Author:-Ananya Tripathi, a Student of University of Petrolium and Energy Studies, Dehradun.
Abstract:-
The 2009 Satyam Computer Services accounting controversy is examined in this abstract, which was a noteworthy incident that reduced investor confidence in the Indian IT industry. B. Ramalinga Raju, the company’s founder, made a startling admission when he acknowledged years of financial statement manipulation. In order to give the false impression of financial health, the technique comprised inflating earnings, revenues, and cash balances. This abstract investigates the fraud’s techniques, its effects on stakeholders, and its wider ramifications for corporate governance in India. Frequently, scandals offer a “glimpse of something larger.” These relate to the acceptable “catastrophic letdowns.” In 2008, Satyam Computers, which had previously been considered the crown jewel of India’s Industry Technology Organisation, fell from grace due to financial misconduct committed by its founders. A project is now under construction and is being observed from Satyam’s top to bottom. The whole corporate administration framework that pertains to the Indian area has been unavoidably marked by their humiliation and extortion. The trick highlighted the primary role that corporate administration plays in shaping the customs associated with review council operations and board member responsibilities. A crucial prerequisite for effective direct communication is evident from embarrassing incidents.
Introduction:-
This case deals with the corporate financial fraud of “Computer scam, 2019”. Therefore, this case is about the founder and chairman of a Satyam Computer Services whereas, Ramalinga Raju who was the founder and CEO of Satyam, computers who had accepted and falsifying its accounts to mislead the investors and gain some benefits of the shareholders. Moreover, he confessed to manipulated the company’s accounts and inflating profits for years after years. Whereas, this scam was estimated to be worth of “rupees 14,000 crores” and shook the confidence of investors, shareholders and stakeholders in Indian sector. Until 2010, the biggest corporate fraud in India was the Satyam Computer Services scam. Satyam Computer Services’ founder and directors inflated the share price, fabricated the business’s financial statements, and embezzled substantial sums of money. Satyam Computer Services is an outsourcing company established in India. Property accounted for a large portion of this. When the property market in Hyderabad crashed in the late 2008, it became apparent that Satyam was involved in this scam. Whereas; Ramalinga Raju, the chairman of the firm, admitted in 2009 that the company’s financial statements had been fabricated, and shocking everyone. Moreover; in 2009, A significant accounting scandal that destroyed investor trust devastated India’s IT industry. This was the Satyam Computer Services scandal, which is still regarded as one of the largest corporate scams in the annals of the nation. Therefore; when founder and chairman ‘B. Ramalinga Raju’ admitted to the startling fact that the company’s financial records had been carefully counterfeit for so many years, where Satyam Computers once regarded as the diamond in the Indian IT industry in which it came crumbling down. On the other hand, in order to create a falsely optimistic image, this manipulation entailed increasing earnings, revenues, and cash balances for them. Moreover; on April 13, 2009 saw a number of firms submit bids. Before the scam was discovered, Tech Mahindra, the winning bidder, acquired Satyam for only one-third of its original worth. Nov. 4, 2011: Raju and two other accused individuals were granted bail. Raju was sentenced to seven years in jail in 2015, along with his two siblings and seven other people.
The rise of satyam computer scam, 2019:-
- 1987- Satyam Computer Services Limited is founded by Ramalinga Raju, and it is based in Hyderabad, India.
- 1990 and early 2000s- The organisation obtains agreements with global customers and is listed on Indian stock exchanges.
- 2001- Crucial Moments In The Satyam Fraud Case. With its NYSE listing, Satyam has increased its exposure to a global market.
- 2006- “Maytas Properties” and “Maytas Infrastructure”, ie., two infrastructure businesses owned by the Raju family, which are announced to be acquired by Satyam owner. There is strong opposition to the proposed acquisitions from the business community and investors, which could result in their cancellation.
- 2008- Satyam’s financial performance was under strain due to the global economic slump and financial crisis. The Satyam board of directors calls an emergency meeting, names Ram Mynampati as the company’s temporary CEO, and the Indian government begins an investigation into the Satyam fraud case.
- On December 16- Ramalinga Raju admits to financial irregularities within the firm in a letter addressed to the Bombay Stock Exchange and Satyam’s board of directors.
- 2009- The Serious Fraud inquiry Office which is tasked with overseeing the official inquiry into the fraud that the Indian government. In the meantime, the Andhra Pradesh Police detain Ramalinga Raju and his brother, Rama Raju. The board of Satyam selects fresh auditors to restate the business’s financial statements and evaluate the real status monetarily.
- April 2009- A competitive bidding procedure is used by Tech Mahindra, an Indian IT services business, to purchase a majority share in Satyam scam.
What do you mean by “satyam scam”.
Ramalinga Raju, the founder and chairman of Satyam Computer Services, perpetrated a massive ‘corporate fraud in 2009’, which is also known as the “Satyam scam”. He acknowledged that he had been falsifying staff, cash balances, sales, and profitability figures in the company’s records. He also admitted to taking money from the company and using it for his own expenses and once thought to be worth Rs. 7,800 crores’ the Satyam scam was the biggest corporate scandal in India. At last, one of the biggest IT companies in India, the Satyam fraud exposed a lack of ethical behaviour, regulatory oversight, corporate governance, and auditing standards. Investors, customers, employees, and other stakeholders in the Indian IT sector lost faith and confidence as a result. The company, its auditors, its board of directors, and its investors all suffered grave repercussions as a result of the Satyam Computers fraud.
Result of “satyam scandal”:-
Several businesses placed bids on April 13, 2009. Tech Mahindra won the auction and, before the scam was discovered, acquired Satyam for one-third of its original price. On November 4, 2011, Raju and the other two suspects were granted bail. Raju received a 7-year jail term in 2015 together with his two siblings and seven other people.
A Case Study of the Satyam Scam and How Raju Got Away with It:-
Raju fooled stakeholders with his charm and might, taking advantage of holes in the accounting and auditing processes to get away with the Satyam scandal for six years. Along with numerous high-ranking officials and his brother Rama Raju, who was the managing director of Satyam, he had a network of accomplices. Additionally, he bribed clients and World Bank representatives to obtain contracts and avoid investigation also, Raju had a major ally in the scheme-: Price water house Coopers, Satyam’s auditor. PwC did not fulfil its responsibility to review Satyam’s financial statements and identify any fraudulent activity. PwC has falsified the accounting with Raju and broke the code of conduct and auditing norms in the process. Red flags were also disregarded by PwC from informants who disclosed the fraud to Satyam director Krishna Palepu via anonymous emails. Regulators, investors, experts, and the media were among the people Raju won over with his power and reputation. He portrayed Satyam as a prosperous and moral business that has won several accolades for social responsibility and corporate governance. He was also honoured for his entrepreneurial spirit and aptitude for business. He stayed out of the spotlight and behaved modestly to allay rumours and criticism. When Raju tried to use Satyam’s cash reserves to buy Maytas, a family-owned real estate company, in 2009, it was shown to be a scam. The action backfired, causing the board members and shareholders of Satyam to voice a significant outrage. Raju had no choice except to own his deceit and come clean. He acknowledged to Satyam’s board and authorities in a letter dated January 7, 2009, that he had exaggerated Satyam’s assets by around 94%, or Rs. 7,800 crores. He claimed to be an isolated operator, with neither his auditors nor his board members being aware of his deceit.
The Satyam Scandal’s high points:-
- In 2008, almost five months before to the disclosure of the Satyam fraud, Satyam was awarded the Golden Peacock Award for Corporate Accountability.
- When read backwards, SATYAM is MAYTAS, the real estate company Mr. Raju was trying to purchase.
- The World Bank prohibited Satyam from doing business with its contacts for a period of eight years. Mr. Ramalinga Raju won the Ernst and Young Young Entrepreneur Award the same year.
- It has been more than two years since PwC, the external audit firm, was prohibited from offering assurance and auditing services to publicly listed companies. Satyam is referred regarded as the “Enron Scandal of Indian History.” Wall Street’s downfall was aided by Enron, the worst accounting and corporate fraud in US history.
Who Revealed the Satyam Deception:-
One of the company’s directors, Krishna Palepu, received emails from an unidentified whistleblower exposing the Satyam scandal. Palepu forwarded the emails to S. Gopalakrishnan, a partner at PwC, Satyam’s auditor, and another director. Joseph Abraham was the pseudonym used to send the emails. The fraud was also reported to the media and ‘SEBI’ by the whistleblower. Regulators and auditors launched an inquiry after receiving the emails, which ultimately resulted in Raju’s confession and apprehension.
Historical background of the Satyam fraud case:-
Rising stars like Satyam Computer Services Limited were common in the Indian market for outsourced IT services. The company was founded in Hyderabad in 1987 by Mr. Ramalinga Raju. With just 20 employees at first, the business grew swiftly to become a global enterprise with operations in 65 nations. The New York Stock Exchange (NYSE), DOW Jones, and EURONEXT are the three international stock markets where Satyam is the first Indian company to be listed. It was acknowledged as India’s fourth-largest software exporter, behind TCS, Infosys, and Wipro. The 1990s saw the company expand significantly. This led to the formation of Satyam Renaissance, Satyam Info way, Satyam Spark Solutions, and Satyam Enterprise Solutions. The initial one was Satyam Info Way. online company to get NASDAQ listed. Satyam inked Memorandums of Understanding (MoUs) with several multinational organisations in the new millennium, expanded its operations to other countries, and acquired multiple firms. Satyam proceeded to enhance its credentials by initiating the world’s first Customer-Oriented Global Organisation training program in May 2000, inking agreements with numerous global entities such as Microsoft, Emirates, TRW, i2 Technologies, and Ford, and being the first ISO 9001:2001 company certified by BVQI. Additionally, Satyam expanded its global reach by opening offices in Singapore, Duba, and Dubai. Satyam’s overall income for the 2003–2004 fiscal year was Rs. 25,415.4 million. As of March 2008, the business’s sales. The income was up by over three times. With a compound annual growth rate of 38%, the company expanded over that period. Operating cash flows, net profit, and operating profit were all on average 35 percent, 28 percent, and 33 percent, respectively. Profits per share (EPS) also increased from $0.12 to $0.62, a 40 percent compound annual growth rate. It is evident that Satyam increased shareholder value and company development significantly. Within the global IT industry, the corporation was a household name and a rising star. Regretfully, less than five months after receiving the Global Peacock Award, Satyam was the target of a significant accounting scandal.
Conclusion:-
At last, a series of significant changes which were introduced in “Corporate Governance” to enhance its “4 pillars” that are given as; ‘accountability’, ‘transparency’, ‘fairness’, ‘independence’. The Companies Act, 2013 for example; underwent substantial amendments, audit oversight and financial requirements. A financial scandal known as the Satyam Computer Services scam happened in 2009 at one of the top IT businesses in India. The company’s founder and chairman, Ramalinga Raju, and his managing director brother, Rama Raju, were both engaged in the controversy. The scheme comprised years of accounting fraud for the corporation, the fabrication of papers, and misleading authorities, auditors, and investors. The intention was to boost the share price and provide a misleading image of the company’s financial situation in order to enable Raju and his cronies to sell shares. Eventually, an anonymous whistleblower who corresponded with a director of the firm via email revealed the deception. The scandal led to criminal cases against Raju and eight others, and both brothers were sentenced to seven years in jail and fined Rs.5 crore each. It also exposed weaknesses in India’s “corporate governance” structure and led to changes in the ‘Companies Act of 2013’ to strengthen board independence, audit oversight, and financial disclosure requirements.
FAQs:-
- What was the Satyam Computer Services scam?
The Satyam Computer Services scam was a major accounting fraud committed by the company’s founder and chairman, Ramalinga Raju, in 2009. Raju inflated the company’s profits, revenue, and cash balances for several years, creating a false impression of financial success.
- How did Raju carry out the scam?
Raju and his associates used various methods to manipulate the company’s financial statements. These included creating fake invoices, forging bank statements, and inflating customer numbers.
- What was the impact of the scam?
The scam had a devastating impact on Satyam Computer Services. The company’s stock price decreased significantly, and investors lost billions. The scandal also damaged India’s reputation as a growing economic power and raised concerns about corporate governance in the country.
- Who was responsible for the scam?
Ramalinga Raju and a small group of associates were primarily responsible for the scam. Raju confessed to the fraud in 2009, and he was subsequently arrested and charged with various financial crimes.
- What were the consequences of the scam?
Raju was convicted of fraud and sentenced to several years in prison. Satyam Computer Services was eventually acquired by Mahindra Satyam, a new company formed by The Mahindra Group. The scam also led to stricter regulations and enforcement measures for corporate governance in India.
- What are the lessons learned from the Satyam scam?
The Satyam scam highlighted the importance of strong corporate governance, independent auditing, and ethical business practices. It also underscored the need for robust regulatory frameworks to prevent such frauds in the future.
- What are the lessons learned from the satyam scam?
The Satyam scam highlighted the importance of strong corporate governance, in today’s independent era, auditing, and ethical business practices. It is also underscored the need for robust regulatory frameworks to prevent such frauds in the upcoming year.
- By whom was Satyam acquired?
After the Satyam fraud in 2012, Tech Mahindra, an Indian global technology business, purchased Satyam Computer.
- What made Mahindra purchase Satyam?
Tech Mahindra regarded the Satyam acquisition as a chance for growth and diversification, having previously focused on telephony. Tech Mahindra and the Mahindra Group saw a strategic opportunity to accelerate their expansion thanks to Satyam’s scale, global presence, and recognised client base.
References:-
- https://www.slideshare.net/slideshow/satyam-scam-full-ppt-194363106/194363106.
- https://www.researchgate.net/publication/362519175_SATYAM_COMPUTER_SCAM-PRE_AND_POST_ANALYSIS-A_CASE_STUDY.
- https://cleartax.in/glossary/satyam-scam-satyam-scandal/.
- https://www.5paisa.com/blog/satyam-scam.
