A PERSPECTIVE ON GOVERNMENT TAKEOVER OF SATYAM

A PERSPECTIVE ON GOVERNMENT TAKEOVER OF SATYAM - Transcript

A PERSPECTIVE ON GOVERNMENT TAKEOVER OF SATYAM

Group 8 Santhosh Anirudh 09FT 077 Meenal Gupta 09FT 083 Nikhil Pandit 09FT 097 Nithin L 09FT 101 Parinit Agarwal 09FT 103

TABLE OF CONTENTS


Introduction Background of Satyam Case The Companies Act 1956 Relevant Sections of the Act Analysis Reasons for Government Takeover Impact of the Case
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TABLE OF CONTENTS


Introduction Background of Satyam Case The Companies Act 1956 Relevant Sections of the Act Analysis Reasons for Government Takeover Impact of the Case
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INTRODUCTION
On 7th January 2009 B Ramalingam Raju sent a mail confessing his fraud for Satyam Computer Services Limited This resulted in certain events which made the Government of India take over its board for revival Based on this case we will try to look at the following aspects
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Important timelines of the case Sections related to Indian Companies Act related to takeovers Alleged facts and judgment of CLB Impact of the Case
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TABLE OF CONTENTS


Introduction Background of Satyam Case The Companies Act 1956 Relevant Sections of the Act Analysis Reasons for Government Takeover Impact of the Case
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ABOUT SATYAM


Satyam Computer Services Ltd now Mahindra Satyam was founded in 1987 by Mr Rama Raju and Mr Ramalingam Raju The company became public in 1991 It has close to 50 000 employees and was one of the big 4 IT players in India On april 2008 it reported revenues of Rs 8473 49 crores growth of 30 7 Maytas is a group of companies controlled by Mr Ramalingam Raju It includes Maytas properties and Maytas Infra Limited
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SALIENT FEATURES OF THE CASE


Satyam Computer Services promoted by Mr Ramalingam Raju had over 53000 employees with clients in 60 countries The board of directors approved a proposal to acquire stakes in Maytas at huge costs 4 independent directors resigned and share prices clashed from Rs 188 to Rs 38 4 On 7th jan 2009 Mr Raju in his letter to board SEBI and the stock exchanges admitted manipulation of Satyam s accounts that ran in hundreds of crores Government of India debarred the then board and appointed new directors
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TIMELINE OF THE CASE

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T YPES OF TAKEOVER

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TABLE OF CONTENTS


Introduction Background of Satyam Case The Companies Act 1956 Relevant Sections of the Act Analysis Reasons for Government Takeover Impact of the Case
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DEFINITION OF A COMPANY


A legal entity allowed by legislation which permits a group of people as shareholders to apply to the government for an independent organization to be created which can then focus on pursuing set objectives and empowered with legal rights which are usually only reserved for individuals such as to sue and be sued own property hire employees or loan and borrow money

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THE COMPANIES ACT 1956


An Act to consolidate and amend the law relating to companies and certain other associations



Objectives The Act confers a variety of powers on the Central Government and the Company Law Board to monitor regulate and control the affairs of the companies Some of the provisions for the Act are


Management of the Companies Control Over Companies Protection of Shareholders Consumers Interest Inter Corporate Loans and Investments Company Law Board
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TABLE OF CONTENTS


Introduction Background of Satyam Case The Companies Act 1956 Relevant Sections of the Act Analysis Reasons for Government Takeover Impact of the Case
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RELEVANT SECTIONS OF THE ACT


388 B Reference to Company Law Board of cases against managerial personnel



388 C Interim order by Company Law Board 388 D Decision of the Company Law Board 388 E Power of Central Government to remove managerial personnel on the basis of Company Law Board s decision







397 Application to Company Law Board for relief in cases of oppression
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RELEVANT SECTIONS OF THE ACT CONTD


398 Application to Company Law Board for relief in cases of mismanagement



399 Right to apply under sections 397 and 398 401 Right of Central Government to apply under sections 397 and 398





402 Powers of Company Law Board on application under section 397 or 398



408 Powers of Government to prevent oppression or mismanagement
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PREVENTION OF OPPRESSION AND MISMANAGEMENT


If in an application for relief in cases of oppression the Company Law Board is of the opinion


that the company s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up



the Company Law Board may with a view to bringing to an end the matters complained of make such order as it thinks fit
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PREVENTION OF OPPRESSION AND MISMANAGEMENT CONTD


If in an application for relief in cases of mismanagement the Company Law Board is of the opinion


that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or



that a material change has taken place in the management or control of the company whether by an alteration in its Board of directors or manager or in the ownership of the company s shares or if it has no share capital in its membership or in any other manner whatsoever and that by reason of such change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company

the Company Law Board may with a view to bringing to an end or preventing the matters complained of or apprehended make such order as it thinks fit

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TABLE OF CONTENTS


Introduction Background of Satyam Case The Companies Act 1956 Relevant Sections of the Act Analysis Reasons for Government Takeover Impact of the Case
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OBSERVATIONS OF THE CLB ON 09 JAN 2009


The petitioner had sufficient grounds to evoke the Sections 388B 397 398 401 408 of Companies Act 1956 The promoter group led by Mr Raju held less than 4 shares in the company and more than 60 of the shares were held by various financial institutions 4 of the independent directors in the board of directors had resigned after the decision to invest in Maytas came to public knowledge The admission of Mr Raju firmly established the fact that there had been financial misrepresentation The need of the hour was to create confidence and display the effectiveness of the Indian regulatory judicial system









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ORDERS OF THE CLB ON 09 JAN 2009


The Board of Directors were suspended with immediate effect They were not to represent themselves as directors of SCS and could not execute any of the powers of a Director The Central Government could immediately constitute a fresh board of the company with 10 eminent people as directors One person was to be designated as Chairperson of the board The new board had all powers entitled to it by the articles of the company The new board was supposed to meet within 7 days and take stock and bring the company back on the road The new board was to submit periodic reports to the Government
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ANALYSIS IN TERMS OF THE COMPANY LAW


Under Chapter IV A of the Companies Act the Government has the power to remove managerial personnel from office on the recommendation of the CLB Under Section 388B the Government can refer to CLB when




Person indulges in fraud Person does not conduct as per sound business principles The business has been conducted in a manner that can cause damage to the company or industry or trade When the business has been done in a manner with an intent to defraud its creditors or members or in a manner against public interest
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ANALYSIS IN TERMS OF THE COMPANY LAW


In this case


The people who managed the company have conducted business with an intent to defraud the company and its creditors and shareholders The attempted acquisition of Maytas was against sound business principles These actions of the board are also liable to cause serious damage to the interests of the Indian I T industry and the whole Indian business sector at large







In such a scenario the CLB can enquire into the case and is also allowed to authorize the Central Government to prevent the concerned people from discharging their duties
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ANALYSIS IN TERMS OF THE COMPANY LAW


Under Section 388C During the pendency of the case the CLB has the power to pass an interim order on the application of the Central Government in the interest of its members



Under Section 388D the CLB can decide if the person concerned is fit to hold his post concerned with the management of the company



Under Section 388E the Central Government may remove the delinquent person from office After his removal the person may not hold any managerial office of any company for a period of 5 years and shall not be compensated for his removal
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ANALYSIS IN TERMS OF THE COMPANY LAW


Under Chapter IV A of the Companies Act there are actions and measures for the prevention of Mismanagement and Oppression Section 397 deals with the circumstances for prevention of Oppression Section 398 deals with the circumstances for prevention of Mismanagement Oppression action Actions of the board and specific actions of Mr Ramalinga Raju involves a lack of fair dealing in the matter of the properties rights of the shareholders and members Mismanagement Involves mismanagement because they go against the interests of the company which is to maximize shareholders wealth
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ANALYSIS IN TERMS OF THE COMPANY LAW


Under Section 399 an application for this reason can filed by only the members of the company The Government may also authorize the member to file the same Under Section 401 the Central Government itself may apply to the CLB for an order under sections 397 or 398 The Union of India filed an application under this section Under Section 402 the power of the tribunal provides for an order which includes regulation of conduct of company s affairs in the future This allowed the CLB to give an order for the regulation of Satyam by taking control of its board
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ANALYSIS IN TERMS OF THE COMPANY LAW


Chapter VI B gives the Government the powers to take action under mismanagement or oppression Section 408 details the actions that the Government can take




May appoint as may people as directed as Directors to safeguard interests of the company public and shareholders The maximum term of such directors is 3 years on each occasion Such a Director need not hold any qualifying shares nor shall his term be dictated by policy of rotation However the director so appointed may be replaced by the Central Government at any time The company cannot change the composition of the Board after Directors have been appointed and are on the board







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ANALYSIS IN TERMS OF THE COMPANY LAW


Section 408 actions continued


As long as such people appointed by the Government hold office as Director the Government can issue directions to the company like removing existing auditors and replacement with another



Such Directors so appointed are required to report to the Government from time to time



Under this section the CLB permitted the Union of India to appoint 10 of its nominees to function as directors of Satyam with one nominee functioning as the Chairman of the Board It also directed the Government to ensure that the newly constituted board meet within 7 days and take stock of the situation The new board was also vested with all the powers as entitled in the board by articles and acts





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OBSERVATIONS OF THE CLB ON 19 FEB 2009


The new board had taken several steps for the financial revival of the company detection of and investigation into the various misdeeds of the erstwhile management The board had also managed to raise above Rs 600 crores to meet the immediate financial requirements of the company Also the board had come to a conclusion that to meet the long term financial needs of the company it was important to find a strategic investor To induct a strategic investor for the company the Board had already sought for relaxations in the Take Over code regulations from the SEBI
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OBSERVATIONS OF THE CLB ON 19 FEB 2009 CONTD


To rope in a strategic investor it was imperative that the Authorised Share Capital be increased from 160 to 240 crores Subsequent preferential allotment to be made to that investor



Also the Board had requested the CLB to exempt the Board Company to seek the approval of the shareholders to increase the authorised share capital and also to preferentially allot it to the strategic investor chosen

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ORDERS OF THE CLB ON THE 19 FEB 2009
The CLB passed the following orders to help the financial situation of Satyam Computer Services


Allowed the company to increase the limit on authorized equity share capital to Rs 280 crores Authorized the company to make a preferential allotment of equity shares To induct strategic investors into the company by






Developing a plan for transparent competitive process Process to be overseen by retired Judge of Supreme court Obtaining approvals from SEBI Obtain approval of the new board
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TABLE OF CONTENTS


Introduction Background of Satyam Case The Companies Act 1956 Relevant Sections of the Act Analysis Reasons for Government Takeover Impact of the Case
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EARLIER MISCONCEPTIONS REGARDING CORPORATE


Corporate Governance was claimed to be complete in itself Companies get accounts audited by auditors of internatinal standards

WHY GOVERNMENT HAD TO INTERVENE


Brand India and Brand IT as global market at stake Assure credulity to foreign investors Humanitarian measures towards employees of Satyam
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TABLE OF CONTENTS


Introduction Background of Satyam Case The Companies Act 1956 Relevant Sections of the Act Analysis Reasons for Government Takeover Impact of the Case
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IMPACT OF THE SCAM


SEBI on Feb 13 2009 eased takeover norms for companies whose boards have been superseded by the government SEBI amended the Securities and Exchange Board of India Substantial Acquisition of Shares and Takeovers Regulations 1997 allowing companies a special status in the bidding process These regulations called Securities and Exchange Board of India Substantial Acquisition of Shares and Takeovers Second Amendment Regulations 2009





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THANK YOU

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