Legal disputes wont impact Satyam, Tech Mahindra

Written by Rachana Khanzode | Mumbai | Updated: Jun 12 2009, 04:41am hrs
The legal claims on Satyam Computer Services are not expected to have a major impact on the company or on Tech Mahindra. According to industry sources, with the exception of the Upaid case most of the cases are being settled out of court. Upaid, the mobile solutions provider is seeking damages in excess of $1 billion (Rs 5000 crore) from Satyam in a fraud and forgery case which is ongoing since the year 2000.

Meanwhile, the acquisition related disputes, as an outcome of Satyams downfall earlier this year, with US based Caterpillar Inc has been settled out-of-court without any liabilities on either side, a Satyam spokesperson said. "We are actively engaged in discussions with other companies (Bridge Strategy Group and S&V Management Consultants) in our ongoing efforts to resolve these matters," he added.

However, according to the disclosure, acquisition related disputes from Caterpillar Inc, Bridge Strategy Group and S&V Management Consultants together stand at around Rs 400 crore. Also, the claims coming from 37 companies worth Rs 1,230 crore have not yet been acknowledged by the company.

A number of US action lawsuits have been filed against Satyam, its earlier directors and auditors.

According to industry analysts, most of the US action lawsuits are expected to be against the promoters. Losses incurred by the shareholders are due to Ramalinga Raju and not the company as a whole and therefore, these liabilities should be going to him, as was the case in the past in similar cases. Moreover, even if the company is facing US action lawsuits, these will largely depend on how the share price of Satyam increases over the period of time. Industry viewers opine that most of the US action lawsuits are settled out of court, depending on the losses incurred by the shareholders. Satyam is yet to receive the documentation on the said US action lawsuits and therefore, the exact liabilities coming from it are yet to be known.

According to the official Satyam spokesperson, "The United States District Court for the Southern District of New York has appointed the lead plaintiff (the major shareholder and representative of all the other shareholders who have filed the lawsuits) and the company is awaiting further communication in this regard." The consolidated amended complaint is likely to be filed in the next 45 days and Satyam will have to take appropriate steps going ahead.

Investment bankers view that even if Upaid has come out on record saying there wouldnt be any out-of-court settlement; the case wouldnt get settled at $1 billion.

Vijay Mukhi, consultant for technology practice at DSK Legal, says, Satyam could have easily avoided the Upaid law suit with proper paper work. However, it should be the only major concern as of now for Tech Mahindra.

Tech Mahindra is known to have raised Rs 550 crore from Tata Capital and IDFC to fund its takeover of Satyam. Besides, Tech Mahindra has also borrowed Rs 1,450 crore from various banks, mutual funds, institutions and NBFCs at an interest rate of 10%, part of which has been used for funding the Satyam acquisition.