Author: Jyoti Singh, Delhi Institute Of Rural Development (DIRD)
To the point
Satyam Computer Services Limited, also known as India’s Enron, is India’s most notable corporate fraud. An India-based outsourcing company, Satyam Computer Services fraud was defrauded by its founder and director, who stole large amounts of money from the company, falsifying the account and inflating the share price. That fraud was discovered when the property market of Hyderabad collapsed, drawing all the strings to the Satyam computer. The chairman, Byrraju Ramalinga Raju, confessed in 2009 that the company’s accounts had been falsified. Later, B Ramalinga Raju and two of his brothers, including 7 other members, were sentenced to 7 years, followed by imposing a fine of rupees 5 crore. It turned out to be the most manipulative fraud, which involved misleading a whole market, all the stakeholders, investors, and regulators to present companies’ good health. They grossly inflated the basic facts like revenue, interest liabilities, cash balance and operating profits. In this article, we will discuss all the legal timeline issues that were framed around the case.
Use of legal Jargon
During the investigation of the case, there were major discoveries like a compound of White-collar crime. Actus Reus was established as there was clear manipulation of all the financial statements and involvement in creating fictitious assets. Mens Reus or the guilty mind, was tracked down by investigating the continuous action of Raju over the years in misrepresenting finance to deceive shareholders and regulators.
Several offences were committed, and the accused were charged under the various provisions. Sections 420, 406, 409, 467, 468, 471, and 471A of the Indian Penal Code, which involve cheating, criminal breach of trust and forgery and the falsification of accounts.
Section 12A and 15HA of the SEBI Act 1992, are about fraudulent and unfair Trade practices. Sections 211, and 628 of the Companies Act 1956, relate to different forms and contents of financial statements and imply a penalty for false statements. They were also booked under the Prevention of Money Laundering Act 2002 (RMLA).
Sections 45 and 65B of the Evidence Act involve expert testimony and admission of electronic evidence.
Proof
Inform of primary document confession letter by Ramalinga Raju was discovered he voluntarily wrote that letter to Satyam’s board confessing that he has falsified his account for years since confession to the police is not admissible under section 25 of evidence act, but under section 24 confession made voluntarily, which it leads to the fact in issue or relevant fact.
The examination conducted by Pricewaterhouse Coopers, SFIO (Serious Fraud Investigation Office) and CBI forensic teams for the forensic audits presented their finding, like Fictitious bank balances, fake invoices and inflated revenue, and false assets shown in balance sheets.
Major electronic evidence was also presented, which included emails, manipulated entries in accounting software, and computerised ledgers.
Witness testimonial was examined under oath, namely the internal auditor, finance offices, the statutory auditor, and employees involved in data manipulation.
The figures mentioned in the account book and the actual figures had a huge difference, which played an evident role, and were admissible under section 34 of the Evidence Act, which deals with the relevancy of entries in books of account. These findings revealed overstatement of cash reserves and underreporting of liabilities.
Abstract
In January 2009, the Satyam computer services scandal was exposed, marking India’s most high-profile and eye-catching case of white-collar crime and corporate fraud. Carried out by the company’s founder and chairman, B. Ramalinga Raju, the scam involved the falsification of accounts, inflation of revenues, and creation of fictitious assets, amounting to ₹ 7136 crore. This case highlighted major flaws in our corporate governance, statutory auditing, and regulatory compliance, which were hard to ignore. This article focuses on the legal dissection of fraud through the lens of criminal and corporate law, with emphasis on offences under the Indian Penal Code, Companies Act, SEBI Act and Prevention of Money Laundering Act. We have also discussed the major evidence namely Raju’s confession, forensic audit report, electronic data, and witness Testimonies every evidence was examined under the roof of the Evidence Act, sections 45 and 65B of the Evidence Act, this article also consists of major landmark cases and discussed a wide range of legal doctrine following Mens reus, actus reus.
Case Laws
SEBI vs Ramalinga Raju (2014)
In this case, SEBI acted against Ramalinga, the founder and CEO of Satyam and other executives who were involved in the fraud. Raju and others were permanently banned from the securities market by SEBI.
KPMG vs SEBI (2012)
An auditing firm, KPMG, was penalised by SEBI, due to its failure for not following the prescribed auditing standard while evaluating the financial record of Satyam.
Satyam Computer Service Ltd vs Union of India (2012)
The case highlighted the breach of duty by the auditor of compliance. SC held that it was the auditor’s unquestionable duty to detect any kind of false financial statement, which he failed to perform; the court stated that the auditor played a critical role in fraud by not making sure and checking the accurate and reliable financial disclosure.
Conclusion
This case not only exposed the long ongoing scam but also highlighted the need for strong laws for corporate governance and financial regulation in India, this case brought the strong norms under the Companies Act 2013, and auditing standards were enhanced it was very evident that Satyam’s management dishonoured the code of ethics and standard of the accounting profession. Morrill Lynch discovered the fraud by finding the inconsistent statement of Satyam’s finance, top executive and chairman resigned from their position, the share price fell drastically, and a $2.2 billion loss occurred to investors. The board was appointed by the government to handle the matter. Later the company was sold to Tech Mahindra. This fraud carried on for years to fool the market, investors, public, to make believe that the company was doing well financially. Such an incident could have been avoided by following the accounting ethics, and by appreciating more transparency and accountability within the organisation.
FAQS
1. What is corporate governance?
Practice, processes, and systems of rules, through which companies are controlled and directed, are termed corporate governance.
2. What was Satyam’s fraud?
It was India’s biggest corporate fraud, which was carried out by the company chairman, Ramalinga, with two of his brothers, by showing manipulative entries in the account book to fool the investors, shareholders and public.
3. Who played a major role in Satyam’s case?
B Ramalinga Raju was the mastermind of the fraud; later SC held that the auditors of the company were also accountable for not performing their duties and adhering to the guidelines of SEBI and the company’s act.
4. What were the reforms introduced after the scam?
Independent directors were introduced to maintain all checks and balances, rotation of auditors in firms that were listed was introduced every five and ten years, NFRA (National Finance Reporting Authority) was formed, an independent body to investigate any kind of professional misconduct, and SEBI reforms were made stricter.
