US court orders fresh proceedings into claims against Satyam

Posted online: Wednesday, Sep 18, 2013 at 0000 hrs
Hyderabad : The United States Court of Appeals has ordered a fresh probe into charges that erstwhile Satyam Computer Services had fraudulently induced Michigan-based Venture Global Engineering into a partnership. Satyam, whose founder and then chairman B Ramalinga Raju had admitted in January 2009 to a massive accounting fraud at the company, was later acquired by Tech Mahindra.

“Tech Mahindra is aware of this order. However, the order relates to our JV company, Satyam Venture Engineering Services (SVES) and does not in any way impact the operations of Tech Mahindra,’’ a Tech Mahindra spokesperson said.

The latest ruling by United States Court of Appeals, Sixth Circuit, follows an earlier direction issued by a Districts Court of Michigan, which had dismissed claims made by Venture Global Engineering (VGE) against Satyam with regard to a joint venture.

They alleged that defendant Satyam Computer induced them to form a joint venture by misrepresenting its financial stability and general suitability as a business partner. Plaintiffs assert civil violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), amounting to fraudulent concealment.

In its order dated September 13, the Appeals Court has reversed the judgement of the district court and has ordered further proceedings into the matter.

Satyam had argued that VGE should have brought their claims during an arbitration in 2005. The arbitrator had ruled that all of VGE’s ownership interest in the 50:50 JV — Satyam Venture Engineering Services (SVES) — be transferred to Satyam. VGE had complied with the order at that time. Later, VGE filed an ‘instant action’ case in December 2010 alleging that Satyam was engaged in a massive fraud even before the joint venture started.

“We hold that because plaintiffs’ (VGE and the Trust) complaint adequately alleges that Satyam wrongfully concealed the factual predicate to plaintiffs’ claims, the defence of claim preclusion does not apply. Thus, the district court erred in granting defendants’ (Satyam) motion to dismiss. We therefore reverse the judgement of the district court and remand for further proceedings,” the US States Court of Appeals for Sixth Circuit ruled.

As per the court documents, Satyam had approached Venture Industries Australia, a company owned by the Trust, for a joint venture to provide auto industry engineering services. Satyam told the Trust that it was an attractive business partner, with a strong brand and recognition as a leading global IT company, having a broad base of automotive customers.

It further said it was a publicly traded company and was audited, liquid, and financially stable. The Trust later formed a separate legal entity, VGE, which eventually formed a JV in the year 2000 with Satyam. The relationship, however, soured in 2005 and the matter reached arbitration.