The liability from US lawsuits against Satyam could cause the company to collapse, say lawyers. On March 1, it was reported that Satyam invited formal bids from potential acquirers, even though its accounts are not expected to be restated for several months.
Kiran Karnik, the government-nominated Chairman of Satyam had expressed that “the only true unknown” regarding what information it could share with suitors was the liability that might arise out of class action suits in the US and other legal complications.
“Of course some of these prospective buyers look at the target and think, ‘Oh it’s cheap’ and want to quickly buy,” said Luthra & Luthra partner Mohit Saraf. “But they have not considered everything and it could be very risky.”
Khaitan & Co partner Arindam Ghosh agrees and believes the class action suits filed against the company in the US may turn out to be a huge hindrance.
Satyam is liable for claims by US shareholders for alleged market fraud and misrepresented share prices. If it is found guilty, the payout to suing shareholders could be enough to bankrupt the company.
Saraf believes the liabilities of these lawsuits will range from US$400 million to a $2 billion. “It’s a huge amount that could result in the company’s collapse,” he said.
Many of these lawsuits could be resolved out of court, says Ghosh, but the nature of the suits, as jury trial class action lawsuits would make the process of deciding on awards very long and drawn out.
Unfortunately for US shareholders the US is not deemed to be a reciprocating jurisdiction by the Indian government. So a decree passed in the US cannot be enforced directly in India.
If Satyam is found liable, the US courts could impose civil penalties on the company as specified by the Security and Exchange Commission’s (SEC) regulations.
The stakeholders will then be forced to file an execution proceeding in an Indian court for an enforcement of the US judgment.
Candice Mak