B. Ramalinga Raju, the disgraced IT mogul behind India’s largest corporate fraud, was arrested yesterday on charges of cheating and forgery, according to an Andhra Pradesh state police chief.

Mr Raju, the former chairman of Satyam, India’s fourth-largest out-sourcing company, was arrested with B. Rama Raju, his brother and co-founder, on charges of criminal breach of trust, criminal conspiracy, cheating, falsification of records and forgery. The Indian Government also disolved Satyam’s board yesterday and plans to appoint its own directors next week.

Mr Raju will appear before the country’s market regulator today amid doubts that Satyam, which counts scores of blue-chip companies among its clients, has enough money to pay its 50,000 staff this month’s wages.

The Securities and Exchange Board of India, the credibility of which hangs in the balance as a result of the scandal, will ask just how the former star businessman was able to orchestrate a £1 billion fraud by wildly overstating profitability, cash reserves and other assets for several years. Mr Raju faces up to ten years in prison if found guilty of misleading investors.

The fraud included $1 billion (£660 million) of purely fictitious cash, which Mr Raju had claimed the company had on its books, according to a confession he released on Wednesday. That he was able to get away with such a rudimentary deception has called into question the role of PricewaterhouseCoopers (PwC), which had audited Satyam’s accounts since 2000.

PwC’s assertion that it had done its duty has been disputed by angry institutional investors. “If you’re an auditing company and your client says it has $1 billion in cash, you check with the bank,” said HughYoung,Aberdeen Asset Management head of equities.

PwC said in a statement that its work at Satyam adhered to “applicable auditing standards and [was] supported by appropriate audit evidence”.

India’s Company Law Board authorised the dismissal of Satyam’s board yesterday and their replacement with government nominees. The newly constituted board is expected to meet within a week, P. C. Gupta, the Minister for Corporate Affairs, said. He added: “We will soon take action against erring company officials and auditors.”

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