Shareholders may take legal action against Satyam

18 Dec 2008, 0415 hrs IST, Jessica Mehroin Irani & Ashish Rukhaiyar, ET Bureau

MUMBAI: Shareholders of Satyam Computers can take legal action against the company even after Satyam backtracks from its plans to acquire Maytas

Properties and Maytas Infrastructures, according to legal experts.

Anoop Narayanan, partner of Majmudar & Co, feels that the Satyam shareholders ‘paid a price’ for the board decision and this provides them sufficient ground for initiating legal action.

“The unfavourable impact of the called-off deal and the criminal act (criminal breach of trust) behind that may be sufficient grounds for legal action even after the deal
has been called off,” says Mr Narayanan. The Satyam stock lost more than 30% or Rs 68.45 on Wednesday, to close at Rs 158.05 on the BSE. Mr Narayanan feels a “criminal action can also be taken for breach of trust.”

Legal experts feel at least 100 shareholders, or shareholders with a combined 10% stake, can come together and file a case for breach of trust and mis-management as it is clear that the company board did not act in the best interest of the shareholders. This is in accordance with Sections 397 and 398 of the Companies Act 1956.

It is also alleged that the deal was deliberately valued in a fashion to avoid obtaining shareholders’ approval. Edelweiss Securities, in a report released on Wednesday, says that the Section 372A of the Companies Act, 1956 empowers a board to make any investment without passing a special resolution by the shareholders if the value is either 60% of the aggregate of the paid up capital and free reserves or 100% of its free reserve, whichever is more.

“Around 60% of the company’s paid-up capital and free reserves stand at $1 billion while its free reserve is $1.64 billion, which is extremely close to the transaction consideration of $1.6 billion,” notes the report.

According to another partner of a corporate legal firm, who did not wish to be named, said that it is amply clear that the deal was designed to use the company’s fund to help a section of the promoters for their personal gains. “I would not be surprised if the stock exchanges at the behest of Sebi ask for an explanation from the promoters. In the US, promoters cannot get away easily after such acts,” he says.

via:E.T