Author: Sanskriti Meena, a student of Rajiv Gandhi National University of Law, Punjab
INTRODUCTION:
The Satyam scandal is one of the biggest scams in India done by a company called Satyam Computers. Satyam Computers was previously the crown gem of the Indian Information Technology industry, but its founders destroyed it in 2009 due to financial misconduct. The sudden death of Satyam ignited an argument on the CEO’s responsibility for leading a firm to new realms of success as well as CEO’s relationship with the Board of Directors and the formation of significant committees. The dispute brought to light the importance of corporate governance in the creation of auditing committee guidelines and board members responsibilities. The Sateyam Scandal damaged India’s reputation worldwide and upset the market, particularly Satyam investors. Satyam scandal refers to a corporate fraud committed by Ramalinga Raju the founder and chairman of Satyam computers in 2009. He acknowledged exaggerating cash balancing, earnings, and sales in company’s books. He also admitted stealing money for his own personal uses from the company. The Satyam scandal was one of the biggest corporate scandal in India estimated around Rs. 7800 crores. The Satyam scandal disclosed lack in one of the biggest IT companies in India in terms of corporate governance, standards of auditing, regulatory oversight and ethical behaviour. Furthermore, it eroded the trust and confidence of stakeholders, employees, and investors in Indian IT sector. The outcome of the scandal was disastrous and shook the Indian business sector. Major consequences flowed from the Satyam scandal for the company. A sharp decline in share prices resulted in significant cash loss for investors. There was uncertainty for thousands of workers as the firm struggled to survive. The Satyam scandal raised questions about accountability, transparency and ethical standards and undermined the trust of domestic and foreign investors had in Indian commercial sector. Indian government stepped in to protect the interest of stakeholders and prevent Satyam from collapsing. This incident served as a wake-up call for Indian regulators, who changed audit procedures, corporate governance, and accounting practices significantly.
SATYAM SCANDAL
Satyam scandal is one of the most catastrophic scams in India. The Satyam scandal was a carefully thought out scheme to deceive investors. In 2003, Raju began manipulating Satyam’s financial records in order to provide a more positive picture of the company’s expansion and success than it had actually achieved. Along with his brother Rama Raju the managing director of Satyam and several other higher ranking executives Raju engaged in a complex web of deceit by creating fraudulent invoices, bank accounts, clients and even staff members. To complicate matters, Raju invested in his family’s businesses, including Maytas using Satyam’s money for his own profit in real estate and other ventures. For six years Raju deceived regulators, auditors, investors luring them in with his fabricated data and prizes. However, façade began to crumble towards the end of 2008, just around the time of the world financial crisis that decimated the IT industry. Lenders and creditors put further pressure on Satyam to pay off his debts as Satyam’s sale and profitability started to decline. Additionally, the World bank investigated Satyam’s practices and prohibited him from working on any of its projects for eight years since Raju received illegal employee benefits. Desperate to save back his collapsing business, Raju launched an unfortunate $1.6 billion bid for Maytas. However, this strategy backfired horribly, provoking a heated outcry from Satyam board members and shareholders who characterized the deal as a financial diversion and a clear conflict of interest. Raju has twelve hours to backout of the deal but by then Satyam’s stock had fallen by fifty percent. The Satyam scandal was exposed by an anonymous whistle-blower who sent emails to a director of company named Krishna Palepu, revealing the fraud who later forwarded the mails to other directors. The whistle-blower also alerted SEBI and media about the scandal. Finally, cornered and left with no other option Raju confessed to his lies. He acknowledged in January 7, 2009 in a letter to Satyam’s Board of Directors that he had greatly overstated the company’s assets by Rs. 7800 crores around 94% of them. Furthermore, he confirmed that Satyam had overstated its sales by Rs. 5040 crores about 75% of the total revenue. He also confirmed that he manage to do all by his own nor the board neither the auditors were aware of his illegal activities. In response to Raju’s admission the Central Investigation Bureau of Investigation, the security and exchange board of India and the Serious Fraud Inquiry Office started to comprehensive investigation. After being apprehended Raju and his friends were accused of various offences like money laundering, breach of trust, criminal conspiracy etc. He also bribed world bank representatives to avoid examination. Raju’s main ally was Satyam’s auditor PricewaterhouseCoopers (PwC) who participated in falsifying accounts with Raju and broke code of conduct of auditing.
Raju took advantage of weaknesses in the auditing process and misleading shareholders with his charisma and might Raju was able to get away with the Satyam scandal for 6 years. Along with his brother Rama Raju, who is the managing director of Satyam Computers and several other officials. He portrayed Satyam as a prosperous and moral business that has won several awards for social responsibility and corporate governance. He stayed out of spotlight to ally rumours and criticism.
GOVERNMENT INTERFERENCE:
- The Companies Act, 1956 was abolished and The Companies Act 2013 was introduced. Under the new act corporate fraud is an offence. Cost accountants, auditors and corporate secretaries are all specifically defined and named in the act as being required to report Satyam wrongdoing. A new rule pertaining to auditor rotation was also introduced mandating that audit firms and auditors be switched every 10 years and 5 years respectively.
- After the enactment of the SEBI regulations 2015 standards were introduced for reporting of real and suspected frauds as well as the disclosure of important events that impacts investor’s capacity to make decisions.
- The companies act 2013 granted this regulatory body which is overseen by the Ministry of Corporate Affairs, the status of a statutory organisation. It investigates accounting and corporate fraud in India.
CONCLUSION:
The Satyam scandal serves as an example of how human ambition and greed shape behaviour. The Satyam affair highlights the importance of strong governance, ethics, and accounting standards. In developing countries like India strong corporate governance and security laws are necessary. The Satyam scandal led to stricter laws. Examining large scale financial crimes promotes best practices and helps to prevent similar situations in the future.
FAQs:
Q. Who is to be held accountable for Satyam scandal?
A. B. Ramalinga Raju, his brother and former managing director of Satyam computers are to be held accountable for Satyam scandal.
Q. How were books cooked with Satyam?
A. To deceive Satyam’s accounting, the company misrepresented its profit margin, its sales and profitability between 2003-2008.
Q. Who took over Satyam?
A. An Indian multinational technology company called Tech Mahindra acquired Satyam after Satyam scandal in 2012.
Q. Why Tech Mahindra took over Satyam?
A. Since, Tech Mahindra previously focused on communication it regarded Satyam acquisition as a chance for growth as it will give them an opportunity to accelerate their expansion because Satyam had global reach and prestigious customer base.