening after the government disbanded the current board of Satyam Computers, Corporate Affairs Minister Prem Chand Gupta said the government would appoint 10 new members to the Satyam board, which would meet within seven days. There was no move to take over Satyam’s management at this time, he said.
“The government is considering appointment of suitable persons as directors of Satyam,” Gupta told a news conference in New Delhi. “We are determined to reach the truth but are equally concerned with the fate of employees and other stakeholders.”
A Satyam spokesperson said the company welcomed the government’s decision, which would restore the confidence of all employees, customers and shareholders. However, she said Satyam had no comment on the arrests.
In a bid to ease the worries of rattled investors, the Securities and Exchange Board of India, or Sebi, said auditors’ certification of corporate results from the December quarter would be peer reviewed.
Analysts said Satyam’s very existence was threatened by the scandal, which stand-in chief executive Ram Mynampati said has pushed the company into a crisis of unimaginable proportions.
Satyam shares slumped to Rs11.50, their lowest since March 1998 and a far cry from a 2008 high of Rs544, before ending down 40% at RS23.85 ahead of the board’s dissolution.
The company’s market value has shriveled to $330 million, from more than $7 billion six months ago.
The stock has fallen 87% in two trading days, pulling the broader market down. Shares in Satyam’s main rivals, Infosys, Tata Consultancy Services and Wipro rose on expectations they would benefit from Satyam’s circumstances.
Satyam will be cut from India’s benchmark stock index, the Bombay Stock Exchange’s 30-share Sensex from Monday.
Analysts said recent hopes that Satyam could survive by being taken over had been dashed, given the scope of the scandal and potential for big legal losses.
“The largest scandal in India’s corporate history calls into question the viability of the company as an independent entity,” consultancy Forrester said in a 8 January research note.
“As a result, sourcing and IT executives need to actively review their exposure to the company and their options as a cloud of uncertainty hangs over the company.
“Both clients and employees will desert Satyam as a result of competitive wooing,” it said.
Satyam specialises in business software and back-office services for clients including General Electric and Nestle.
Mint‘s Venkatesha Babu contributed to the story.