The Satyam sellout, and the Upaid link

The Satyam-Maytas transaction had the markets swinging wildly for several hours, after Satyam Computers announced its controversial decision to first buy, and later, not buy, the real estate business owned by relatives of the Raju brothers. This very likely links with the Upaid case that has been tracked on the blog over the past year: the latest news is that Upaid has moved court seeking the testimony of top Satyam officials in re the Maytas non-deal. (Maytas is Satyam spelt backwards, for those who may be semi-palindromically inclined).

Now for the link between the Maytas story and the Upaid litigation that this blog has been tracking: The Maytas deal was for approximately USD 1.6 billion. Had the deal gone through, it would have meant that effectively there would have been a transfer of assets to the family’s real estate business. Recall that earlier posts had pointed out that Upaid has sought damages from Satyam of well in excess of USD 1 billion in the Texas litigation on grounds of fraud, forgery and breach of contract (there is speculation that this claim runs into several billion dollars). As Upaid announces, “The Federal Court proceeding is currently scheduled for a Texas jury trial in June of 2009, and Satyam is facing the potential of a very sizable judgment against it.”

In its press release, Upaid announced yesterday that it was filing “a motion in Collin County, Texas district court requesting depositions of Satyam Computer Services’ Chairman B Ramalinga Raju, Chief Financial Officer Srinivas Vadlamani and Global Head of Corporate Governance G Jayaraman in connection with the attempt earlier this week to strip all surplus cash from the company in a $1.6 billion related-party transaction benefiting the family of Satyam’s founder and Chairman.”

For those of you who perhaps think that I may be reading too much into this, Upaid itself draws a very straightforward and blatant connection between the Maytas story and its own case:

“At present, Satyam has cash resources to pay a $1 billion plus judgment or the liquidity to support a supersedeas bond. However, on December 16, 2008, Satyam announced a plan to strip $1.6 billion of cash out of the company, an amount that exceeds its cash, in a transaction to acquire Maytas Properties and Maytas Infra, whereby the large majority of this cash would go to the family of Satyam’s Chairman, Ramalinga Raju. That Satyam would proceed with a transaction that seems so clearly designed to deplete its assets in advance of a judgment, rightfully concerns Upaid that Satyam may be willing to engage in fraudulent transfers to avoid its legal obligations.“

On another front, while editorial writers are having a field day commenting on Satyam’s poor show in corporate governance, it may be of interest to readers to know that the point had been flagged on this blog right from the first blogpost on this issue in January 2008. At the cost of being repetitive, there have been some elementary legal errors in the IP assignment agreement, and by extension, that there are serious corp gov issues within the organisation. This was maintained in the last post even, when it was reported that Upaid had speculated (in its application) that either forging documents to transfer IP title was a systemic problem in Satyam, or that the organisation had failed to maintain a tight rein on the proliferation of such forgery. Either way, the situation may be indicative of fundamental irregularities in the company’s dealings.

In the last post on SpicyIP, there was news that about a dozen fresh forgeries had allegedly emerged in the IP transfer agreements, and the testimony of top Satyam officials had already been sought in connecton with these forgeries coming to light. This latest request for the testimony of these officials in light of the Maytas deal only reiterates concerns about management/governance issues within the software major.

Note that Upaid’s PR flags this issue as well, and argues that the three top officials whose testimony they have sought are in the best position to know what is happening “inside”:

“Satyam has put its reputation in the business community squarely at issue in court proceedings it has filed against Upaid. The Satyam executives whose depositions are being requested, Ramalinga Raju, (Chairman) Srivinas Valdamani (CFO) and G. Jayaraman, (Global Head – Corporate Governance) are in the best positions to know Satyam’s reputation in the business community and the events that have drawn such widespread criticism in the marketplace as underscored by recent news reports. The evidence of Satyam’s poor corporate governance and business practices has been mounting, harming Upaid, other customers and now Satyam’s shareholders.”

I had a brief conversation with a regular reader about how this litigation tangentially made the case for the protection of software in India, but the gravity of that subject is deserving of an independent post, which shall follow soon. In the meanwhile, I am keenly following this Texas case, and will keep you posted on developments as and when.