Author: Atharv Sunil Kulkarni, Shahaji Law College
Introduction -:
The Satyam Computers company was once at the top of the IT industry but in 2009 they found guilty in India’s one of the largest scam. The founders and higher executives were involved in this. The founders inflated the company’s financial data which lead to its loss and finally collapse. This scam highlighted the importance and lack of corporate governance in India. It also changed the reputation of India’s IT industry in global level.
Brief about Case -:
Satyam Computer Services was established in 1987. With the time the company became leading IT service company in India. In 2009 the Satyam Scam became infamous in public.
This scam highlighted the weakness in the corporate governance in India.
The Scam was done by Ramalinga Raju with major help of his brother Rama Raju. His brother was the managing director of the Satyam Computers.
The case of Satyam scam explains the way how raju brothers done the fraud by executing their different ways over many years. They were involved in various fraudulent activities and at last they fallout.
The fraud was actually started in 2003. At that time Ramalinga Raju was portraying Satyam Computers more successful than truly as it was. He started manipulating to the accounts to show higher profits, assets, revenues. It was not limited for one aspect, but it also included other fraudulent activities like,
(i) Fake reports of audit – These reports showed clean image of company to the public and presented that it is growing financially.
(ii) Fake invoices – Company generated bogus invoices to show that they have conducted more business activities than it really had.
(iii) Fake clients – They created fake bank accounts, employees and clients profile.
These all things were arranged so well with the help of some senior executives including his brother Rama raju. When the company was on the top the Raju brothers used company’s fund for their personal use. Despite these activities the Satyam Company grew up rapidly till 2008. At that time the stock price of Satyam was Rs.544, which grew up from Rs.10.
In 2008, the world was under global financial crisis due to which it affected to the IT industry also. At that time company was under pressure to settle the debts of creditors. Later it became the reason for explosion of the company. Later, World Bank also banned the company.
The Confession :
Ramalinga Raju had not rested any choice other than confessing and admitting his fraudulent activities. On 7th January 2009 he admitted the frauds. Then the director’s board confessed that he inflated the company’s 94% of assets which were nearly Rs.7,800 crores. He also confessed that he showed over revenue of Rs.5040 crores. Through his confession the Serious Fraud Investigation Office i.e. SFIO, Securities and Exchange Board of India i.e. SEBI and the Central Bureau of Investigation i.e. CBI started investigation. The authorities arrested Ramalinga Raju, his brother Rama Raju and several top executives of the company under the charge of –
– Money Laundering
– Insider trading
– Forgery
– Criminal conspiracy
– Breach of trust
Impacts :
1) Satyam employees after this faced job crisis and were not sure about their future.
2) Who invested in stocks of Satyam company many of the shareholders faced loss with very huge amount.
3) IT sector affected by disruption and faced lacking in the trust.
4) Indian government took steps to stabilize the Satyam Company.
5) Tech mahindra take over the company and then it started recovering from long challenging process.
Aftermath of the scam -:
Ramalinga Raju , his brother and other 8 persons were held liable in this one of the largest scam. In 2015, court convicted all 10 accused for imprisonment for 7 years and find of Rs.5 cores for each. They found guilty for crimes like, Cheating, Criminal Conspiracy, Breach of trust, Forgery etc.
Solutions -:
Organisation for Economic Co-operation and Development suggested some solutions for it –
1) Accountability : The management of company must be held liable and accountable for their actions. Board of directors should be accountable for shareholders as well as for stakeholders also.
2) Transparency : They suggested that companies must show their all related information. The disclosure of information must be done on time.
3) Responsibility : Higher executives of must act responsibly with understanding of effect of their decisions on overall company and it’s employees.
4) Fairness : In a company the system must be fair, which will promote the goodwill of the company in the market. Corporate governance should provide safeguard for such things.
Important timeline events in this scam -:
1) In January 1987, Satyam Computers company was founded by Ramalinga Raju in Hyderabad. In starting it was a small company, which was providing IT service to small clients.
2) In 1991, Satyam Computers debuted in Bombay Stock Exchange.
3) In 2001, it was the year in which they got listed in New York Stock Exchange and become famous globally.
4) On 23rd December 2008 World bank banned the Satyam Computers Company from conducting business.
5) On 2nd January 2009 the company’s stake reduced to 8.64% which found suspicious.
Conclusion -:
The Satyam Scam worked as a tale about the significance of transparency, ethical behavior etc. in business or professional practices. After this scam in India many changes in legal framework were brought. New policies were introduced. The effects of the fraud also influence in the corporate governance now also.
