Satyam’s moment of truth

The shocking confession by B Ramalinga Raju, Satyam Computer Services��� erstwhile chairman, about years of accounting chicanery by the software firm is reason enough for the government to step in and take action. The Centre must invoke the power bestowed on it by the Companies Act, 1956 and move the Company Law Board immediately to appoint new directors to the board to protect the interest of all the stakeholders ��� investors, employees, clients and debtors.

Such a measure assumes urgency as Satyam, which employs more than 50,000 people and services more than 650 clients across the globe, needs to continue as a going concern. A vacuum at the top would be demoralising, and government action alone at this stage may reassure employees and clients.

Further, given the gravity of the problem, the government along with the regulators such as the Securities and Exchange Board of India (Sebi) and the Institute of Chartered Accountants of India (ICAI) must thoroughly investigate the affairs of the company. Books of accounts of the previous years need to be meticulously examined and the management questioned to gauge the extent of the fraud, and everyone responsible for the fraud as well as those who abetted it must be prosecuted.

The unfolding of events also point to the failure of the audit firm Price Waterhouse ��� very obviously they did not verify the assets or ask enough questions. How else would the company have overstated assets over the years to the extent almost Rs 7,000 crore, including cash and bank balance of Rs 5,040 crore? The ICAI, as the regulator for accountants and auditors, needs to seek answers from the firm and take disciplinary action against members who failed in their duty. After all, like independent directors, auditors too have fiduciary duties towards all stakeholders.

Given the extent of fraud and likelihood of lawsuits worth billions of dollars, Satyam is unlikely to find a suitor anytime soon. The only thing going for the company at this stage is that employees and clients cannot move en masse to competitors. So, the interim administrators of the company, together with its major shareholders, need to put their heads together to chart out the best course for survival.