PUNE, INDIA: There could be a lot of whips ready to crack now after Ramalinga Raju has given a new flavour to the Satyam expose by confessing that there were some misappropriations in the balance sheet and mentions Rs 5040 crore as "inflated" cash on its balance sheet as well as existence of inflated profits over a period of last several years.

Talk of the legal upshots and the promoters could face severe actions as this fraud would in all possibility be deemed as a criminal action, depending on the respective laws and Acts like the Companies Act. As a Company Law specialist shares, it is the typical duty of a director and this case completely breaches the fiduciary duties that are well articulated across all laws.

In what is being termed as the biggest corporate scam to hit India, the potential legal action is huge, be it in terms of scope or impact of penalties. The action could spread across the territories of IPC (Indian Penal Code), The Companies Act, FEMA and SEBI and even the IT Act 2000.

To start with, apart from Ramalinga Raju, the top management could come under direct legal action.

As the Supreme Court legal eagle Pavan Duggal observes, accounts have been falsified quarter-after-quarter, year-after-year and the jurisprudence of Indian laws says that the moment any offence is being committed in a company, any person responsible for it or involved in day to day running of business would be deemed guilty.

This is of course unless the person concerned is able to exercise exit options like lack of knowledge or due diligence taken to prevent the offence.

"The letter clearly states Raju's knowledge and absence of due diligence so the exposure is direct, based on the information available so far in public domain. Offence under IPC relating to cheating, criminal misappropriation, criminal breach of trust, criminal conspiracy and abettment are possible. Among other actions looming large presently, are also actions in view of violations of FEMA (Foreign Exchange Management Act)." as he analyses and portends based on the information available so far publicly.

But the interesting part is that Raju has apparently cleared everybody else and taken complete responsibility. However, the law would not digest this admission as Gospel's truth and since accounts have been falsified, responsibility of top management would come under scanner.

Next in line would be the crackdown on auditors. As Duggal says, "Questions like how could the auditors possibly not see the quarter by quarter fraud would emerge definitely."

The same question is put forth by another legal expert. "What were the auditors doing, more so in case of a misappropriation of this proportion?" and account firms would be forced to look at themselves more strictly.

The IRFS or International Finance Reporting Standards that is due in India in 2011 and has been met with pleas of extension and exceptions on grounds of its being a costly affair et al, would get a renewed boost.

"There would be no room for auditors or accountants to ask for any such relaxations or leniency now," another company law expert stresses. Meanwhile official responses are awaited from the Satyam auditors.

"It would be a new era for audit firms henceforth in view of better and stringent exposures and the times of easy existence would be gone." opines Prithvi Haldea, a capital market expert.

In addition, there could be a chain reaction setting forth a new face of shareholder activism that is not seen in India yet. "People could set claims on mismanagement, minority interest etc." the legal expert says.

Duggal avers in this forecast. "Electronic records and the respective falsification invoke IT Act and this can open up a new set of actions as all records have been stored in electronic form, be it computer systems or networks and this brings forth the liability of top management's knowledge. Section 66 of IT Act comes into play here which outlines a non-bail able offence, three years of imprisonment and Rs two lakh fine."

What can be more important here is that the company could be sued for this worth damages that can be as big as rupees one crore per quarter leading to a compensation of rupees four crore for four quarters. As to who can exercise this jaw-dropping sum, the beneficiary could be any person who is affected by this act. "It could be an investor, shareholder or even the Stock Exchange." Duggal clarifies.

The confession could also warm up heels of regulatory sentinels.

This would be a landscape change in regulations, both existing and new ones, feels the company law expert.

The case which has taken acute dimensions on areas like shareholder interests, corporate governance standards, ethics and market reporting discipline.

The role that SEBI (Securities and Exchange Board of India) would have, is still divided under two schools of thought. For some, there is not a possibly major role for SEBI's side, which has been keeping a close eye on Satyam recently owing to the financial irregularities. Notably, SEBI has termed the disclosures as an event of horrifying magnitude.

For instance, Prithvi Haldea, chairman, Prime Database, a capital market expert points out that though empowered to govern market-related manipulations, the ball would rather be in the court of MCA (Ministry of Company Affairs) or ICAI rather than SEBI in the case of Satyam.

"This case will probably invoke laws of fraudulent practices and is more of accounting manipulation. The role hence would be of Company regulators as SEBI is related to only disclosure norms pertaining to the market," Haldea adds.

But in the view of Duggal, there could be scope of broad contraventions with regards to section 49 of SEBI Act, which in particular talks of corporate governance and has to be strictly followed by all companies listed on Stock Exchanges.

Going forward there could be additional costs on compliance, bureaucracy and new thresholds of government control disclosure and scrutiny. As the experts see it unanimously, the case would have big ramifications, including those on the industry.

What is important now is the preservation of electronic evidence, which is vulnerable due to its being inherently transient. What is expected is proper as well stringent law enforcement for this episode.

"This is a landmark case and would unleash the applicability of various Acts. It's important that appropriate and stringent legal action happens to restore investor confidence who are now wondering that if this could happen with someone like Satyam, it could happen anywhere." Duggal feels.

Takeover and buy-out possibilities keep feeding the rumor mills, which in the view of experts, is quite possible, though still in the realm of speculations. Legal whipping, regulatory bars, shareholder activism, industry reactions just add to the possible future of Satyam.

While Satyam's future hangs on tenterhooks, the expose would be indeed a watershed and would set new waves of shareholder activism, redefined corporate governance, regulatory action etc for the industry as a whole.