:: Nitish Sengupta

How the Satyam deal was sealed, with dignity

Nitish Sengupta

April.23 : The manner in which the Central government has handled the case of Satyam Computers has done India proud. The entire approach, right from the start, was highly professional, pragmatic and without any mala fide intention.

The Satyam Computers scam is, indeed, the biggest corporate scam India has ever seen. It is much bigger than the Ramakrishna Dalmia misdoings of the late 1940s, the Mundhra scandal of the late 1950s, the Harshad Mehta scandal of the 1980s and the Ketan Parekh scandal of 1990s.

In Satyam’s case, greedy promoters siphoned off large funds from the company’s coffers and the failure of the company’s auditors and independent directors to carry out their scrutinising job didn’t just shield the culprits but also accelerated the company’s downward spiral.

When things got out of control, B. Ramalinga Raju, Satyam’s founder-chairman, confessed his crime. This led to the direct intervention of the ministry of corporate affairs. The first thing the ministry did was to suspend the entire board of directors and instead appoint independent and professional directors under Section 408 of the Companies Act, thus giving them complete authority to take whatever action was necessary to rescue the company.

Parallel to the Companies Act, action under criminal laws was initiated against Mr Raju, promoters and the auditors. Then the CBI was brought in to investigate the serious frauds.

However, it was clear from the start that the company had two huge resources: The goodwill it enjoyed among its clients and the general public, both at home and abroad; and a group of efficient and motivated professional managers who were highly demoralised by revelations of sordid doings at the top level and responded magnificently to the initiatives taken by the new board.

The company also had very sizeable volumes of receivable cash. Once it started rolling in it, the marketing people went about securing new business and servicing people went about attending to their clients, national and international. With this, it didn’t take long for Satyam Computers to bounce back on its feet.

A lot of credit is due to the Union corporate affairs minister, Mr Prem Chand Gupta, the bureaucrats at his ministry, HDFC chairman Deepak Parekh, former chairman of Nasscom Kiran Karnik, and former Securities and Exchange Board of India (Sebi) member, C. Achuthan. Together they were given the complete authority to take whatever action they felt necessary. The ministry didn’t breathe down their necks.

From the very start it was clear that a permanent solution to this imbroglio would lie in putting together a team of competent software professionals and financially-sound managers who could take over the shareholding and management control of the company.

Once again the new board went about its task in a professional way. Although several fly-by-night operators showed visible interest in Satyam Computers, the board invited interested companies to submit technical and financial deals for the Hyderabad-based software giant. The deadline was set for April 12.

Although about 140 entities are reported to have shown interest in buying the company, only 10 of them passed the initial selection test. Bidders were given access to all relevant information and documents of Satyam Computers before they could submit their technical and financial bids. According to the bidding conditions, if the difference between the highest bid and the second-highest bid was 10 per cent or less, the board was to hold an open auction to decide the buyer. Bankers like Goldman Sachs and Avendus were also kept involved with the selection process.

In the end, only three submitted their bids — Tech Mahindra, Larsen & Toubro and Wilber Ross. Tech Mahindra, with a bid of Rs 58 per share and total valuation of Rs 5,500 crores, was eventually selected. The second highest bid was of Larsen & Toubro of Rs 45.80 per share.

Initially the bid by Larsen & Toubro looked attractive because they are the largest shareholders in Satyam Computers. But eventually, Tech Mahindra’s proficiency and competence in information technology became the decisive factor.

Tech Mahindra has moved up the software export ranking considerably in recent years and is currently India’s fifth largest IT exporter. Tech Mahindra had also tied up with banks to fund the acquisition.

According to a top functionary of the ministry of corporate affairs, the new owners of Satyam Computers have an agreement that there will be no mass retrenchment of employees. This will bring some hope to a number of employees, said to be around 48,000.

The entire Satyam case was managed and settled in an exemplary manner by the government in barely three months. The Central government has to be given a lot of credit for this achievement. The authorities have indeed set a precedent of well-timed, strong, efficient and imaginative action in dealing with corporate fraud.

Attention will shift now to the chargesheet submitted by the CBI, which has set up a multi-disciplinary team to probe the mystery of the missing Rs 1,700 crores, rumoured to be lying in an account in an overseas branch of a public-sector bank. Also, it has to be probed if the money was diverted into some firm linked to the promoter — Maytas Infra and Maytas Properties — or any of the 327 firms floated by Mr Raju.

Incidentally, it was the abortive attempt by Mr Raju to buy the two Maytas companies for Satyam that brought down his house of cards.

Tech Mahindra’s takeover of Satyam is not the end of the Satyam saga. There will be several more episodes. Let us hope that the Central government will come out of these inglorious episodes as gloriously as it has done in the first round.

Nitish Sengupta, an academic and an author, is a former Member of Parliament and a former secretary to the Government of India