Setting aside revised orders passed by the Securities and Exchange Board of India (SEBI) against erstwhile promoters and others in the infamous Rs9,000-crore Satyam Computer Services fraud, the Securities Appellate Tribunal (SAT) directed the whole-time member (WTM) of SEBI to relook the whole issue afresh.
In an order passed last week, the bench of justice Tarun Agarwala (presiding officer), justice MT Joshi (judicial member) and Meera Swarup (technical member), says, "...the impugned orders dated 16 October 2018
and 2 November 2018 passed by the WTM are set aside. All the appeals are allowed. The matter is remitted to the WTM to pass a fresh order within four months after giving an opportunity of hearing to all the appellants..."
The Tribunal asked the WTM to consider the intrinsic value while calculating the unlawful gain. "The unlawful gain, if any, will be calculated individually for all the appellants by the WTM. The WTM will consider the issue on interest. The WTM will reconsider the issue on period of restraint afresh for all the appellants. The WTM will reconsider the issue on pledge of shares."
In the 2 November 2018 order, the WTM of SEBI held that in view of the finding of complicity in fraud committed by B Suryanarayana Raju and since the liability in fraud has been upheld by the SAT, which has been confirmed by the Supreme Court, therefore, there is no reason to distinguish between SRSR Holdings Pvt Ltd and B Suryanarayana Raju on one hand and B Ramalinga Raju (erstwhile chairman of Satyam) and B Rama Raju (then managing director-MD of Satyam) on the other hand. The WTM further held that since all of them are perpetrators, therefore, the period of restraint would be the same and, consequently, restrained them from accessing the securities market for 14 years.
However, in its latest order, SAT says, in its opinion, the approach of the WTM is patently erroneous and cannot be sustained. It says, "No reason has been given as to why the magic figure of 14 years of restraint was appropriate. No reason is given, nor any discussion is made with regard to the restraint of 14 years against B Ramalinga Raju and B Rama Raju."
In the 16 October 2018 order, the WTM restrained B Ramalinga Raju, B Rama Raju, V Srinivas (ex-chief financial officer-CFO) and G Ramakrishna (ex-vice president) for 14 years in view of violating the prohibition of insider trading (PIT) regulations and the prohibition of fraudulent and unfair trade practices relating to securities markets (PFUTP) regulations.
The WTM, in the second order (of 2 November 2018) restrained SRSR Holdings and B Suryanarayana Raju for seven years for violating only the PIT regulations while exonerating them under the PFUTP regulations.
The fraud found by the Supreme Court was under the PIT regulations and not under the PFUTP regulations, the SAT observed. "...the WTM has wrongly misconstrued the order of the Supreme Court and, consequently, the finding that B Suryanarayana Raju and SRSR Holdings are equal perpetrators is without any basis."
"In our view, B Suryanarayana Raju and SRSR Holdings cannot be worse off on remand. The increase in period of restraint over and above the earlier order of remand is wholly illegal and cannot be sustained," it added.
In both the orders, the SEBI WTM rejected the contention of the appellants on the issue of rate of interest on the short ground that the Tribunal had not specifically set aside the rate of interest in its orders. However, the SAT stated it had set aside the order of disgorgement and had directed the WTM to decide the issue of disgorgement afresh on its merits.
It says, "In our opinion, interest becomes payable after the computation of the disgorgement is made. Once the amount of disgorgement was set aside, the imposition of interest on it was automatically set aside. It is on account of this reason that the issue on interest was not considered and was left open by the Tribunal. To look at this issue from another angle, if for some reason, the WTM agrees with the contention of the appellants and holds that no amount of disgorgement is payable, then obviously, no interest is payable. In view of this, when the direction of disgorgement was set aside, the issue of payment of interest was automatically set aside and was left open."
SAT then set aside both orders and directed the WTM to pass a fresh order within four months.
On 7 January 2009, Mr Raju—the then Chairman of Satyam Computer—had sent an email to the SEBI, wherein he admitted and confessed to inflating the cash and bank balances of the company, besides understating liabilities and other financial mis-statements.
After the fraud came to the light, the government had ordered an auction for the sale of the company in the interest of investors and employees of what was known at that time as the country's fourth-largest IT firm.
The company was acquired by Tech Mahindra, then renamed Mahindra Satyam and, eventually, it was merged with Tech Mahindra.