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| Govt gets down to fact-finding | |
| Satyam feels regulators` heat | | BS Reporters / New Delhi January 08, 2009, 0:14 IST | |
The corporate affairs ministry, which regulates companies registered in the country, is verifying facts relating to ‘overstatement of profits’ by Satyam Computer, and will initiate action against the management and external auditor of the Hyderabad-based software firm based on its findings.
The government is likely to refer this case to Serious Fraud Investigation Office (SIFO) -- an inter-disciplinary organisation set up to investigate such financial frauds.
“It is shameful and should not have happened,” said Corporate Affairs Minister Prem Chand Gupta said, adding that action would be coordinated with stock market regulator the Securities Exchange Board of India (Sebi).
Meanwhile, the finance ministry has sent a report to the Prime Minister’s Office (PMO) collecting all information relating to the troubled company, a senior government official said. However, details of the report were not known.
“The case now seems to have involved not only corporate governance but criminal liability also. It is for such cases that SFIO was created,” said Vinod Dahl, former secretary of ministry of corporate affairs, and also former chairman of Competition Commission of India. He set up SFIO under the ministry.
Experts said the central government through its various arms — Registrar of Companies and market regulator — has multiple investigation options, including registering a criminal case or suspending the current board and nominate new members.
Without referring to Satyam in particular, as full details were not known, B Ravi, a practicing company secretary, said that any company or individual knowingly providing false statement or misrepresenting facts would amount to ‘fraud’ as defined in the Companies Act.
The relevant portion is Section 628 which provides for imprisonment for a maximum of two years along with fine. “If it is a fraud, then it’s not a compoundable offence,” he said.
Another option for the government is to take action based on the report filed by Registrar of Companies, which is likely to submit its report shortly. Alternatively, the corporate affairs ministry could initiate suo motto action.
Sections 235 to 250A of the Companies Act give wide ranging powers to the central government to investigate and take action for protecting the shareholders' interest. The powers include suspending the current board of directors and appointing its nominee.
“In order to effectively enforce the law, the case should be thoroughly investigated to fix the responsibility, first of the executive managers and directors and subsequently of non-executive directors,” Dhal told Business Standard.
In a statement to the stock exchanges, Ramalinga Raju, chairman of Satyam, said the company had overstated profits for the quarter ended September 2008. It had showed overstated cash balances to the tune of around Rs 5,000 crore.
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