Nearly half the board of Satyam, one of India’s largest IT groups, has resigned in the wake of a controversial attempt to buy two struggling construction companies controlled by the outsourcer’s founder and chairman.

Four directors have resigned from the board in the past week. One resigned today, two stepped down on Sunday and another left last week.

Satyam sparked one of the angriest investor revolts witnessed in India earlier this month when it launched a $1.6 billion (£1.1 billion) offer to buy Maytas Properties and Maytas Infra.

Analysts said that the planned acquisitions grossly overvalued the two target companies, which were largely owned by B Ramalinga Raju, Satyam's founder and chairman, and run by his sons.

They also questioned the logic of embarking on a radical and expensive diversification drive at a time when Satyam’s rivals are hoarding cash to weather the global economic downturn.

Maytas is Satyam backwards.

Within hours, the company had been forced to drop the deal, which would have netted the Raju family, which controls only 8 per cent of Satyam, as much as $570 million while exhausting the IT company’s cash reserves and driving it into $400 million of debt.

IIFL, an Indian broker, calculated that Satyam had valued Maytas Properties at $1.3 billion — nearly six times its net worth of only $225 million.

Questions have been raised In the wake of the scandal by institutional investors over the standards of corporate governance in India. That the deal was apparently approved by the nine-member Satyam board has placed in doubt the judgement of some of India's most feted business figures.

The directors included Vinod Dham, a scientist known as the "father of Pentium" for his role in developing the breakthrough computer chip made by Intel; TR Prasad, a former Cabinet Secretary in the Indian Government; and Krishna Palepu, who teaches at Harvard Business School.

Mr Palepu and Mr Dham today resigned from the board, as did Mendu Rammohan Rao, who is dean of the Dean of Indian School of Business. They were not immediately available for comment.

Dr Mangalam Srinivasan resigned last week.

Also cast in a dim light by the affair are those who make corporate governance awards. Just three months ago, The World Council for Corporate Governance, with Ola Ullsten, the former prime minister of Sweden as its lead judge, ranked Satyam as among the best run companies in the world.

Struggling to placate investors, Satyam recently said it was looking at a share buyback instead of acquisitions. Harit Shah, of Angel Broking in Mumbai, said: "This is the least they can do to boost investor sentiment … it will take a long time for them to forget this incident."

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