Investors abroad compensated, but not those in India

K V Kurmanath Hyderabad | Updated on January 23, 2018 Published on April 09, 2015

Vineet Nayyar,Executive V-C, Tech Mahindra

Tech Mahindra, which acquired Satyam, settled disputes out of court in the US

The frequent refrain of Tech Mahindra Executive Vice-Chairman Vineet Nayyar after Tech Mahindra acquired Satyam was that it was a near death situation for the firm.

The path for revival was an arduous one. The acquirer, Tech Mahindra, had to face (and is still facing) a host of legal and regulatory battles in India and abroad. It faced the wrath of investors in the UK, US and India.

In order to save time and energies and to focus on the revival of the doomed firm, Tech Mahindra chose to close those knotty issues using the out-of-the-court route.

Of all the legal tangles, at least three are worth mentioning – two Aberdeen suits in the US and in the UK, class action suit in the US and the settlement with the Securities and Exchange Commission (SEC, the US) to make permanent peace abroad.

These moves paved the way to wind up the ADR issue on the US bourse. At one point, it was even planning relisting on New York Stock Exchange (NYSE).

It had to spend huge sums to reach agreements with the legal opponents. Mahindra Satyam paid $125 million or about ₹587.50 crore (the dollar quoting cheaper then) to end a bunch of class action suits. The two settlements with Aberdeen (the US and UK) cost the firm about $80 million.

Class action suits are a defence mechanism for investors in the West to offer some cushion against erring corporates. A group of aggrieved investors join hands to move a case against a listed entity to seek compensation for losses, if any, due to malpractices.

Retail investors are empowered thereby to seek recourse. Mahindra Satyam was in the dock in India from some investors’ associations for not extending a similar gesture and paying compensation to investors in India.

Investors lost heavily overnight as the Satyam stock fell like nine pins after the fraud news hit headlines. The share price fell to a few rupees from a few hundreds.

Besides a few claims by the IT department, the Tech Mahindra management faces claims made by numerous agricultural companies reportedly floated by the kin of Ramalinga Raju. They filed a case in High Court claiming back the ₹1,230 crore advances they made to the sinking Satyam under Raju.

Tech Mahindra, however, always denied the allegation.

Published on April 09, 2015
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