Hyderabad/New Delhi: In a decisive move aimed at restoring customer and investor confidence in Satyam Computer Services Ltd, roiled by an accounting fraud involving founder-chairman B. Ramalinga Raju, the Union government named three respected business professionals to the board of directors at the software firm, empowering them to expand the board and, if necessary, appoint a new chief executive officer.
The new members—Deepak Parekh, chairman, Housing Development Finance Corp. Ltd, or HDFC; Kiran Karnik, past president of software industry body National Association of Software and Service Companies, or Nasscom; and C. Achuthan, a director on the board of the National Stock Exchange and a former member of the stock market regulator—are expected to meet on Monday.
In the net: Satyam chief financial officer Srinivas Vadlamani arrives at Chanchalguda jail after being arrested in Hyderabad. Mahesh Kumar / AP
“The (new) board, which will be independent, is expected to meet in the next 24 hours and decide further course of action,” minister for corporate affairs Prem Chand Gupta said on Sunday. “The board’s first priority would clearly be to restore the company’s credibility, customer confidence and employee morale as also to safeguard the interest of investors and other stakeholders.” His ministry had disbanded Satyam’s board on Friday night.
The Satyam management called the government move “the best news we’ve received in the past four weeks”. A company spokesperson said, “This is a vital stabilizing development for Satyam, and it marks the beginning of a new chapter in the company’s history.”
Raju on Wednesday shocked peers, investors, analysts and Satyam’s 52,000 employees with his admission of falsifying accounts to the tune of at least Rs7,136 crore. He and his brother Rama Raju, who was managing director of the firm, were arrested on Friday night.
The board appointments were announced less than 24 hours after Satyam’s chief financial officer Srinivas Vadlamani was arrested. He was produced before a metropolitan magistrate on Sunday evening and sent to the Chanchalguda Central Prison in Hyderabad for judicial remand till 24 January.
“We have arrested Vadlamani under the sections of Indian Penal Code that pertain to criminal conspiracy, cheating and dishonesty, criminal breach of trust, falsification of records and forgery,” said V.S.K. Kaumudi, inspector general of the Andhra Pradesh criminal investigation department, or CID.
Also Read Full Coverage | Satyam Fiasco
Also See Satyam’s New Board of Directors (Graphic)
CID is also conducting searches at the houses of the Raju brothers, Vadlamani and directors on the former Satyam board.
On Saturday, a magistrate at city criminal courts in Hyderabad ordered chairman Raju and his brother to judicial remand at the Chanchalguda prison till 23 January. They were arrested on Friday night on charges of criminal conspiracy, cheating and dishonesty, criminal breach of trust, falsification of records and forgery, police officials said.
S. Bharat Kumar, counsel for Ramalinga Raju, said he plans to file a bail petition before the court on Monday. He said his client, suffering from hypertension, was offered medical aid in the early hours of Saturday after he complained of chest pain. The magistrate was informed of the client’s condition, he said. Ramalinga Raju was also treated by the jail doctor on Sunday after he complained of chest pain.
At a press conference in Hyderabad on Sunday, Andhra Pradesh chief minister Y.S. Rajasekhara Reddy refuted allegations by Opposition parties that his government was attempting to prevent regulatory agencies such as the Securities and Exchange Board of India, or Sebi, and the ministry of corporate affairs from questioning Ramalinga Raju by taking him into custody and sending him to judicial remand.
“Any regulatory and law enforcing agencies can approach the court and seek its permission to question Raju and others arrested in connection with the fraud,” Reddy said.
Kaumudi, however, said on Sunday evening that the state CID will seek police custody for Vadlamani. The application will come up for hearing before the metropolitan magistrate on Monday.
Elsewhere, the legal challenge facing Satyam, ranked the fourth Indian technology services provider by revenue, mounted in the US with two more class action suits being filed, taking to seven the number of such cases since Raju revealed the irregularities at Satyam. Two other law firms are investigating the possibility of bringing such suits.
Gupta, the corporate affairs minister, said his ministry was continuing to examine the documents of Satyam and working in close coordination with Sebi and the Andhra Pradesh government.
“The ministry had earlier ordered inspection of books of eight companies of the Satyam group under section 209A of the Companies Act (1956), and a team of officers despatched from the ministry has already started work,” said the minister. The Registrar of Companies, or RoC, in Hyderabad has already seized Satyam documents from various premises.
On whether Ram Mynampati, Satyam’s interim chief executive officer, would continue, Gupta said, “The new board will take a call.” Mynampati, who was Satyam’s chief operating officer before the accounting scandal broke, was made the interim CEO when Ramalinga Raju resigned.
Gupta did not give a time frame for the completion of the inspection by his ministry. The 300,000-odd shareholders in Satyam have seen the value of their investment plummet 86.7% since the morning of Wednesday, when Raju wrote to the board confessing that Satyam’s reserves and balances had been inflated by Rs7,160 crore.
The minister said the ministry has not yet moved the Company Law Board, a quasi-judicial body that looks into the functioning of companies in the interest of minority shareholders, asking for a new set of external auditors for Satyam. PricewaterhouseCoopers was the auditor of Satyam’s books.
Peers, partners cheer
The Indian information technology industry and shareholders welcomed the appointment of the three board members, saying the financier-technologist-lawyer trio at the board would send the right signals to international investors and help allay concerns over corporate governance standards in India.
“By acting in this bold and coordinated manner, the government has sent the right signals to the global community and set an example of what governments can do to protect stakeholder interests while ensuring strict adherence to the rule of law,” Nasscom said in a statement. “The board now has to see the financial statements and make some good financial arrangements. There is a crisis of confidence,” said V. Balakrishnan, chief financial officer of Infosys Technologies Ltd, the second-biggest by revenue among Indian tech service firms.
One of Satyam’s largest shareholders, Larsen and Toubro Ltd, said that while a capable board is a good sign, no time should be lost in appointing a capable chief executive.
“It will be very challenging for the three appointees, and they have to move very fast to restore order. The first thing they should do is for them to address the 52,000 employees of Satyam and give them an assurance that jobs are safe,” said A.M. Naik, chairman and managing director of Larsen and Toubro, which has a 4% holding in Satyam it acquired for Rs400 crore. “If Satyam’s best people leave, the customers will lose confidence.”
Global technology research firm Forrester Research said “untangling the Satyam issue is a long journey.” Delays “beyond a week or two in this regard (on bringing clarity to the finances of the company) would continue damaging the firm”, said Sudin Apte, country head for Forrester.
Meanwhile, according to a statement posted by the New York Stock Exchange on its website, trading in Satyam’s American depository shares is expected to resume on Monday.
Satish John in Mumbai and K. Raghu in Bangalore contributed to this story.
Graphics by Sandeep Bhatnagar / Mint