Satyam scam verdict: Will court do justice to defrauded Indian shareholders?

The special court verdict in Satyam Computer scam that defrauded investors hasn’t come as a surprise because its promoter Ramalinga Raju had done something which others with similar vaulting ambitions dare not do. Indeed his career as a company promoter ended as a Greek tragedy. He was on a song, with his company uttered in the same breath as other ivy league IT companies in India like Infosys, Wipro and TCS. Those on fast track, however, commit fatal mistakes, the consequences of which they are too punch drunk to worry about. Raju inflated sales and thus profits. [caption id=“attachment_2188813” align=“alignleft” width=“380”]  Raju in a file photo. Reuters image[/caption] But his accounting and audit friends, who too are going to cool their heels with him in a prison soon after sentencing, well versed in accounting perhaps told him about the wretched double entry system of accounting - when you inflate sales, you have to inflate cash as well! Thus he had to forge two sets of documents - invoices and fixed deposit receipts of banks. It is believed he had the temerity to forge deposit receipts aggregating to some Rs 4,000 crore. That the marquee auditor Pricewaterhouse Coopers had played ball with him was apparent to everyone as soon as the scam broke out in January 2009 because even a rookie auditor asks for confirmation from banks to verify claim of fixed deposits with them in the balance sheet. Why did Raju resort to such stupendous cooking of accounts? For self-aggrandisement, a euphemism for swindling? Strange as it might seem, the answer is in the negative. No bank would have redeemed its forged deposit receipts. Why then the bravado, the chutzpah? Well, he wanted to shine in the eyes of the foreign investors. Satyam had earlier issued American Depository Receipts (ADR) which got subscribed by the finicky American investors given the company’s potential. He wanted the quotations for his company’s shares as well as those for the ADR in New York Stock Exchange to soar. And soar it did, on the back of the phenomenal increase in sale and profit which in hindsight turned out to be phony. The ADR investors somehow got wind of Raju’s shenanigans and started voting with their feet whose ripple effect was soon found on the Indian bourses as well. Raju realised his game was up and sent a letter, in which he made a mea culpa. What does the conviction by the trial court in Hyderabad hold out for the shareholders of the company? Well, the ADR holders moved fast, and got compensation under the American regulatory and justice system. Tech Mahindra which took over Satyam in the merger that followed could not demur because it was bound by the terms of the ADR issue to compensate the investors if it or its promoters (founders in the American lingo) committed fraud. It paid a hefty $125 million a sizeable share of which, of course, would have been taken away as percentage based fees by wily US lawyers. Be that as it may, the point is where does it leave the Indian shareholders? Well, they have been taken for a royal ride. Class action suits couldn’t be filed by them because the Indian law at the material point of time didn’t provide for it; Section 245 of the Companies Act, 2013 now permits it. Tech Mahindra drove a hard bargain like any other suitor in an M&A talks - it offered one share of its company for every 8.5 shares in Satyam. It was a double whammy for the garden variety Indian shareholders of Satyam but they couldn’t demur. Tech Mahindra had obviously covered its ground well because it knew when the US class action suit would be decided, the tabs had to be picked up by it. It remains to be seen if the Court while awarding the sentence and penalty moves to proceed against the convicts’ personal properties so as to retrieve at least something for the hapless Indian shareholders.