Mah Satyam wins tax case against Upaid

Mahindra Satyam’s legal liabilities, excluding class action suits in the US, have dropped to near zero with the Supreme Court of the State of New York on Monday asking UK mobile solutions company Upaid to bear the tax burden while settling its dispute with the Indian IT outsourcing company.

“The court adjudged and declared that the settlement agreement requires that Upaid must cooperate with the escrow agent (IDBI Bank Ltd) to allow it to withhold any applicable taxes from the $70-million settlement amount,” Mahindra Satyam (the brand identity of Satyam Computer Services Ltd) said in a filing with BSE.

Mahindra Satyam had filed a lawsuit in a New York court against Upaid, seeking to make it solely responsible for any tax liability arising from an out-of-court settlement reached by them.

Last December, Mahindra Satyam had offered to settle all disputes with Upaid Systems over the license of intellectual property, among others, by paying $70 million. Under the arrangement, it had agreed to pay $45 million upfront and the rest in the next one year.

“It’s a shot in the arm for the company before the restatement of the accounts. Markets will also react positively as things are falling in place,” a top official of Mahindra Satyam told Business Standard.

The official said with the Upaid suit settled, the company’s legal liabilities had come down to near zero, except for class action suits filed in the US. Satyam faces several such cases in the US, filed by the company’s shareholders over the multi-crore scam.

Mahindra Satyam in July 2009 had settled its dispute with Caterpillar Inc, a US manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, “amicably with no further liability on either side”. 

TIMELINE

1996 : Upaid develops pre-paid phone services

1997 : Informal deal with Satyam on s’ware development

1999 : Satyam agrees to transfer IP to Upaid for cash

2002 : Squabble erupts over work quality and IP rights

2007 : Upaid files lawsuit over ‘forged’ Satyam documents

2009 : Mah Satyam offers to settle disputes by paying $70 million

Feb 2010 : Mah Satyam files suit over tax liablity on settlement

Aug 2010 : Court asks Upaid to bear tax burden

Following the January 7, 2009, resignation of Satyam founder B Ramalinga Raju, Caterpillar served a legal notice on Satyam notifying the company of the termination of their asset purchase agreement and transition services agreement, each dated April 21, 2008, and demanding immediate payment of the unpaid principal balance of $40 million due under the promissory note. Both parties began negotiating to amicably resolve the outstanding issues in March 2009.

“Class action suits will only come to the fore once consolidation of all the cases happens. And, the company (Mahindra Satyam) will be the last one to be questioned,” the official said, indicating that the company was looking at the possibility of out-of-court settlements.

Shares of Mahindra Satyam closed at Rs 85.40,up 2.34 per cent on the Bombay Stock Exchange, after touching an intra-day high of Rs 88.