B Ramalinga Raju, founder of Satyam Computer, may be facing trial for the biggest corporate fraud India has seen, but it is Tata AIG General Insurance, which provided the Directors and Officers (D&O) liability cover to the company, that is footing his legal bill of Rs 60 crore so far, and will continue to do so till the court gives its verdict.
While Raju is fighting a case of accounting fraud filed against him by the CBI — estimated to add up to about Rs 14,000 crore — a source who is aware of the development told The Indian Express, “Tata AIG has already advanced over Rs 60 crore towards legal expenses of Raju.”
When contacted, Tata AIG General Insurance declined to comment. A source, however, clarified that Tata AIG would, of course, have taken recourse in re-insurance.
The Directors and Officers (D&O) liability insurance covers personal liability of senior executives that arises due to a wrongful act of a person in managerial capacity. If a company takes such an insurance policy, all the legal expenses can be recovered from the insurance firm in case of any court proceeeding against a director or senior official.
While Raju may have admitted to committing fraud at Satyam, the Tata AIG D&O liability cover requires the insurer “to defend till such time that he is criminally convicted”, said a source close to the development. This means that till the first court of law convicts Raju of criminal offence, his legal expenses will be paid from the policy cover. If he moves to another court after being criminally convicted, he will have to bear the expenses himself thereafter.
In its three chargesheets filed after the Satyam scam, CBI named nine persons as accused including its founder B Ramalinga Raju and his brother and MD of the company B Rama Raju. They have been charged with criminal conspiracy and criminal breach of trust.
Recently, in the insider trading case of Rajat Gupta in the US, Goldman Sachs paid almost $ 30 million (around Rs 150 crore) for Gupta’s legal defence as the bank’s bylaws require it to pay the legal fee of its senior officers and directors for conduct while acting on behalf of the company. However, under the deal with Goldman Sachs, Gupta had agreed that if he was found guilty he would reimburse the money advanced by the company to him.