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Business

Mahindra Satyam files suit against former directors, auditors

Indian IT company looks to claim US$49.8 million in damages from previous management team, employees and audit firm PriceWaterhouse over loss of revenue and profits. Audit firm files own suit against Satyam.
Written by Ellyne Phneah, Contributor on

Mahindra Satyam has filed suit against its former board of directors, some employees as well as its audit firm PriceWaterhouse (PW), claiming Rs 275 crore (US$49.8 million) as damages from financial mismanagement.

According toThe Times of India on Monday, the IT company said it lost approximately Rs 3,000 crore (US$543 million) in revenue and Rs 70 crore (US$12.7 million) in profits due to the actions of previous management and auditors.

"The plaintiff company suffered a loss on account of several customers cancelling or terminating contracts with the plaintiff company," Mahindra Satyam said in its petition filed to the court. "The company suffered a loss of Rs 2,966.49 crore (US$542 million) and consequent loss of profits from the said contracts. The company is entailed to recover Rs 70 crore (US$12.7 million) from the defendants."

The company's new management also sought Rs 51 crore (US$9.23 million) in expenses for forensic audit conducted after it took over the fraud-tainted company. This amount had been paid to the entities and agencies due to irregularities in financial statements and operations when it had been under control by the previous management, so Mahindra Satyam was "entitled" to recover the amount, the petition noted.

Defendants it named in the suit included former directors Ram Mynampati, Krisha Palepu and former auditors from PW and Lovelock and Lewes. The company was looking to recover Rs 20.85 crore (US$3.77 million) from auditing fees paid to PW India and PW U.S. from the defendants.

Satyam's founder chairman B Ramalinga Raju admitted to accounting fraud of Rs 14,000 crore (US$2.53 billion) in January 2009. The government then stepped in and set up a new board, with Tech Mahindra buying 46 percent stake in Satyam through a formal public auction process and renaming the company Mahindra Satyam in July 2009.

Responding on allegations, a PW India spokesperson told the The Times of India it was "outraged" the Indian company was trying to shift responsibility to the auditors for the consequences of a "carefully and deliberately concealed fraud" undertaken at the direction of its own senior management.

"The fraud perpetrated by Satyam was specifically designed to--and did--circumvent Satyam's own internal controls and PW India's audit process, and consequently PW India was a victim of Satyam's fraud and will defend itself vigorously against Satyam's baseless contentions," the spokesperson said.

PW India also said it filed its own suit against Satyam and members of its former management claiming compensation and damage.

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