Satyam Scam Case

Satyam Scam Case

Author- Lakshita Mahajan (Student) 

College- Institute of Law, Nirma University

  • Abstract-

On the path of development, there are many who aren’t patient enough, and in short time wants larger result, with less work, they desire huge product. For these, many turns to illicit ways, and loopholes in the system, which for a short span indeed works, but later on results in a catastrophic situation, harming not only that person and their accomplice but also disturbs the country’s economy, and ruins’ its international image. India has seen many such financial scams that has costed the country significant losses and have also resulted in lowering its international stand point. One of the very first of its kind and the largest at that time, Satyam scam, is one of it. Satyam Scam occurred in 2009, is one of the first of its kind scam, that has ever occurred in India, and to such a huge level that it was compared to the Enron Scandal of the US, which was considered the biggest audit failure of the country. As far as these scams cause a very significant and many a times, irreparable losses, these also act as lessons for the country to know the existing loopholes and insufficiency in the system, and thus fill those gaps with a more carefully crafted governance. These also make the people aware of the kind of frauds that can happen, and thus they start asking the authorities to maintain transparency in their conduct. Therefore, this article discusses the Satyam case, including who all were involved in it, the facts of the case, the main issues and questions that arose in it, and the judgement of the case. It also discusses what were the steps taken to avoid this kind of scam to occur again, and then the conclusion which addresses the way forward.  

  • Introduction-

The Satyam scam is considered one of the most disastrous scams to have ever occurred in India. Initially, Satyam computers was regarded as the jewel of Indian IT sector. It emerged as the leader in leading the country in the Intelligent Technology sector. It was said to be at its peak, when suddenly it was brought deep down under the sea by its founding fathers. The Satyam Scam case was a fraud case which was committed in 2009. It was a financial scam, which was committed by an IT company, Satyam’s, founder and chairman, Ramalinga Raju. It was his brother Rama Raju who was Satyam’s managing director, their audit partner, PricewaterhouseCoopers (PwC), and some other senior executive of the firm have said to helped Ramalinga Raju to commit such fraud. This scam indeed came as a shock for all the Satyam’s investors, employees, but also for the Indian market which had caused a huge blow at the image of the Indian market across the globe. However, with this, a new wave of provisions and revisions was also made by the government to make sure nothing like this happens again in the country. 

  • Facts of the case-

Satyam Computers was founded on 24th July 1987 by Ramalinga Raju. It was one of the rising companies in the IT-sector, and being few in numbers during 90s, it was playing a major role in actually leading the IT sector in the country. However, it was during 2003, that its founding father Ramalinga Raju started the fraud by showing exaggerated sales, their earnings, false cash balance, and personnel numbers along with other things in the company’s book. This was made possible by his strategically planned actions, where he took the help of the company’s Managing Director, his brother, Rama Raju along with other senior executives. Their auditor PricewaterhouseCoopers (PWC) was the key accomplice of Satyam, in helping its founder to escape all the evaluation of Satyam’s financial statements and violating all auditing standards and was involved in falsifying the company’s account along with Raju. Raju had also paid some of the World Bank officials as well as some his client to keep his deeds a secret. On top of all of these, he maintained a low-key and modest personality, and with his expert knowledge in business and charming behavior, he had successfully won the hearts of all his board of directors, only to win their confidence and continue with his personal profits. At end of 2008, Raju was also awarded with Golden Peacock award for his extraordinary Corporate Accountability, along with several other awards. However, his downfall started to occur at the beginning of 2009, when the world was faced with global financial crisis. He started getting increased pressure from investors and other partners in order to continue to settle off his obligations as the company’s sales and profitability was reducing at an alarming rate. Furthermore, after watching his behavior, the World Bank also barred Satyam in being part of any of its project due to Raju’s interdicted employee benefits as was found out by them. With this ongoing downfall, and a desperate need to protect his position, Raju made a hasty decision of offering $1.6 Billion offer to Maytas, a family-owned real-estate enterprise, all of which resulted in a disastrous consequence for himself. He used company’s financial reserves and had made such offer to Maytas. This strategy backfired, drawing the attention of all the shareholders and board members making them furious as they saw this transaction as diversion of cash and arose the conflict of interest. All these things left him with no choice but to come clean and admit his deeds. In his confession in 2009, which was a letter to the member of the board directors, he had admitted to have over-exaggerated the company’s revenue by Rs. 5040, making it nearly 75% of the company’s revenue. He even admitted to have inflated Satyam’s assets by Rs. 7800 crores which nearly amounts to 94% of the company’s asset. 

  • Issues arose in the case-

Key issue which arose in this case was the question over the loopholes and insufficiency in the corporate governance sector, and questioned the existing laws in this regard. 

It also raises the issue of strengthening the role of the board of directors and making the CEO accountable to them, with proper verified reports by a separate committee for the same. 

With such an immoral role by the auditor PWC, this issue also addressed the issue of loopholes and lacking in the monitoring and accountability of the auditors, thus questioning its overall functioning. 

  • Judgment of the Case-

The judgment of the case was Rs. 5 crores fine for Ramalinga Raju and his brother each, along with 7 years of rigorous imprisonment. 

  • Aftermath of the Scam-

Satyam Scam is often compared with the Enron Scam which took place in the US. It is one of the biggest scams that had occurred in India and also the one which had significantly highlighted several of the drawbacks and lack of regulation in the governance of corporate sector. It spotlighted several insufficiencies like lack of corporate governance, fallacies in auditing standards, no monitoring body, and lack of ethical behavior in the corporate sector. The scam thus addressed these issues, to which the government by introducing certain revisions in the existing laws and introducing several new provisions to reduce the loopholes and increase accountability. The government introduced Companies Act 2013, thus abolishing the 1956 one, which included several revisions like explicitly defining several terms like auditors, cost accountants and corporate secretaries. Under this act, corporate fraud was now considered as a criminal offence. Fresh provisions for auditors was also introduced where ‘auditor rotation’ was adopted under which in every 5 years auditors were to be replaced, and audit firms were required to be changed in every 10 years. Under this act, Serious Fraud Investigation Officer (SFIO) was given the status of a statutory organisation whose work was to look into accounting and corporate frauds. It also looks into and tries to maintain the practice of Corporate governance at its best. Other than these, the Institute of Chartered Accountant of India (ICAI) which is an accounting organisation also highlighted the problem of auditors’ comprehensive reporting of non-existing assets and vague liabilities in their audit reports. Additionally, SEBI Regulation 2015 was enacted which included reporting of actual and suspected frauds and also disclosing important information in any of such sort. Hence, these were some of the aftermath of the scam, which resulted in all these developments in the corporate regulation sector. 

  • Conclusion- 

The Satyam Scam was indeed a kind of corporate fraud which had made a significant impact on the Indian market, leaving all the individual baffled, with such a huge, powerful firm, getting shattered into pieces. This created uncertainty in the minds of the people, which more or less turned into making them anxious. This was valid too, as Satyam Computers have been one of the jewels of the India financial sector, and have been leading the country’s IT sector. But when all of a sudden it got discovered that all of it was nothing but big fraud that has been committed, it had made the people really anxious in this regard. This scam had also disturbed India’s image in the world market and that too when the world was facing the Global Financial Crisis. As much long is the list of its ill-effects, there were definitely some significant positive side one of which is creating awareness about the lack of corporate governance and regulatory monitoring standards in the corporate world, which had driven the policymakers to make steps towards this. Therefore, it can be well adequately said that Satyam Scam was a big lesson for the Indian policymakers which had caused them to reduce loopholes and fill in the gaps wherever they can, which to an extent they have most probably achieved too. 


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