Last month, foreign investors of Mahindra Satyam (formerly known as Satyam Computer Services) received an aggregate of $25.5 million (Rs 114 crore) as compensation from PricewaterhouseCoopers (PwC, the company’s auditor). In a scam that happened in India, domestic investors have got, and will get, no thing.
The company’s share price had crashed in one month to Rs 20 per share on January 15, 2009 from Rs 226 on December 16, 2008, following revelations of India’s biggest-ever accounting fraud by Satyam’s then chairman B Ramalinga Raju.
Legal experts say that in the absence of a provision for class action suits there is nothing that investors can do but wait for the Securities and Exchange Board of India (Sebi) case pending in Bombay High Court, or hope that a consent order is passed by Sebi in agreement with the company. Others say the agreement in the US lays ground for similar action in India.
In 2009 Midas Touch Investors Association filed a case with the Consumer Court and Supreme Court but it was not admitted, as the petition was ambiguous.
“The problem is that for the same company and the same case, investors in US have got the compensation but Indian investors won’t get (anything) for the lack of a provision in our laws,” said Virendra Jain, chairman MTIA. According to him, even the case filed by Sebi will not offer compensation; at best it can take penal action on the company and impose a fine.
Others disagree. “With PwC agreeing to compensate US investors, it lays the ground for Indian investors too and all hope is not lost,” said Pradeep S Mehta, secretary general, Consumer Unity and Trust Society.
“Since financial services are covered by the Consumer Protection Act, they can approach that,” Mehta said. “Investors can also take action under Tort in the civil court. Alternatively, they can approach the High Court for Writ Jurisdiction under Article 226 (similar to the Uphaar Theatre Case in Delhi).”
The Companies Bill, 2009 seeks to provide some powers at the hands of investors. “Shareholder associations or group of shareholders to be enabled to take legal action in case of any fraudulent action on the part of a company, and to take part in investor protection activities and ‘Class Action Suits’,” says one provision.
The Securities and Exchange Commission in US (equivalent of SEBI in India) established in its April 5, 2011 order that institutional investors in the US suffered losses of over $450 million as Satyam has 65 million American Depository Shares (ADS) representing 11% of the company’s equity shares.
The SEC accused PwC of “failing to comply with some of the most elementary auditing standards and procedures.” “We are in a silent period,” a Mahindra Satyam spokesperson said. Despite repeated attempts, PwC did not respond.