Wipro, Megasoft join Satyam's ranks, barred by World Bank for direct contracts

In December, the World Bank said it found Satyam ineligible for direct contracts for a period of eight years, effective from last September, on grounds of bribery, fraud and business malpractice. The disclosure sent the stock of the IT outsourcer, already struggling to regain investors confidence on account of the botched $1.6 billion Maytas deal, plunging more than 10 percent. Satyam subsequently described the statement by the World Bank as inappropriate, and demanded an apology from the bank but the World Bank stood its ground.

On Monday, the World Bank made a public disclosure that it had found Wipro, India's third largest technology outsourcer and a key component of the benchmark index, ineligible for direct contracts since 2007 until 2011, citing conflict of interest policy. Similarly, the US-based Megasoft Consultants - an associate company of Bombay Stock Exchange (BSE)-listed Megasoft has also been banned from directly bidding for contracts from the World Bank for four years since 2007.

The World Bank said it had found Wipro ineligible for direct contracts four years since June 2007 as it was "providing improper benefits to Bank staff."

Megasoft, the World Bank said, was barred for an identical period beginning December 2007 for "participating in a joint venture with Bank staff while also conducting business with the Bank."

Besides Wipro and Megasoft, two non-IT companies, Delhi-based Nestor Pharmaceuticals and Gap International, and an individual, Surendra Singh, have been blacklisted for violating the World Bank's guidelines. The blacklisted names were made public by the World Bank on Monday in the interest of fairness and transparency.

The bans, the World Bank said, were imposed with respect to its corporate procurement program. All three companies were involved in different contracts and their debarments are not related, the World Bank said, adding that it would step up its fight again fraud and corruption within the institution and in projects it finances in developing countries.

The disclosures are in line with the new norms followed by the World Bank since late 2006. The World Bank has also said it will publicly list the names of companies debarred from its corporate procurement on a regular basis henceforth.

The shocking disclosures sent the stock of Wipro tumbling 9.30 percent to Rs.227.35 on the Sensex. In the broader index, Megasoft fell to an all-time low of Rs.13.80 before paring its losses and closing down 0.6 percent at Rs.15.75.

However, Wipro said the ban would have little impact on its business operations or earnings. "In 2000, as part of our initial public offering (IPO) of American Depository Shares (ADS) to our employees and clients in the US, our representatives made an offer to World Bank employees to purchase the shares at market price under the Securities and Exchange Commission approved Directed Share Programme (DSP). The World Bank, however, directed the offer to the family members and friends of its employees. Though they purchased 1750 shares for about $72,000 at the IPO price ($52.48), they signed a conflict of interest statement that purchasing the shares did not violate any ethics or conflict of interest policies. The programme objective was to involve employees and customers with the public offering to expand our recognition and brand. A majority of the shares sold under the DSP were allotted to our employees. [Later] The World Bank determined in June 2007 that Wipro would be ineligible to contest direct contracts from 2007-2011," Wipro said in a regulatory filing with the Bombay Stock Exchange on Monday, in line with the revised disclosure policies that mandate that the company must reveal its vendor status with the World Bank.