Satyam’s Raju surrenders, government steps in to rescue IT bellwether (Second Intro Roundup)January 10th, 2009 - 12:38 am ICT by IANS
Hyderabad/New Delhi, Jan 9 (IANS) Disgraced founder of Satyam Computer Services B. Ramalinga Raju Friday night surrendered before the Andhra Pradesh police and was arrested, three days after admitting to the country’s biggest financial fraud of Rs.70 billion (Rs.7,000 crore).Earlier in the evening, the government moved to save the company by sacking its directors and announcing it will appoint 10 new directors within seven days to run the firm.
The 54-year-old Raju went to the office of the Andhra Pradesh Director General of Police S.S.P. Yadav late Friday to give himself up after staying away from public and media since Wednesday when he confessed to the fraud and resiged as chairman of the company he started in 1987 with 20 employees.
Earlier in the day, the crime branch of the Andhra police filed a criminal case against Raju for the fraud.
In New Delhi, Company Affairs Minister Prem Chandra Gupta announced that the Satyam board members have been restrained from continuing and Saturday’s meeting of the board stands cancelled.
The board has shrunk from nine to three after four independent members quit in the wake of Raju’s aborted bid on Dec 16 to buy two cash-strapped firms, Maytas Properties and Maytas Infra, promoted by his two sons.
“The government wants to protect the interests of the employees (53,000) and other stakeholders in the company,” Gupta told reporters in New Delhi.
He said the Company Law Board has agreed to government’s proposal “to restrain Satyam board members to continue as members and appoint 10 new members.”
The government move was cheered by the Satyam employees whose job was at stake as the company had funds to pay only December 2008 and January 2009 salaries which, according to the firm, work out to Rs.5 billion (Rs.500 crore) a month.
Gupta’s announcement came within hours of market regulator Securities and Exchange Board of India summoning Raju to appear before it Saturday to depose on the massive fraud.
The announcement coincided with the crime branch of the Andhra Pradesh police beginning its own probe into the affair.
Gupta said in New Delhi that “the Company Law Board has already issued an order to the existing directors of the board restraining them from exercising their functions and the order becomes effective immediately.”
“The SEBI office at Hyderabad has already taken action which includes seizure of documents of the company and the ministry of corporate affairs has sent a team of officers who are now inspecting Satyam’s eight group companies,” he said.
On issues of gross violation of corporate governance norms by the company, Gupta said: “The Satyam case in an aberration, the government is determined to take all possible actions under the law to bring to book all those persons who are responsible for betraying the faith of lakhs of shareholders, employees and customers within and outside the country.”
As the enormity of the scandal broke out, role of auditors of the company, PricewaterhouseCoopers (PwC) came under the scanner. “Action has already been initiated by the Institute of Charted Accountants of India (ICAI) against the auditors of the company,” added Gupta.
The Satyam board had nine members - Raju, his brother B. Rama Raju, wholetime member Ram Mynampati and six independent directors. Four of the independent directors quit the board in the wake of aborted bid by Raju Dec 16 to make Satyam buy two firms, Maytas Properties and Maytas Infra, run by Raju’s two sons.
With the resignation of Mangalam Srinivasan, Krishna Palepu, Vinod Dham (all three based in the US) and M. Rammohan Rao, the board was left with Mynampati, T.R. Prasad, former cabinet secretary to the Indian government, and V.S. Raju.
There was an unconfirmed report that Satyam’s chief financial officer Srinivas Vadlamani had attempted suicide, but the company denied it. Vadlamani’s name did not figure among the people Raju mentioned in his resignation letter absolving them of any wrongdoing.
Vadlamani Thursday sent his resignation to the interim chief executive Mynampati, who said the resignation has not been accepted.
There were also reports circulating that the interim team has also sent a mail to the employees saying they would not be paid salary for two months. Mynampati told a press conference Thursday that the December salary is being paid and the company has funds to meet salary commitments for January.
Mynampati said the interim management was scouting for a strategic investor as the company was facing severe funds crunch. He said the option of outright sale of the company was not ruled out.
He also said about 100 clients who contribute 80 percent of the $2 billion revenue had assured they would stay with the company.
The Satyam scrip was further mauled in Friday’s trading. At one point it was quoted at around Rs.6.
While the New York Stock Exchange had stopped trading in the scrip Wednesday, the day Raju stunned everyone with his admission of the massive fraud, the Bombay Stock Exchange (BSE) had taken it out of its key 30-scrip index, the Sensex.