Wednesday 11 January 2012

Want to have the cake and eat it? Learn from Mahindra Satyam!

Want to have the cake and eat it? Learn from Mahindra Satyam!

Mahindra Satyam has apparently filed a suit against the erstwhile promoters of the then "Satyam computers", the then auditors, etc. seeking damages.

Apparently, they claim that the erstwhile promoters, in collusion with (or due to the negligence of) the then auditors, have defrauded the company. And now they want to claim damages for the same.

Hmm... ... ... - Interesting, indeed. What's even more interesting is that Economic Times, one of the well-respected business papers of India, has chosen to editorially comment (Mahindra Satyam's suit to set a useful precedent) favourably on this development!

Strange, indeed. For once, I disagree strongly with Economic Times.

I can understand this if the Mahindras had taken over Satyam in the regular course of events, and subsequently had discovered such a huge fraud. Here was an instance where Mahindras had bought a listed company whose shares had gone into a free fall from well over a couple of hundred rupees to sub-20 levels in a matter of hours after the details of the fraud started coming out. If my guesstimate is right, taking into account the open market purchases and the final open offer made to then existing shareholders, Mahindras, with their eyes wide open, bought out a company at throw-away prices - After the company's value had depleted in the markets dramatically due to the fraud. I would call it an instance of "As is where is" sale/purchase transaction.

If at all anyone had really lost out due to the fraud, it is those shareholders who had bought the shares prior to the fraud coming to light. Perhaps at levels of over Rs. 200/= per share.

While in a strictly legal sense of the term Mahindras may have a case and may go on to win some kind of favourable judgement in the present suit, I would wonder if it is entirely fair??? While damages are indeed due, any such damage should NOT be given to either the present Mahindra Satyam or its shareholders.

Rightfully, such damages awarded should be given to those shareholders who were holding the shares of the erstwhile Satyam computers prior to the fraud coming to light. Obviously, that may not be a very practicable solution. In which case, perhaps, the damages levied may be deposited in a suitable "Investor Protection Fund" under the supervision of authorities like SEBI or the two premier stock exchanges. These funds can be used for suitable investor education programmes in the months and years ahead.

(Disclaimer: If Mahindra Satyam does get any damages awarded from the recently filed suits, I would be an indirect beneficiary. I happen to be holding a few shares of Mahindra Satyam, having bought them AFTER the free fall a couple of years back!)

Regards,

N


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