Date:11/01/2009 URL: http://www.thehindu.com/2009/01/11/stories/2009011160631400.htm

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Raju led the Board of Directors up the garden path

S. Nagesh Kumar

— PHOTO: AFP, Special Arrangement.

Ramalinga Raju, (second from right, partially hidden in the back seat) being taken to the prison.

HYDERABAD: Satyam’s ex-Chairman B. Ramalinga Raju led the eight members on his Board of Directors up the garden path during their meeting on December 16 by presenting a rosy picture of the company’s finances and violated the spirit of the resolution on the modus operandi for acquiring Maytas Properties and Maytas Infra.

Immediately after the meeting, Mr. Raju announced that the Board had approved acquisition of the two companies but forgot to tell the whole truth.

Key rider

It indeed authorised him to invest up to Rs. 6,410 crore to acquire Maytas Properties based on a preliminary valuation by Ernst & Young but added a key rider to proceed with the acquisition after a proper valuation in consultation with bankers and consultants, documents available with The Hindu reveal.

Much to the chagrin of the Independent Directors, he did not go through this process in spite of the heat generated on the issue when Dr. Mangalam Srinivasan cautioned Mr. Raju against creating the impression that the Board was a rubber stamp. Another Independent Director T. R. Prasad, a seasoned bureaucrat with vast experience in revenue matters, suggested that the property be valued separately for completed projects, those where work is in progress and for lands awaiting development.

Mr. Raju ignored these suggestions and announced the decision to acquire Maytas, only to retract it within eight hours.

Ramalinga Raju (adjusting his spectacles) and his brother Rama Raju entering the Chanchalguda jail after a magistrate in Hyderabad remanded them to judicial custody on Saturday.

At the meeting, Mr. Raju tried to bamboozle the members that unless Satyam diversified into infrastructure, it would be taken over by IBM, in a tactic known as ‘poison pill technology.’

Raju’s claim

What shocked these directors is Mr. Ramalinga Raju’s claim, while confessing to committing a Rs. 7,100 crore fraud, that the company had no money. Chief Financial Officer Srinivas Vadlamani informed the Board on December 16 that 75 per cent of funds for the Maytas acquisition would be met from the Rs. 5,300 crore cash balance as reported in second quarter financials.

Whether the Directors were misled about the cash and bank balances or spirited it away later is now for investigators to find out.

A closer look at the second quarter financials also reveals yet another bungled attempt to fudge the account books. The company, it said, provided Rs. 115 crore for income tax whereas the actual operating margin was Rs. 61 crore.

Four auditors of PricewaterhouseCoopers, who actually audited Satyam’s accounts, kept presenting a bright picture and even claimed to have obtained records ‘directly from the nine banks’ where Satyam’s funds were deposited.