A. Saye Sekhar
“Accounts fudged to the tune of Rs. 7,106 crore over several years”
HYDERABAD: Byrraju Ramalinga Raju resigned as chairman of Satyam Computers, India’s fourth largest Information Technology company, on Wednesday after admitting to the Board of Directors that accounts were fudged to the tune of Rs. 7,106 crore over “several years.” His brother, B. Rama Raju, also resigned as Managing Director and Chief Executive Officer (CEO).
Before stepping down, Mr. Ramalinga Raju recommended that Ram Mynampati, board member and president, be made interim CEO, to run the show.
The 53-year-old business tycoon quit ahead of a crucial meeting of the board on January 10. The resignation climaxed a turbulent period of three weeks when the company was plunged into a crisis following an aborted attempt to acquire Maytas Infra and Maytas Properties, promoted by Mr. Raju’s sons, on December 16.
Markets reacted virulently to Mr. Raju’s admission of hiding several facts from the board and the stakeholders. Satyam’s stock nosedived on the Bombay Stock Exchange to an all-time low of Rs. 39.95, losing 77.69 per cent, though it opened at Rs. 188.70. Securities and Exchange Board of India (SEBI) Chairman C.P. Bhave described Mr. Raju’s disclosure as an event of “horrifying magnitude.”
In his five-page letter to the directors, Mr. Raju confessed that the company’s balance sheet inflated cash and bank balances of Rs. 5,040 crore which never existed and an accrued interest of Rs. 376 crore which was also non-existent. Also, a liability of Rs. 1,230 crore was understated and the debtor position of Rs. 490 crore “overstated.”
The Satyam chief said: “The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years.” Every attempt made to eliminate the gap failed, he said and apologised to all “Satyamites and stakeholders.”
Clean chit to executives
Barring Chief Financial Officer Srinivas Vadlamani, Mr. Raju gave a “clean chit” to the top executives, board members and also his and his brother’s families. “Neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results,” he said.
Meanwhile, SEBI was in touch with the Ministry of Corporate Affairs to take all necessary steps against the 21-year-old company, which employs 53,000 and has operations in 65 countries serving 185 Fortune 500 companies. Andhra Pradesh Chief Minister Y.S. Rajasekhara Reddy ordered a preliminary inquiry by the CID into whether the State government could initiate any criminal action.
Dr. Reddy wrote to Prime Minister Manmohan Singh, urging him to constitute a management team comprising Azim Premji of Wipro, N.R. Narayana Murthy of Infosys and S. Ramadorai of TCS to manage the affairs of Satyam to restore the confidence of the global customers so that the interests of employees and other stakeholders were protected. This arrangement could be in place until a credible alternative management was put in place.
Auditing firm DSP Merrill Lynch terminated its engagement with the company soon after Mr. Raju announced his resignation.
Mr. Raju said he would continue in his position “only till such time the current board is expanded.”
A PTI report said Mr. Raju is believed to have left for the U.S. in connection with a court case.
Corrections and Clarifications
The tenth paragraph of the lead story "Satyam chief admits to fraud, quits"(January 8, 2009, page 1) referred to "Auditing firm DSP Merrill Lynch". DSPMerrill Lynch (DSPML) is an investment banker/financial service provider inIndia. Sathyam's auditors are PricewaterhouseCoopers (PwC).