Seeks damages for perpetrating fraud, breach of fiduciary responsibility
Mahindra Satyam has filed a lawsuit against the former board of directors and some ex-employees of the company seeking damages after the company was hit by fraud.
The lawsuit was filed at the city civil court here on Monday against the erstwhile board, employees, the former statutory auditors, Price Waterhouse, its affiliates and partners seeking damages for inter alia perpetrating fraud, breach of fiduciary responsibility, obligations and negligence in performance of duties.
Several eminent personalities, including Harvard Business School professor Krishna G. Palepu, former dean of Indian School of Business, Mendu Ramamohana Rao, former Cabinet Secretary T. R. Prasad, Vinod K. Dham and Mangalam Srinivasan were members of the erstwhile board when the scam broke out.
Mahindra Satyam was slapped a notice of over Rs.2,000 crore arrears by the Income-tax Department in mid-last year. Satyam Computer Services, renamed as Mahindra Satyam after Tech Mahindra, a part of the Mahindra group, took it over, sent shock waves when its chairman B. Ramalinga Raju admitted to fudging of records in January 2009, raising the curtain for what is billed as the country's biggest corporate fraud.
Mr. Raju, who was released on bail two months ago by the Supreme Court as the investigating agency CBI could not file charges in time, revealed that the company's profits had been overstated for years and assets worth close to Rs.14,000 crore had been falsified.
“We believe the company suffered incredible loss....We suffered losses in customers, we suffered reputational loss, specific losses in terms of class action suit, what we had to pay to Upaid and the fines SEC imposed on us,” Mahindra Satyam Chairman Vineet Nayyar told a private news channel.
So, these were all significant damages and the company was seeking compensation, he added. Mr. Nayyar, however, did not disclose the amount of damages sought.
“We know the damages caused to us in terms of penalties, class action suits, penalties by SEC and Upaid...on top of loss of business,” Mr. Nayyar added.
Last year, Mahindra Satyam had agreed to pay $125 million (over Rs.587 crore) in an out-of-court settlement to end a bunch of class action suits filed in the U.S. It had also agreed to pay $70 million in a legal settlement with British firm Upaid Systems. The Indian tax authorities have also made an income tax claim of about Rs.2,500 crore.
U.S. regulator Securities Exchange Commission had, in April 2011, imposed a penalty of $17.5 million jointly on Satyam Computers, Price Waterhouse India and affiliate auditors for the fraud that went undetected for several years.
Satyam agreed to pay a fine of $10 million towards settlement of charges of fraudulently “overstating the company's revenue, income and cash balances by more than $1 billion over five years.”
SEC asked Price Waterhouse India to pay $6 million in penalty for conducting “deficient audits of the company's financial statements and enabling a massive accounting fraud to go undetected for several years.”
Other affiliates, Lovelock & Lewes and Price Waterhouse Bangalore agreed to pay the Public Company Accounting Oversight Board (PCAOB) a $1.5 million penalty for their violations of PCAOB rules and standards in relation to the Satyam audit engagement.