World Bank bans Satyam

The World Bank on Tuesday confirmed an earlier report that it has barred Satyam Computer Services from doing business with it for eight years, starting September this year, due to data theft and paying bribes to its staff.

However, it’s not clear if the company’s independent directors knew about these allegations. Two independent directors said that the Satyam management had merely informed the board that its contract with the World Bank had ended, without referring to the fact that it has been barred from doing business with the Bank for eight years. The World Bank has been an important client for Satyam, India’s fourth-largest software exporter. The multilateral agency had signed $100-million billing per year contract.

“The World Bank had never complained or informed us… Satyam’s contract with the World Bank had come up for discussions in an earlier board meeting. We were told that as a matter of policy, the World Bank does not renew contracts with the same vendor for more than five years,” said TR Prasad, independent director on the Satyam Board. This was reconfirmed by another independent board member VS Raju. Sudip Mazumder, the World Bank spokesperson said, “Yes, we have banned Satyam from doing business with us”.

He confirmed a Fox News report which had said the World Bank had imposed an 8-year ban on Satyam, the harshest punishment meted out to any company since 2004.

In October this year, Ram Mynampati, president (commercial and healthcare business) of Satyam Computer Services and a member of the Board, also said the World Bank, as a matter of policy, does not renew contracts with the same vendor. E-mail queries to two other directors, Vinod Dham and Krishna Palepu, remained unanswered at the time this story was written.

Since 2003, Satyam had been writing and maintaining all software for World Bank across all locations. This also included maintenance of software in back-end offices. Satyam’s shares plunged as much as 14% to close at Rs 140.40 on Tuesday, amid rumours, subsequently denied, that its founder and chairman B Ramalinga Raju was stepping down from the Board. Further he added, “I have not received any message or intimation from the promoter,” TR Prasad, independent director.

According to the US-based Fox News, in 2005, the Bank’s chief information officer, Mohamed Muhsin, was sacked after being accused of improperly buying preferential stock options from Satyam, even as he awarded the firm major contracts.

After an internal investigation, Muhsin was banned permanently from the Bank in January 2007. But Satyam was allowed to remain in control of the Bank’s information network till early October 2008, a report on the Fox News website said.

The World Bank’s disclosure on Tuesday could be an embarrassment for the company which is embroiled in an unrelated controversy after its scuppered bid to buy two firms linked to its promoter B Ramalinga Raju.

Mr Raju holds an 8.5% stake in Satyam Computer Services which faced a major shareholder rebellion last week after it announced plans to buy two firms linked to the promoter for $1.6 billion. The decision was endorsed by the Board. But within a few hours, the company called off the deal to buy Maytas Infra and Maytas Properties. It has, however, been tight-lipped on key questions on who did the valuation of the real estate firm.

Meanwhile, the registrar of companies in Andhra Pradesh has initiated a probe into Satyam’s proposed acquisition. But the company has not received any communication from Sebi or the US SEC, said a company official, who did not wish to be named. The investment committee of Life Insurance Corporation, Aberdeen, and Reliance Mutual Fund are seeking an explanation from Satyam promoters on the jinxed Maytas acquisition. The institutional investors own a sizeable stake, almost 60%, in the company.