Satyam Scam: Tribunal Stays Sebi Penalty on Raju, 4 Others

Mumbai: The Securities Appellate Tribunal (SAT) on Monday stayed the Rs 1,849 crore penalty that the Securities and Exchange Board of India (Sebi) had slapped on founder-chairman of Satyam B Ramalinga Raju and four others, but upheld a ban on them from accessing the markets.

The tribunal posted the matter for further hearing in December, when it will decide whether to admit the pleas of the Raju brothers and others against the Sebi order.

The tribunal asked capital market regulator Sebi to explain why such a large amount was imposed as part of a disgorgement order and to file an affidavit stating its position by November 7. It also asked Mr Raju and four others named in the scam to file counter-affidavits by December 15.

The four others facing the prohibitory orders are Raju's brother B Rama Raju (the then managing director of Satyam), Vadlamani Srinivas (ex-chief financial officer), G Ramakrishna (ex-vice president) and V S Prabhakara Gupta (ex-head of internal audit).

Following the Sebi order, the Raju brothers had moved the SAT last Friday.

Sebi on July 15 this year barred Ramalinga Raju and the four others from accessing the market for 14 years and asked them to return Rs 1,849 crore in unlawful gains with 12 per cent interest, in total a disgorgement amount of over Rs 3,000 crore.

Sebi asked them to pay up within 45 days of the order, closing five-and-a-half year long probe into the country's biggest corporate fraud.

As per the Sebi order, the money was asked to be deposited with it within 45 days, while interest would be levied at 12 per cent per annum with effect from January 7, 2009, the day this scam to light through a letter written by Mr Raju himself.

In its 65-page order, Sebi said these five persons "have committed a sophisticated white collar financial fraud with pre-meditated and well thought of plan and deliberate design for personal gains and to the detriment of Satyam and investors in its securities".

The regulator, which had exercised the powers given to it through an Ordinance for passing disgorgement orders, further said "financial frauds as found in this case are inimical to the interests of the investors in securities and endanger the market integrity".

Later last month, a new law was notified to replace this Ordinance with Securities Laws Amendment Act, which has amended three key securities market Acts to grant greater powers to Sebi to take on fraudsters and other market manipulators.

Sebi whole-time member Rajeev Kumar Agarwal in his Satyam order said, "I am convinced this is a case where befitting enforcement action is necessary to send a stern message to the market to create an effective deterrence."

On January 7, 2009, Ramalinga Raju in his capacity as chairman had sent an email to Sebi, wherein he admitted and confessed to inflating the books of Satyam besides understating liabilities and other financial misstatements. After the fraud came to light, the government ordered auction of the company to protect investors and employees of the then fourth largest IT firm.

Satyam was later acquired by Tech Mahindra, and then renamed as Mahindra Satyam and was eventually merged with Tech Mahindra.

The 'unlawful gains' were made by Mr Raju, along with his family members and other accomplices, by selling or pledging company shares at inflated prices, which in turn was done by over-statement of bank balances, creation of fake customers, over-statement of revenues and under-statement of liabilities.

At the same time, the company's books were also manipulated by non-inclusion of certain receipts and payments, resulting into overall mis-statements to the tune of Rs 12,318 crore.

As per Sebi, the Raju brothers made unlawful gains of Rs 543.93 crore from the share sale and Rs 1,258.88 crore by pledging some shares.

Besides, Mr Srinivas, Mr Ramakrishna and Mr Gupta made "unlawful gains" worth Rs 29.5 crore, Rs 11.5 crore and Rs 5.12 crore, respectively through the share sale.

Ramalinga Raju and Rama Raju, being the chairman and managing director, respectively, of Satyam were 'insiders', while Mr Srinivas, Ramakrishna and Gupta being 'connected persons' were actively involved in the manipulation of books and misstating the financials.

"In this case, the noticees (Raju and others), apart from above contraventions, have failed to observe their fiduciary duties and have violated the principles of corporate governance in general and obligation of CEO/CFO certification stipulated in clause 49 of listing agreement, in particular," Sebi said in its order.

Trouble at Satyam erupted on December 16, 2008 when the software firm announced its intent to acquire a 51 per cent stake in Maytas Infra and a 100 per cent stake in Maytas Properties, promoted by Mr Raju's sons, Teja Raju and Rama Raju, for around $1.6 billion.

The deal was opposed by Satyam investors, forcing Mr Raju to call off the proposed deal within a day on December 17, 2008.

Then, on January 7, 2009, Mr Raju resigned from the Satyam board, saying he had falsified the earnings and assets of Satyam for years. His letter to the board said he tried to sell the two promoter-related firms to Satyam in a final attempt to plug "fictitious" cash on the company's balance sheet.

Soon after the fraud came to light, Mr Raju was arrested for a massive accounting fraud. He was granted bail in November 2011.