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August 27, 2009

Satyam class action dismissed by Indian Court

India’s Supreme Court has dismissed a prospective class action seeking compensation of almost INR50 billion ($1.04 billion) on behalf of Indian investors in Satyam Computer Services.

Satyam share prices plummeted in January following the revelation of India’s largest ever corporate fraud.

There were more than 300,000 individual Indian shareholders in Satyam, holding about 16 percent of the company’s total shares, according to Midas Touch Investors Association.

Midas is recognised by the Securities and Exchange Board of India as a non-profit organisation engaged in investor protection activities. It was responsible for attempting to launch the class action.

The intended respondents were Satyam Computer Services, the company’s former chairman, former managing director, former auditor Price Waterhouse (a PricewaterhouseCoopers member firm) and six former independent directors.

The INR50 billion compensation claim was based on damages per share. This was calculated using the average highest price of Satyam shares recorded on the Bombay Stock Exchange from 2004 to 2008, INR628 per share, and then subtracting INR58 per share, the price Satyam buyer Tech Mahindra offered for each Satyam share.

Midas initially applied to India’s National Consumer Disputes Redressal Commission for compensation for the Indian investors in Satyam. When this request was rejected in May, they appealed to the Supreme Court.

Midas founder Virendra Jain said this month’s dismissal by the Supreme Court was “the end of the road as far as Satyam compensation issues are concerned” for Indian investors in Satyam.

According to Midas, more than 12 class actions have been filed in US courts on behalf of investors who purchased the American Depository Receipts of Satyam shares. However, under Indian law there is no provision for either class actions or for individuals seeking compensations in the case of crimes such as fraud and insider trading.

Midas had hoped to set a precedent with the Satyam case.

Jain said the Supreme Court dismissed Midas’ appeal on the grounds that the 300,000 investors it claimed to represent had not joined the class action.

Midas’ counsel asked to be granted a week to compile the list of investors, but the court refused.

“They said the affected investors can file their cases in the appropriate courts under the relevant acts, but the problem here, which our counsel also pointed out, is there is no provision under [Indian law for individual investors to try and seek compensation],” Jain said.

Jain hopes publicity from the case will “move things forward and persuade the legislators to make the necessary changes in the Indian laws”.

A PricewaterhouseCoopers International spokesperson said the network is aware of the class actions being brought against the network and its Indian member firm.

“We don’t believe that they have any foundation and we will be vigorously defending them,” he said.

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