Police arrest Ramalinga Raju & brother; govt supersedes Satyam board.
The law finally caught up with Satyam’s former chairman Ramalinga Raju and his brother Rama Raju, who were arrested by the Andhra Pradesh Police late tonight, even as the government superseded the company’s board and said it will appoint 10 nominee-directors.
Rama Raju was the managing director of Satyam and both the brothers were arrested under Sections 120 B, 409, 420 and 471 of the Indian Penal Code for the accounting fraud, considered the biggest scandal in India’s corporate history.
The charges range from criminal conspiracy to breach of trust and forgery and the punishment can be up to 10 years of imprisonment and fine. The arrests were made after the Criminal Investigation Department (CID) of the police launched an investigation into the scandal after the state government finally gave the go-ahead today.
Police sources said Srinivas Vadalamani, Satyam’s CFO, may also be arrested tomorrow. He could not be found at his Tarnaka residence though his family members were there.
Sources said that the police will seek custody for at least 14 days when the brothers are produced before a magistrate.
Earlier in the evening, the government’s action to supersede the board was the first such action against a large company. The new board will have its first meeting within seven days and will have wide-ranging powers, including that of appointing new auditors and management for the company.
“The current board of Satyam has failed to do what it was supposed to do,” said Minister of Corporate Affairs Prem Chand Gupta at a crowded press conference, which was delayed by more than two hours. The list of the nominee-directors will be finalised shortly, Gupta said.
Since the present three-member board will have no locus standi, tomorrow’s board meeting, led by interim CEO Ram Mynampati, stands cancelled.
The government’s crackdown comes after the regulatory agencies launched a frontal attack on the company during the day, triggering panic selling in the stock, which plunged over 40 per cent on the Bombay Stock Exchange (BSE).
Ramalinga Raju, whose January 7 revelations of financial irregularities to the stock exchanges sparked off the crisis, was scheduled to meet officials of the Securities and Exchange Board of India’s (Sebi’s) investigating team at 4 p m tomorrow, his lawyer S Bharath Kumar said.
The meeting was supposed to be held at Satyam’s My Home office in Hitec City, but Sebi will now have to depend on the police for interrogating him.
Meanwhile, Sebi Chairman C B Bhave told reporters in Mumbai that the regulator will not file a case against Raju till the investigation is complete. “Raju’s letter itself isn’t enough to put him in front of a magistrate,” he said.
Bhave said the regulator is in touch with the US Securities and Exchange Commission (Satyam is listed on New York Stock Exchange, which has suspended trading in the American Depository Receipt) and requested investors to treat the Satyam episode as a one-off case.
A Sebi team first visited Raju’s Jubilee House residence but found it locked. Raju is believed to be staying at a guest house belonging to the Byrraju Foundation at Kompally on the outskirts of Hyderabad.
That the regulatory noose is tightening around what was once touted as India’s fourth largest software services firm was evident from Gupta’s statement earlier in the day that the government has seized the company’s books of accounts.
“After obtaining a judicial order from the magistrate in Hyderabad, the Registrar of Companies (RoC), in coordination with Sebi, went to the office of Satyam and seized the documents from its premises,” Gupta said, adding that the operation went on till 5 Friday morning.
An eight-member RoC team has already rushed to Hyderabad to investigate the accounts of Satyam and its eight subsidiaries. An RoC official said, “We have a record of eight years of balance sheets of Satyam (till March 2008) available with us and have not found any aberration in them. They have sought an extension of time to furnish the records and returns till date, which we asked for. We are expecting Satyam to submit these on January 12.”
He, however, said the investigation could take two more months.
The Income Tax department is also likely to expand its investigation into the possible tax evasion by Satyam by including eight other related firms. Further, the department is planning to consolidate its investigation of all the companies (Satyam and its related companies) under one investigating officer for better coordination.
Statutory auditor Price Waterhouse also came under pressure with the Institute of Chartered Accountants of India asking it to explain its actions within 21 days.
Meanwhile, traders continued to pound the company’s scrip. The stock fell to its yearly low of Rs 11.50 on the BSE before closing 40.30 per cent lower at Rs 23.85. On the NSE, the stock fell to an intra-day low of Rs 6.30.
