Satyam Computer Services [Get Quote] improperly used a valuation of Maytas Properties done by Ernst & Young for its merger with the disgraced information technology company, the professional services firm has alleged.

In the minutes of the December 16 meeting of the Satyam board, ex-CFO Srinivas Vadlamani, now in jail, had said that Ernst & Young had valued the closely-held Maytas Properties at Rs 6,523 crore, though Satyam had agreed to acquire it for Rs 6,410 crore.

Ernst & Young now said its valuation of Maytas Properties was for a proposed share transaction involving the existing shareholders of the company--the family of Satyam founder S Ramalinga Raju. "We were not given to understand by any party, explicitly or implicitly, during the valuation exercise about Satyam's plans to acquire Maytas Properties," an Ernst & Young spokesperson informed Business Standard by e-mail.

Actually, the spokesperson added, Ernst & Young was engaged by a law firm and not by Satyam for this valuation, which is mandatory for such a transaction, according to the guidelines laid down by the Reserve Bank of India [Get Quote]. "This valuation was done only to comply with RBI's regulatory requirements and our engagement letter and valuation report clearly and unequivocally state this," she added. S R Batliboi is Ernst & Young's audit arm.

Satyam and Maytas Properties officials were not available for comment. In December, Satyam had to call off the merger of Maytas Properties and Maytas Infrastructure, companies controlled by Raju's family, with itself after shareholders raised strong objections about the transaction. Earlier this month, Raju had disclosed that the transaction was meant to cover a hole of over Rs 5,000 crore in the company's books.

Some experts Business Standard spoke to said the use of the valuation report for the merger could be construed as a breach of contract. Also, the valuation done for such a purpose is different from that done with the perspective of selling to a buyer.

Ernst & Young also clarified that though it is the auditor of Maytas Properties, it is not the auditor of the various subsidiaries it has floated  to acquire real estate assets. "Since Maytas Properties is not listed, there was no requirement to prepare a consolidated statement and audit it," the spokesperson added. It is not clear  who has audited the accounts of the subsidiaries.

A large chunk of the land bank of the Raju family was parked in Maytas Properties. According to the minutes of the December 16 board meeting, Maytas Properties has a land bank of 6,800 acres and can construct 245 million sq ft of real estate on it. "This is almost one-third of DLF's properties but the valuation considered is only one-tenth," it said.