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What action can be taken against Raju?

January 09, 2009 09:51 IST

What action can be taken against Raju and other board members, the auditors and the bankers for having failed in their basic duties?

It's not a failure, but purposeful cheating. Thereby, it is a criminal breach of trust, which can attract punishment under the Indian Penal Code (IPC).

From the information available in the public domain, it appears that various offences have been committed, including the criminal breach of trust, cheating, forgery, falsifying records, criminal conspiracy and abetment.

Section 405 defines the offences of criminal breach of trust that is punishable under Section 406 IPC, with imprisonment of either description for a term which may extend to three years, or with fine, or with both. Section 420 defines the offence of cheating which is made punishable with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.

                                     The Satyam fiasco: Complete Coverage

Section 463 defines the offences of forgery which is made punishable under section 465 IPC, with imprisonment of either description for a term which may extend to two years, or with fine, or with both. Section 120A defines the offences of criminal conspiracy which is made punishable under section 120B IPC.

Separately, under Section 24 of the Sebi Act, they can be imprisoned for up to 10 years and imposed a fine of up to Rs 25 crore (Rs 250 million). If they do not pay the fine, they can be jailed for a further term of anywhere between 4 months and 10 years.

However, just a letter to Sebi is not enough to convict Raju. More corroborative evidence will be necessary after which a prima facie case can be established. Then the Company Law Board (Section 397) and Economic Offences Wing (EOW) are empowered to freeze the assets of the promoters.

Can the company be taken over by the government and placed under an administrator under the current circumstances?

No, since it is not a public sector undertaking or a co-operative society.

Can the government or the regulators sack the new interim management and put in place a new one?

The Securities and Exchange Board of India has the power to do that.

Are the independent directors liable for anything?

Not unless a case of mens rea (Latin for guilty mind) is established against them in the courts.

What does the letter of Raju mean?

The letter of Raju is a written acknowledgement of various irregularities and offences committed by Satyam Computer Services [Get Quote]. The letter is addressed to the board of directors of the company and is also marked to Sebi and the stock exchanges.

What has Sebi done on this letter?

Sebi has constituted an enquiry committee. The enquiry committee is mandated to deal with the following five important issues:

  • Whether there are any circumstances that would render any person guilty of having contravened any of the regulations of the Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003;

  • Whether any provision of the Sebi (Prohibition of Insider Trading) Regulations, 1992, has been violated by any person;

  • Whether any merchant banker is guilty of having contravened the provisions of the Sebi (Merchant Bankers) Rules and Regulations, 1992;

  • Whether any violation of Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, has taken place;

  • Whether any violation of Securities Contract (Regulations) Act, 1956 and Rules and Notifications made there under has taken place.

    Are any offences disclosed by the said disclosure?

    Various offences are disclosed by the said disclosures. These are offences under the Indian Penal Code, Indian Companies Act, Information Technology Act, Foreign Exchange Management Act and also violation of clause 49 of Sebi.

    Is there any offence under the IT Act, which have been committed here?

    Prima facie, on the basis of information made available in the public domain, it is clear that the balance sheet of September 30, 2008, has shown inflated non- existent cash and bank balances of Rs 5,040 crore. Further accrued interest of Rs 376 crore has been shown, which is non-existent. Further there is understated liability of Rs 1,230 crore on account of funds arranged by Raju.

    The said letter of Raju shows that there have been inflated profits shown over the last several years. Since all companies today maintain accounts in the electronic format, this is tantamount to creation of false electronic records. The offence of false electronic records has been added in the Indian Penal Code by the information Technology Act 2000, under Section 464 IPC.

    What action can be taken against the company by the US regulators?

    Two class action lawsuits have already been filed against Satyam by two US law firms. Besides, the New York Stock Exchange (NYSE) on Wednesday stated that "NYSE Regulation is currently evaluating the news relating to Satyam and will closely monitor further developments. The security will remain halted until further notice".

    (Based on inputs from M V Kini & Co. (Advocates & Solicitors)   Pavan Duggal, Supreme Court Advocate and Cyberlaw expert)

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