HYDERABAD, India — The brothers who founded the outsourcing company Satyam Computer Services have been interrogated and jailed, and Srinivas Vadlamani, who resigned as chief financial officer after a huge fraud was disclosed there, was arrested as well on Saturday night.
Inspector General V. S. K. Kaumudi of the police crime investigation unit said that Mr. Vadlamani was being held on charges of criminal conspiracy, forging accounts and cheating as part of the same case that has been registered against the Satyam founders, B. Ramalinga Raju and B. Rama Raju.
On Sunday, Mr. Vadlamani was remanded to judicial custody by a magistrate on Sunday until at least Jan. 23. He was then sent to join the Raju brothers in Hyderabad’s Chanchalguda prison. Also on Sunday, police officials said that they had raided the residences of all three men, and removed several boxes of documents from the home of B. Ramalinga Raju’s in the upscale neighborhood of Jubilee Hills.
B. Ramalinga Raju resigned as chairman in a letter to the company Wednesday in which he confessed to faking profit and revenue. Charges being considered against Mr. Raju and his brother include cheating, forgery, criminal breach of trust and falsifying documents, the authorities said. Like Mr. Vadlamani, the two are to remain in judicial custody until Jan. 23, and will be held in the Hyderabad prison. Located in Hyderabad’s old city, the prison is a sprawling colonial-era jail with concrete watchtowers, a massive steel studded front gate and electrified wire ringing high stone walls.
On Sunday the government of India announced a new board for Satyam. P.C. Gupta, India’s minister of corporate affairs, speaking at a press conference in New Delhi, said the government had selected three “eminent persons” to serve on Satyam’s board, the minimum number of directors required under Indian law. The three are Deepak Parekh, the chairman of the Housing Development Finance Corp., Kiran Karnik, a former head of the National Association of Software and Services Companies, the country’s leading information technology trade association, and C. Achuthan, a lawyer and former member of the Securities and Exchange Board of India, the country’s market regulator.
Mr. Gupta said that the board would meet within the next 24 hours and decide who would serve as Satyam’s new chairman. The government dismissed Satyam’s old board on Friday. He said the new board could select other directors as required. In India, a board may have up to 10 members and Satyam’s former board had nine directors.
Mr. Gupta also said that the government would consider requests from Satyam’s large shareholders for seats on the board, but that it was up to the new board to decide who would be invited to join. Lazard, the French investment bank that has increased its stake in Satyam to 7.4 percent, has said it is seeking input into the company’s decision-making, but has not yet requested a seat on the board.
“All options are open,” Mr. Gupta said. “Whatever is in the interest of the company, then the necessary steps will be taken.”
In a statement released Sunday, a company spokesperson described the announcement of the new board members as “the best news we’ve received in the past four weeks.”
“This is a vital stabilizing development for Satyam, and it marks the beginning of a new chapter in the company’s history,” the statement said.
Mr. Gupta said that government investigators looking into the accounting fraud that has brought Satyam to the brink of bankruptcy have made “commendable progress in the case” over the past three days, but he declined to reveal any specifics about what investigators have uncovered.
“It is important to ensure the continuity of the company in the interest of its shareholders, employees, customers and other stakeholders both in India and abroad,” Mr. Gupta said.
Satyam, one of India’s largest outsourcing companies, is struggling to survive after the revelations of fraud, and the government has taken control of the company’s board. B. Ramalinga Raju said in his letter that no board members were aware of the fraud at the company. S. Bharat Kumar, lawyer for the Raju brothers, said in an interview that he believed the two had a “good case” for being released on bail, but the police said they intend to push to keep the brothers locked up while awaiting trial.
Satyam, which counts one-third of the Fortune 500 companies among its clients, employs 53,000 people, about two-thirds of them in India. Government agencies have moved quickly since Wednesday to shore up the company and to reassure investors that Indian publicly traded companies are safe. They passed new rules Friday that will require the largest public companies on India’s stock exchange to submit their numbers to additional review by outside auditors. Lazard Asset Management, Satyam’s largest shareholder, is agitating for a voice at Satyam. The money management arm of the investment bank Lazard has asked the Indian government to be consulted on any changes at the company, and sent letters to India’s corporate affairs minister and the market regulator, SEBI, with that request, a Lazard representative said Saturday.
