Satyam Scandal  Case

Author: Aishwarya Sinha, Amity University, Patna

Introduction


Satyam Computer Services limited was one of the reputed IT companies in India. Unfortunately , years 2009 marked the downfall of this company. Fraudulent practices such as manipulation of financial statements, falsification of bank documents and forgery of sales invoices and irregularities in balance sheets were exposed. Employees, Shareholders of Satyam or even Satyam’s client and partner were suffered globally due to this scam.

What is Satyam Scam ?
Satyam Computer Services Limited was considered as one of the biggest companies in India and was centre of this fraud. But  this huge corporate fraud was exposed in 2009 which was committed by Ramalinga Raju , the chairman and founder of  Satyam Computer Services Limited. He confessed cash balances , earnings and also admitted the siphoning off money from the firm for his own benefit. The worth of Satyam fraud was 7800 crores and regarded as one of the biggest scandal of India.


The Satyam scam underscore a lack of moral ethics , corporate governance ,regulatory monitoring at one of the India’s biggest IT firms It also caused  loss to its investors and consumers which ultimately leads to lack of trust and faith.
Satyam scam was literally a sad incident not only for is workers, employees and shareholders but also for whole India. A large number of people suffered globally due to this biggest scam. Even the financial institutions like banks has suffered financial loss due to this scam. Also , those companies which was having some connection with the Satyam , faced a major financial crisis all across the country. Forging bank statements, inflating customer numbers were all part of the illegal practices.


Case Study
In 2003, Raju started giving wrong statement of Satyam’s financial status depicting more growth and profits than the firm has actually achieved. Raju with his brother Rama Raju , who was Satyam’s managing director started faking audit reports , generating fake invoices. Raju also used Satyam’s funds to invest in family and for his own profit. Raju cheated investors, auditors , authorities for six years. It was all started in late 2008 when the CEO and founder of the company announced the acquisition of the two companies, Maytas Properties Limited and Maytas Infrastructure  Limited., and the amount was used to pay from the company’s fund. This statement was made before the public which created chaos among the shareholders , and was against the will of the shareholders. But by the end of the day, the statement was withdrawn. However on 7th of January, 2009 the chairman and CEO  of Satyam Ramalinga Raju admitted all his fraud he was doing with the company from past few years and submitted the resignation letter. He confessed that only he was mostly responsible for the scam. In the resignation letter he also mentioned his plan of converting the money which does not belong to him onto his real ones. Everything mentioned in his letters was later on confirmed  during the process of investigation by the Indian government and various authorities. Hence, both the Raju brothers were arrested  by the Andhra Pradesh police under the IPC ,1860.

Legal Rules Violations
1. Violation of the companies Act 1956
Section 209 : According to this section , it is a statutory requirement to maintain an accurate book of accounts. Satyam violated this fundamental provision by encouraging fraudulent financial practices.
Section 211 : Satyam’s falsified statements were clear breach of this section. As financial statements shows a true and fair view of the company’s financial position .
Section 217 : The board of Directors failed in their duty to provide accurate disclosure in the annual reports which is a clear violation of this section.
2. Violation of SBI’s guidelines
Satyam’s action was fully breach of SBI’s guidelines for promoting free and fair market prices as well as to protect market integrity.



FINDINGS AND JUDGEMENTS
Ramalinga Raju and his brother Rama Raju CFO Srinivas Vadlamani were sentenced to seven years of rigorous imprisonment. A fine of Rs 5 crores was imposed on Ramalinga Raju and another key accused . Disciplinary actions were taken against Pricewaterhouse coopers which includes a two year ban on auditing listed company in India by SEBI.

CONCLUSION


The Satyam Scandal highlighted the importance of robust the importance of robust internal controls, independent auditing and effective regulatory oversight. It outlines the importance of corporate governance . It also shows that how unethical or illegal practices can impact the whole country. This scam was a big turning point for the corporate India where there is a need of transparency, accountability and moral ethics to run the corporate sector successfully without any flaws.


FAQS


What was Satyam Scandal ?
Ans: The Satyam Scandal was the biggest corporate fraud that took place on 2009. The chairman of the Satyam Computer services Limited , Ramalinga confessed his fraud and involved in falsifying the financial statement , showing the fake growth of his company. The fraud was exposed when Raju admitted his fraud which cause a big financial crisis in India.

2. Who were the key figures behind the Satyam Scandal ?
Ans : The people who were involved in this scam were Ramalinga Raju , the founder , his brother and many other executives were involved in this scam.

3. How did the fraud happened ?
Ans : This scam happened for few year, it involved falsifying the financial statements, generating bogus , invoices, providing wrong information to the investors , auditors and the public about the company’s real status.

4. How was the fraud discovered ?
Ans : The fraud was exposed when the founder Ramalinga Raju sent a letter to the board of Directors admitting his  fraud. He admitted that the company’s financials were overstated by about Rs 7,136 crore.

5. What were the legal consequences for those involved in Satyam Scandal ?
Ans : Ramalinga Raju and his brother Rama Raju CFO Srinivas Vadlamani were sentenced to seven years of rigorous imprisonment. A fine of Rs 5 crores was imposed on Ramalinga Raju and another key accused . Disciplinary actions were taken against Pricewaterhouse coopers which includes a two year ban on auditing listed company in India by SEBI.

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