Satyam's board had violated Section 372A of the Companies Act

 The RoC’s findings which it said will be made final after all documents are made available suggest that in approving the acquisition of 100 per cent in Maytas Properties and 51 per cent in Maytas Infrastructure, Satyam’s board had violated Section 372A of the Companies Act. Sub-section 1 of Section 372A stipulates that no company can acquire shares in any other “body corporate” through “subscription purchase or otherwise” for an amount exceeding 60 per cent of the acquiring company’s share capital and free reserves or 100 per cent of its free reserves, whichever is higher, after loans, guarantees and investments.

 Doing so would require shareholder authorisation through a special resolution passed in a general meeting. The law also states that such a resolution has to be passed only through a postal ballot and with advance intimation to the RoC. The RoC report pointed out that Satyam’s 2007-08 balance sheet shows total share capital and free reserves of Rs 2,136.37 crore; 60 per cent of this works out to Rs 1,281.82 crore and 100 per cent free reserves works out to 2,002.27 crore. As on March 31, 2008 the total amount of investments, loans and guarantees and outstanding amounts given by Satyam stood at Rs 493.80 crore.

 Therefore, Satyam could make further investments of up to Rs 788 crore without prior shareholder approval. Satyam’s board which included such prominent personalities as former cabinet secretary T R Prasad, Harvard Business School’s Krishna Paleppu, designer of the Pentium chip Vinod Dham, among others approved a proposal to invest Rs 7,920 crore in the Maytas firms. Violating Section 372A would make the officers-in-default (which include the managing director, company secretary and whole time director) liable for punishment, which includes a fine of Rs 50,000 or imprisonment up to two years.