The purchase of two struggling construction companies for $1.6 billion (£1 billion) by a successful technology group was always likely to be regarded as curious. Ultimately, what onlookers found most odd was that the board of Satyam, India's fourth-largest IT outsourcer, did not foresee that the acquisitions would trigger investor outrage.

Diversifying so radically at a time when Satyam's rivals are hoarding cash to weather a global slowdown was baffling enough, analysts said.That the two target companies — Maytas Properties and Maytas Infra — were controlled by B. Ramalinga Raju, Satyam's founder and chairman, and run by his sons, triggered a shareholder revolt of an intensity seldom seen in India. Maytas is Satyam spelt backwards.

Such was the hostility that the deals were shelved just seven hours after being announced on Tuesday night. The fallout from the failed acquisitions promises to last much longer. India's typically subdued institutional investors believe that the incident has cast serious doubt on the quality of corporate governance in the country.

The acquisitions would have netted the Raju family $570 million while exhausting Satyam's cash reserves and driving it into $400 million of debt. After IIFL, an Indian broker, calculated that Satyam had valued Maytas Properties at $1.3 billion, nearly six times its $225 million net worth, one foreign fund manager said that the deal reminded him of the “bad old days when cronyism ruled India”.

That the deal was initially approved — apparently by a unanimous vote — by the Satyam board has placed in doubt the judgment of some of India's most feted business figures. The board includes Vinod Dham, a scientist known as the “father of Pentium” for his role in developing the computer chip made by Intel; T. R. Prasad, dean of the Indian School of Business; and Krishna Palepu, who teaches at Harvard Business School.

Also cast in a dim light are those who dole out business awards. The World Council for Corporate Governance recently ranked Satyam among the world's best-run companies.

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