Action n Reactions:Against Raju

Jan. 7: B. Ramalinga Raju, the embattled Satyam chairman who resigned today, could face up to 10 years in prison, a penalty of Rs 25 crore or both if market watchdog Sebi proceeds against him for fudging company accounts.

Some lawyers, however, said the sentence wouldn’t exceed three years.

But that isn’t all.

His misdeeds could also attract provisions of the Indian Penal Code under which he can be charged with cheating and falsification of accounts, offences that can attract a maximum punishment of seven years in jail.

Then there is Section 628 of the Companies Act under which he could be jailed for at least two years apart from monetary penalty, or both.

Observers said the Satyam promoter could also be hounded in America as the company is listed on the New York Stock Exchange. “One cannot rule out the possibility of class action suits,” said an observer who didn’t want to be named.

But Raju, lawyers said, can’t be arrested without following the due process of law. Corporate lawyer Dhruv Mehta said a complaint would have to be filed for investigations to begin. As Raju has publicly said he did fudge the accounts, it could, in this case, be the state government that could ask police to investigate.

Once the investigation is over, the police would have to file a chargesheet in court.

Andhra chief minister Y.S. Rajasekhar Reddy said in Delhi a CB-CID inquiry would be ordered into the “mind-boggling” fraud immediately.

But, later in the day, Hyderabad police commissioner B. Prasada Rao said no complaint had been received yet from Sebi or the Registrar of Companies. “We have not received any complaint from anybody and the question of his arrest does not arise,” Rao told PTI.

However, Raju’s troubles already seem to have begun.

Hours after he admitted to the fraud, Kirit Somaiya, president of the Investors’ Grievances Forum, filed a criminal complaint against Raju and the auditors —PricewaterhouseCoopers — with the Economic Offences Wing of Mumbai police.

Somaiya told The Telegraph the complaint was filed under Section 420 for cheating, which carries a maximum punishment of three years in jail — the same as for criminal breach of trust.

Sandeep P. Parekh, a former executive director with Sebi and now a visiting teacher at IIM Ahmedabad, said Raju could be jailed for 10 years.

He said the Satyam Computers chairman had violated the listing agreement with stock exchanges under Section 23 (2) of the Securities Contract Regulation Act. “Criminal and penal action can be taken where he can face imprisonment for a maximum period of 10 years.”

Parekh said local bourses might choose not to proceed against Raju but authorities abroad could initiate action.

“There also could be shareholder actions, private class action lawsuits,” Parekh added.

Sebi said it had ordered a probe into “affairs relating to buying, selling or dealing in shares” of Satyam. “The investigation will also ascertain whether any provision of the Sebi Act or Sebi Regulations/ Rules has been violated,” the capital market regulator said in a statement this evening.

It didn’t say if it was looking at whether provisions of the Securities Contract Regulation Act had been violated.

Informed circles said a Sebi team would visit Hyderabad tomorrow to inspect books of the company. The team is also likely to look at the role played by the company’s audit committee.

Lawyers said even the company’s directors and executives — anybody who had a managerial role — could face charges for inflating profits and deflating liabilities.

Senior Supreme Court lawyer C.A. Sundaram, who specialises in corporate law, said if the admissions made by Raju were “true”, it was a “very serious matter”.

“It’s a public company… a listed company… it is a huge company, it is a well-known company and has thousands of public investors,” he said.

“Directors have a fiduciary duty towards the company and its shareholders,” Sundaram added. “When a listed company does this, it is exceedingly serious and amounts to cheating thousands of investors.”

The Satyam episode, he said, had also exposed the complete failure of regulatory mechanism in India. “Sebi has enormous powers,” he said. “What was it doing?”

source:telegraph