Huge losses to investors aside, the Satyam scandal has caused “serious damage” to India Inc’s reputation as well as the country’s regulatory authorities outside, the government has said.

Seeking to dismantle the existing board and to nominate ten new directors at the beleaguered IT firm, the Centre has said in its petition before the Company Law Board that the “interests of the company will not be safe in the hands of the present board of directors.”

“The admission of fraudulent manipulation of the financial affairs has created an adverse impression in the minds of the trade, business and industry across the world.”

“This has also resulted in serious damage to the reputation of Indian Corporate sector and the regulatory mechanism in the eyes of the world,” the government said.

Allowing the government to nominate 10 new directors, the CLB said in its order that the “present board of directors stands suspended with immediate effect” and the new board should meet within seven days of its constitution and “take necessary action to put the company back on the road.”

It also asked the new board to submit periodical reports to the Centre and the CLB on the company’s state of affairs.

The CLB also observed that the residual board members at the company after a string of resignations are those “who were also party to the impugned decision to invest substantial funds in the companies related to Raju, the decision of which was the starting point of the downward trend in the fortunes of the company.”

Besides Satyam, Ramalinga Raju and brother Rama Raju, the government in its petition has also named the company’s CA and auditor Price Waterhouse, Company Secretary as well as all the directors.

This include also those independent directors who have resigned — Vinod Dham, Rammohan Rao, K G Palepu and Mangalam Srinivasan, as well as former Cabinet Secretary T R Prasad, V S Raju and interim CEO Ram Mynampati.

The CLB has also asked all the respondents to submit their replies to the petition by February 20.

The CLB had ordered the Central Government to immediately constitute a fresh board of the company with not more than ten “persons of eminence as directors.”

“The Central Government may also designate one of them as the Chairman of the Board… The said Board will continue till further orders.”

The government said in its petition that Satyam has about three lakh shareholders, over 53,000 employees and has clients in over 60 countries, besides India. It has received a number of awards for best corporate governance.

“But the reputation and credibility of the company suffered drastically in the recent past when the Board of Directors of the company approved a proposal to acquire stakes in two companies… Its share price crashed and four of the independent directors who were parties to the above proposal tendered their resignation from the Board,” the petitioner said.

The impact of the manipulation of accounts, as disclosed by Raju on January 7, runs into hundreds of crores of rupees.

The reputation of the company is at the lowest ebb and continuation of such a state would affect the confidence in the concept of corporate governance practiced in India.

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