Mahindra Satyam will pay $125 million (about Rs 587.50 crore) in an out-of-court settlement to end a bunch of class action suits filed in the US, removing a major roadblock for its merger with Tech Mahindra and its effort to relist on the NYSE.

The company has also decided to sue its founder Chairman, Mr B. Ramalinga Raju, for the monetary losses suffered by the company due to the scam.

The company might also take ‘PwC-related entities' to court on the same charges. In the event of taking it to the court and winning the case, the claimants in the US would get 25 per cent of the compensation awarded.

More than 12 class action suits were filed by scores of investors in the US, against the scam-tainted Hyderabad-based company for the losses they suffered due to the financial fraud committed by its promoters. They contended that the value of ADRs plummeted as the company's financials were inflated by the management.

Class action suit

A class action suit is a combined petition by a large group of people with a common grievance.

All the suits were clubbed into one suit at Southern District Court of New York. The $125-m deal, signed on Wednesday, would have to pass through statutory approvals in India and nod from the US court. After getting the approvals, the company would deposit the money in an escrow account. It would be transferred to the petitioners after the court giving the final approval a few months later.

Interestingly, the company has always denied any move to settle the row out of court. On February 14, 2011, Mr Nayyar termed the reports as rumours, saying that the class action suits were yet to be resolved.

While talking to reporters on Thursday on the deal, he however, admitted that the company was working on this (out-of-court settlement) for over one year. “No one knew what could be the penalty. Uncertainty could impact (the merger prospects),” he said.

Aberdeen issue

Mr Nayyar said the petition filed by the investment firm Aberdeen in the same court would be dealt with separately. “The settlement is exclusively for and on behalf of the company and does not affect the other defendants (such as former promoters) to the class action litigation,” he said.

The company reiterated it had not initiated talks with Maytas Infra or with the real-estate entities floated by Mr Raju for an out-of-court settlement.

Mr Nayyar said the company was almost through with major legal issues externally. In India, it faces legal claims made by Maytas Infrastructure and companies floated by Mr Raju.

The stock market, however, was not enthused much. The company's share ended at Rs 63.60 on Bombay Stock Exchange on Thursday as against the previous close of Rs 62.65.

Analysts pointed out that the settlement would help the company in clearing the air for the merger with Tech Mahindra. It would also make it easier for it to approach the US market regulator for relisting on New York Stock Exchange. The company had to delist from the US bourse as it failed to be current with accounts as per the US accounting standards.

After delisting, Satyam's ADRs are being traded over the counter.

Our Mumbai Bureau adds: “All these actions are actually a precursor for the imminent merger between Tech Mahindra and Mahindra Satyam,” Mr R.L. Narayanan, Vice-President (Equity and Institutional Sales) of Bonanza Portfolio, told Business Line .

“Though it will take another 6-12 months to bring the company back on track, it is doing well in terms of getting back clients. In the medium term, Satyam is an underpriced stock. However, I am not advising the stock for retail investors given the impending uncertainties,” he said.

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