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August 23, 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 by taking the average
highest price of Satyam shares recorded on the Bombay Stock
Exchange from 2004 to 2008, INR628 per share, and subtracting INR58
per share, the price Satyam buyer Tech Mahindra offered for each
Satyam share.

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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 class actions or individuals
seeking compensation 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.

While this is the end of the road for Indian
Satyam shareholders, Jain hopes publicity from the case could “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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