Satyam investors seek Rs 5000 cr compensation over share crash

11 May 2009, ET Bureau

NEW DELHI: Investors have approached a consumer court in New Delhi against fraud-hit Satyam Computer Services, seeking compensation for the lost Decoding the Satyam buy value of the company’s shares, taking inspiration from about six similar suits filed against the company by investors in the US.

Midas Touch Investors’ Association (MTIA) has approached the National Consumer Redressal Commission seeking compensation of Rs 4,987.50 crore (about $1 billion) for three lakh Satyam shareholders, who lost their money when Satyam shares crashed to Rs 11.50 in January this year from Rs 544 last May. The scrip has now stabilised at about Rs 45.

Besides the company, the petition names Satyam’s former promoters, ex-independent directors and the ex-auditor, Price Waterhouse, as respondents liable to pay compensation. This is the first time shareholders have approached a consumer court in the country for compensation for the losses suffered due to fall in share price. The court will hear the petition on Monday.

The investor body approached the consumer court as only this platform can order compensation for all goods sold, including shares and debentures, if there is a deficiency on the part of the seller.

MTIA is an investor protection panel which gets its resources from the investor education and protection fund maintained by the ministry of corporate affairs for taking up investor grievances with the government and regulators. The petition has been filed under section 21 of the Consumer Protection Act, 1986, which deals with the unfair practice of promoting sale of goods (shares, in this case) through false representation and deficiency in service, as well as, claim for damages.

Neither the Companies Act nor the rules governing capital markets provide for compensating shareholders for loss — whether it’s the risk equity investors take or on account of fraud. MTIA says independent directors and auditors are appointed by shareholders at the annual general meeting for a service. If they fail in their duty, those who hired them — the shareholders — have a right to compensation under the consumer protection law.

The reports of the directors and auditors in Satyam were fictitious, says the association. “The responsibility of directors and statutory auditors to shareholders is evident from the fact that they address their reports to the shareholders of the company,” said Virendra Jain, founder of MTIA.

The suit has implications for Tech Mahindra, which won the bid to buy majority stake in the company, as Satyam is named as a respondent liable for paying compensation. “It’s true that Satyam is a victim of fraud. However, it has benefited from the manipulated share price which led to better brand value, better business contracts and access to the brightest workers in the field,” Mr Jain said.