In the country's biggest corporate fraud involving about Rs 8,000 crore, iconic IT company Satyam was hurtling towards disaster following the shocking disclosure of accounts fudging by its founder Ramalinga Raju, who then quit as chairman - leaving an uncertain future for the company and its 53,000 employees.
By the end of the day, the fourth largest IT company lost a staggering Rs 10,000 crore in market capitalisation as investors reacted sharply and dumped shares, pushing down the scrip by 78 per cent to Rs 39.95 at BSE. The NYSE-listed firm could also face regulator action in the US.
The government, regulator SEBI and the industry reacted with shock and anguish over the turn of events that could tarnish India's corporate and raise vital issue like ethics, corporate governance and accounting and business practices.
Acting in tandem, Corporate Affairs Ministry and SEBI announced that the episode would be probed and action taken against the perpetrators of the fraud that entails inflating profits and creating fictitious assets.
"I am now prepared to subject myself to the laws of the land and face consequences thereof," Raju said in a letter to SEBI and the Board of Directors, while giving details of how the profits were inflated over the years and his failed attempts to "fill the fictitious assets with real ones."
The Maytas firms, although promoted by his family, proved to be his nemesis, with Raju saying: "The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones... But that was not to be. What followed in the last seven days is common knowledge."
While the government said the entire issue would be referred to the Serious Fraud Investigation Office, SEBI described it as an event of "horrifying magnitude." "It was like riding a tiger not knowing how to get off without being eaten," said Raju.
Removal from Sensex, Nifty
Satyam Computers may be removed from the Sensex and Nifty following the revelation of manipulation in the company's accounts, analysts said. Rajiv Mehta, senior analyst with India Infoline, a large brokerage house said his firm has immediately stopped covering Satyam and many other brokerage houses are also expected to do the same. There will not be any investor interest in the company anyway. The company may be removed from sensex and nifty, he said.
With the fall in its stock prices, Satyam has lost its weightage in the sensex considerably over the recent past and currently has weightage of only 1.56 as of Tuesday. While in nifty, the weightage is only 0.63 per cent.
B Ramalinga Raju can get a 7-year jail term
Satyam Computer Chairman B Ramalinga Raju can face seven years' imprisonment in addition to monetary penalties for forging accounts, breach of trust and misappropriating funds.
"He (Raju) can be charged under various sections of the Indian Penal Code for falsification of accounts, cheating and breach of trust. These offences attract a maximum penalty of seven years," said a senior partner of law firm Titus and Company, Diljeet Titus.
Expressing a similar opinion, senior Supreme Court advocate C A Sundaram said, "If the admissions (made by Raju in his resignation letter) are true, it is a very serious matter. It would be violation of (the) SEBI (code), Company Law and the IPC".
Another senior advocate and corporate law practitioner U K Chaudhary said the Satyam chief could be imprisoned for seven years under various provisions of company law. "Under section 628 of the Companies Act, which deals with misrepresentation of accounts, he could be punished for a maximum of 2 years along with penalty. However, the punishment term could be extended to seven years for producing false affidavits and other documents," he said.
In addition to Raju, Titus said "action should also be taken against Chief Financial Officers, Finance Managers, and Legal and Tax Advisors for their complicity in this episode".
Suggesting that the CBI should get into the case, he said if appropriate action is not taken, the Satyam fiasco would "make a mockery of the Indian enforcement mechanism".