The quality of corporate governance at Indian public companies is under the spotlight after nearly half the board of Satyam, one of India’s largest IT groups, resigned. The directors quit after Satyam scrapped a controversial move to buy two struggling construction businesses controlled by its founder and chairman.

Satyam first angered investors in mid-December when it launched a $1.6 billion offer to buy Maytas Properties and Maytas Infra (Maytas is Satyam spelled backwards). Analysts said the bids massively overvalued the target companies, which were largely owned by B. Ramalinga Raju, Satyam’s founder and chairman, and run by his sons. One Indian broker estimated that Satyam had valued Maytas Properties at $1.3 billion, nearly six times its net worth. The deal would have netted Raju and his family as much as $570 million, while obliterating Satyam’s cash reserves and running up $400 million of debt. (Raju has also recently said that much of his stake in Satyam may now be in jeopardy, since he used his shares as collateral in margin calls that investors may have subsequently called in.)

Satyam quickly scrapped the move, but institutional investors were angry that its nine-member board had approved the deal in the first place. Four of those directors have now resigned.

The Indian press reported that both the government and the Securities and Exchange Board of India were looking into the bid and whether more should be done to regulate independent directors. Indian public companies have a reputation for appointing supposedly independent directors on the say-so of the chief executive or chairman.

In a conference call with Raju, analysts complained that Satyam’s actions would undermine foreign investor confidence in Indian corporate governance practice. The company recently won an award for its supposedly high standards of governance.