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Maytas buy violated all rules

Initial investigation reports sent to ministry of corporate affairs (MCA) clearly establish attempts at massive diversion of funds from Satyam Computer Services to Maytas Infrastructure and Maytas Properties. Anupama Airy and Gaurav Choudhury report.

business Updated: Jan 20, 2009 21:56 IST

As the mutli-agency probe closes in on unravelling corporate India’s biggest-ever fraud, initial investigation reports sent to ministry of corporate affairs (MCA) clearly establish attempts at massive diversion of funds from Satyam Computer Services to Maytas Infrastructure and Maytas Properties.

The board of Satyam Computers had approved the decision on December 16 to acquire 100 per cent stake in Maytas Properties for $1.3 billion (Rs 6,240 crore) and 51 per cent stake in Maytas Infrastructure for $300 million (Rs 1,440 crore).

These, according to findings which are available with Hindustan Times, are in gross violations of the Companies Act 1956, under which no company, without the shareholders’ approval, is allowed to directly or indirectly acquire any other entity, that is valued at over 60 per cent of its paid-up share capital or 100 per cent of its free reserves.

In Satyam’s case, the total of share capital and free reserves amounts to Rs 2,136.37 crore, according to its audited balance sheet of 2007-08, 60 per cent of which works out to Rs 1,281.82 crore. Its free reserves amount to Rs 2,002 crore.

Moreover, as on March 31, 2008, the amount of investments, loans and guarantees given by Satyam totalled Rs 493.80 crore.

“Therefore, Satyam could make further investments only to the extent of Rs 788 crore (net value of 60 per cent share capital and loans) without the prior of approval of shareholders,” the initial findings sent to MCA noted.

The Satyam board had approved the decision to acquire Maytas Infrastructure and Maytas Properties for Rs 7,680 crore, which is far above the limit of 60 per cent of paid-up share capital and free reserves.

“Therefore, the board of directors have no authority to decide to acquire stake in the two companies without prior approval of the shareholders by a special resolution through postal ballot,” it said.

The findings also show that there were several transactions within group companies in the form of inter-corporate investments, advances and loans.

“The company had made investments of Rs 90.25 crore and loans and advances to group companies to the extent of Rs 419.63 crore,” it said.

Maytas properties has received all funds in the form of unsecured loans worth Rs 600 crore, which was used for inter-corporate investments and loans.

Further, Maytas Properties also made investments in 2 per cent redeemable convertible non-cumulative preference shares amounting to Rs 25.6 crore and in 10.5 per cent compulsorily convertible debentures to amounting to Rs 3.67 crore at a rate of interest lower than the prevailing bank rate.

“This is apparently in violation of Section 372A of the Companies Act. It is also apparent that the investment and loans made by Maytas Properties are far in excess of the limits laid down,” it said.