• AUTHOR :
This article is written by Kamaldeep kaur, student at institute of law, Kurukshetra University, Kurukshetra.
• INTRODUCTION :
The Satyam scam is one of the largest accounting scam in India. The scam was performed by the company Satyam computers. Satyam computers was formally the crown jewel of the Indian information technology industry, but its founders brought it to its knees in 2009 owing to financial wrongdoing . The company’s founders financial misdoing led to its destruction, shining debates on the CEO’s role, communication with the board of directors and the importance of corporate governance.
This dispute accent the need for robust auditing committee standards and board member responsibilities. The abrupt demise of Satyam had a profound impact on the market, particularly affecting investors and taint India’s global fame . So, let’s explore the topic by understanding what is Satyam scam.
• WHAT IS SATYAM COMPUTER SCAM CASE :
The “Satyam scam” refers to the extensive corporate fraud that Satyam computer service founder and chairman, RamaLinga Raju carry out in 2009 . In the company’s books, he admit inflating sales, earnings, cash balances and employee counts. He also acknowledge to filch money for his own objective from the company.The Satyam scam was one of the largest commercial crime in India, valued at around Rs.7800 crores.
The Satyam case display its weakness in one of the largest IT companies in India in terms of corporate governance, auditing standards, regulatory oversight and ethical behaviour. Additionally, it disable the credit and confidence of stake holders, customers, employees and investor in the Indian IT sector. Serious consequences flowed From the Satyam computer scam for the company, its auditors , its board of directors ,and its investors.
• ROLE PLAYED BY MR. RAJU IN THE SATYAM FRAUD CASE :
1. Mr. Raju had presumed that he over valued Satyam’s wealth by $1.47 billion on the balance sheet. The institution require to take about $1.04 billion in bank loans and cash, but none of it subsisted. Satyam’s responsibilities were similarly under stated on its balance sheet.
2. In order to meet observed assumptions, Satyam inflated income almost every quarter for a number of years. Mr Raju created multiple dishonest bank presentation to support the scam.
3. Mr Raju produced bank accounts in order to amplify the balance sheet with imagined funds. By claming interest income from the imagined bank accounts, he inflated his income presentation.
4. Mr Raju father said that during the last 3 years from 2006 to 2008, he produced 6000 wrong pay accounts and took the money when the corporation saved it. To inflate revenue, the company’s global head of internal audit introduced fake customer identities and made dishonest invoices in their names.
5. In addition, the company’s global head of internal audit artificial board decisions and received financing illegally . It had also showed that the funds gained in the United State through American Depository Receipts never made it to the company’s sheets.
6. Mr Raju at the beginning claimed that he did not amused any funds to his personal accounts and that the company was not as beneficial as it had claimed. However ,during substituent inquiries , Mr Raju disclose that he had diverted a large sum of money to the other companies that he retained and that he had been doing so since 2004.
7. Mr Raju first required that he was the sole perpetrator of the scam. However, Indian authorities have also executed MR. Raju’ s brother, the company’s CFA, the company’s global head of internal audit, and one of the company’s managing directors, as initially mentioned.
• BOARD OF DIRECTOR’S INVOLVEMENT IN THE SATYAM FRAUD :
1. Satyam’s board of directors had nine members, with 5 denominated as independent, as per indian listing rules.
2. Official filings with the SEC disclosed the absence of a financial specialist on the board in 2008.
3. Concerns arose about the board’s independence, possibly persuaded by well -known corporate figures like Krishna Palepu, Rommohan Rao, and Vinod Dham.
4. On December 16, 2008, the Board faced criticism for sanctioning satyam’s real estate gain linked to Mr. Raju, after a shareholder revolt, the assent was repeal, leading to the resignation of Palepu, Rao, and Dham within two days.
5. The vain deal elevated mistrust among investors about the board’s active monitoring of Satyam, and it emphasised the Board’s collapse to notice red flags missed by PwC, the auditor.
6. Raju’s significant decline in Satyam shares three years before the fraud’s exploration should have raised concerns for the board.
7. Raju’s share in the company reduced from 15.67 % in 2005 – 2006 to 2.3% in 2009.
• VICTIMS OF THE SATYAM FRAUD CASE :
1. Satyam employees had difficult moments and uneasy nights as they faced nonpayment of salary, project revocation, layoffs, and equally dark outside employment chances. They were morally, financially, legally, and socially confined in a variety of ways.
2. Satyam’s clients proclaimed a lack of devotion in the company and reevaluate their contracts, opting to deal with other rivals instead. Satyam’s contracts with Cisco, Telstra, and the World Bank get all droped. Customers were taken aback by the project’s lack of continuity, privacy, and expense invade.
3. Shareholders lost their money, and there was disbelief about India’s revival as a favoured contribution location. In a presentation, Mahindra’s VC and MD required the incident had “caused infinite and unforgivable harm to Brand India and Brand IT in specific.”
4. Bankers were troubled about the rehabilitation of financial and non-financial vulnerability, as well as the remind of facilities.
5. The Indian government was solicitude that the country’s image and the IT sector might damage people’s deliberate to sponsor or conduct business in the country.
• RESPONSE OF THE GOVERNMENT TO THE SATYAM FRAUD :
The Satyam fraud case instructed India a lot. Indian law is continually unfolding. Though, this is how the government interpreted to the Satyam Scam:
1. Companies Act – The Companies Act of 2013 became agent upon the revoked of the Companies Act of 1956. The new act makes corporate fraud a criminal offence. Cost accountants, auditors, and corporate secretaries are all particularly defined and named in the Act as being claimed to report Satyam misconduct.A new rule refering to auditor curve was also put into effect, mandating that audit firms and auditors be swapped after ten years and every five years, respectively. Besides, it specifies that the Board of Directors’ Report should contain the Director’s obligations presentation.
2. ICAI- The Institute of Chartered Accountants of India In its audit report, the accounting organisation highlighted the auditors’ thorough reporting of imagined wealth and contingent liabilities.
3.SEBI- The SEBI Regulations 2015 (Listing Obligations and Disclosure Requirements) were constituted, and they founded criteria for reporting actual and presumed frauds and revealing important events that effect the decision-making power of investors.
4. Serious Fraud Investigation Office (SFIO) – This official authority, enacted under the administration of the Ministry of Corporate Affairs, was given the status of a approved institution under the Companies Act of 2013. In India, it looks into business and accounting fraud.Corporate governance best practices have become an acute.
• WHO EXPOSED THE SATYAM SCAM :
The Satyam scam was exposed by an anonymous whistleblower who sent emails to one of the company’s directors, Krishna Palepu, revealing the fraud. Palepu forwarded the emails to another director and S. Gopalakrishnan, a partner at PwC, the auditor of Satyam. The emails were sent from the alias Joseph Abraham. The whistleblower also alerted the SEBI and the media about the scam. The emails prompted an investigation by the regulators and the auditors, eventually leading to Raju’s confession and arrest.
• HIGHLIGHTS OF THE SATYAM SCAM :
● Satyam had won the Golden Peacock Award for Corporate Accountability in 2008, around five months before the Satyam scam was revealed.
● The same year, Mr Ramlinga Raju received the Ernst and Young Young Entrepreneur Award.
● When read backwards, SATYAM is MAYTAS, the real estate business Mr Raju sought to buy.
● Satyam was barred from conducting business with its connections for an eight-year term by the World Bank.
● PwC, the external audit company, has been barred from providing assurance and auditing services to publicly traded firms for over two years.
● Satyam is known as the “Enron Scandal of Indian History.” Enron was the largest accounting and business fraud in the United States, contributing to Wall Street’s demise.
• CONCLUSION :
In conclusion, the Satyam accounting fraud of 2009 attends as a grim reminder that human avarice, aspiration, and the tracking of ordinance, wealth, reputation, and glory can substantially impact ethical conduct. The series of crime highlighted the acute need for exemplary behavior rooted in robust corporate governance, ethical principles, and stringent accounting and auditing standards. The Satyam case, specifically in emerging nations, underscores the critical role of securities laws and corporate governance. The government of India, prompted by the Satyam fraud, has taken proactive measures to improve corporate governance norms and prevent the outbreak of similar frauds in the future. It is incumbent to thoroughly investigate substantial financial reporting frauds, extracting valuable takeaways and best practices to allay the probability of similar incidents in the future.
• REFERENCES :
1. https://tradebrains.in/satyam-scam/
2. https://www.academia.edu.in
