Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Satyam requires government intervention

The fraud that has been disclosed
in Satyam Computer Services Limited comes at a time when the Satyam
board has lost all credibility. This requires extraordinary
action. Only a new board can investigate the fraud and run the company
until a general body meeting is held to elect a new board.

The company needs a new governance regime. One option is that the
existing board meets for the sole purpose of co-opting a new set of
directors and then the old board withdraws from the scene. The second
option is for the government to step in. This is a fit case for
section 398 and 401 of the Companies Act which give broad powers to
the Company Law Board acting under an application by the government to make orders for
“the regulation of the conduct of the company’s affairs in
future ”.

I think this is also a fit case for an investigation under section
234(7) and 235 of the Companies Act.


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