Exactly 15 years ago, on January 7, 2009, Ramalinga Raju, the promoter of Satyam Computer, tossed a letter ‘bomb’ confessing to serious financial frauds, which later came to be labelled as “Satyam Scam”.
The Satyam scam was extensively covered in the media and was the subject of a number of articles, papers and even books. But not much is known about the proactive role played by the Company Law Board and the government, especially on the first two or three days after Raju’s dramatic confession. As a person who played a significant role as Chairman of the Company Law Board (CLB) during that period, I feel the time has come to fill this information gap.
In the CLB, mentioning matters were taken up on Wednesday afternoons. January 7, 2009, being a Wednesday, I had a heavy board and could return to my Chamber only at around 5.30 pm. At 5.45, the then Secretary, Ministry of Corporate Affairs, Anurag Goyal, called me over intercom inviting me to a cup of tea. The conversation remains etched in memory:
AG: We have to do something about Satyam Computers.
Me: I don’t think there is any need as the Board of Satyam has already revoked the resolutions to acquire Mytas Properties and Mytas Infra.
AG: Are you not aware of the latest development today?
AG: See this letter written by Ramalinga Raju this morning.
He handed over a copy of the letter of Ramalinga Raju dated January 7 confessing commission of fraud.
Me: When did you receive this letter?
AG: At about 10.30 in the morning.
Me: You have wasted valuable time of over seven hours. We should have taken immediate action.
AG: How?
Me: There are a number of provisions in the Companies Act to tackle these types of cases. Sections 401 read with sections 397/398, 388B and 408 empower the Central Government to file a petition before the Company Law Board seeking for removal of the existing directors and appointing new directors.
AG took out a copy of the Companies Act and went through each of these provisions.
Me: Since only the Central Government has been empowered to invoke these provisions, you must do it immediately. Immediately you should file a one page petition under these sections along with a copy of the letter of Ramalinga Raju and ask, as an interim measure, the suspension of the existing Board and appointment of directors. I shall pass appropriate orders.
AG: I will have to consult the Minister and revert back tomorrow.
Next day morning, that is on January 8, AG said the Government had decided to file a petition.
On the evening of 8th, AG, true to his word, sent a senior officer of the Ministry to my residence with a draft petition which I went through and cleared. I decided that I would prepare an order on the basis of the draft petition itself so that when the petition was filed the next day, the order could be delivered immediately.
While preparing the order, I noticed that, as a measure of interim relief, the Government had asked for restraining the existing directors from discharging their function. Instead of asking for appointment of directors as had been suggested by me the previous day, it asked for authorising the Central Government to appoint 10 of its nominees as directors on the Board of Satyam. While section 408 empowered the CLB to authorise the Government to appoint directors, there was no provisions in that section to do so as an interim measure.
Both sections, Section 403 read with sections 397/398 and 388C, empowered only the CLB to appoint directors as an interim measure. Hence, I apprehended that authorising the Government to appoint directors could be challenged on the ground that the CLB had no powers to delegate its powers to the Government. I was also conscious that it would be impossible to identify the right persons by myself and appoint them. I also noted that directing the Government to furnish a list to the CLB for appointment would result in avoidable delay.
The best course
Hence, after careful consideration of all these aspects, I concluded that the best course would be to authorise the Government to appoint the directors but with the caveat that the same should in the name and on behalf of CLB. Unlike the usual practice of appointing retired government officers as directors under Section 408, I decided the direction should be to appoint only persons of eminence.
After a number of drafts, I made the final ex-parte order in the late night of 8th, that is, even before a formal petition was filed the next day.
On the 9th morning, I showed a copy of the said order to Anurag Goyal and requested him to expedite filing the petition. Accordingly, it was filed and mentioned at about 5 pm on 9th and I handed over the order, which I had prepared the previous day, immediately. Around 6 pm on that day, in a press meet, the Minister Prem Chand Gupta announced the takeover of Satyam.
Later, I learnt that the Minister had hand-picked six persons of eminence in diverse fields as directors to make the Board a broad based one. These were: Kiran Karnik (NASSCOM), Deepak Parikh (HDFC), C Achuthan (SAT), Tarun Das (CII), S Balakrishna Mainak (LIC) and TN Manoharan (ICAI).
When I passed the first order on January 9 on the appointment of Government directors, I never visualised that within a period of just about three months, the company would get a white knight in the form of Tech Mahindra to make a huge investment. The credit goes to the collective efforts of the six eminent directors. Satyam has lost its identity owing to its amalgamation with Tech Mahindra, but the story of its salvage will remain for ever.
While writing this article, a thought occurred to me. Assuming that Raju had not made the confession as he did, would Satyam have been salvaged? The frauds committed by him would have come to light sooner or later but it is highly improbable that the company could have been salvaged and taken over by a suitor like Tech Mahindra. (IL&FS is an example.)
Satyam Scam came to light in January 2009 and only by invoking the provisions of section 388B and Section 408, could the company have been salvaged. However, without realising the importance of these provisions, and in spite of my advice to retain these provisions in the Companies Bill 2009 (which became 2013 Act), they were omitted. Only when the IL&FS episode occurred in 2016, were the provisions of section 388B inserted as a part of Section 241 of the 2013 Act.
The writer is former Chairman, Company Law Board