Author: Disha Parmar, Avantika University, Ujjain
To The Point
In January 2009, Satyam’s chairman Ramalinga Raju confessed that he had fraudulently inflated the company’s revenue, profit and cash balances for years. The ₹14,000 crore scam exposed the true reality of audit systems, board oversight and regulatory checks. The case became an important case study for understanding the flaws in Indian corporate law – especially the Companies Act, 1956 – and corporate governance.
Abstract
Satyam scam is one such case in India’s corporate history that has shaken everyone. No one had ever imagined that such a huge financial fraud was hidden behind a successful business empire. This scandal, called “India’s Enron”, in which fraud of more than ₹14,000 crore was committed, exposed the weaknesses of the corporate governance, auditing and regulation system. In this article, we will understand every aspect of Satyam scam – how it started, how it was caught, and what legal and financial reforms came after it.
Introduction
The Rise of Satyam
Satyam Computer Services Ltd., started in Hyderabad in 1987, made a big name for itself in the IT industry during the 90s and 2000s. The company’s journey was quite impressive with global clients, stock market success, and corporate awards. By 2008, Satyam had 50,000+ employees and was counted among India’s top IT firms.
But behind this glamour was hidden a major accounting fraud. No one had any idea about the fraud until Raju himself confessed.
Modus Operandi of Fraud
Ramalinga Raju falsified the company’s financials and hid them for many years. Some major ways:
Fictitious Revenues: Fake invoices were created in the name of fake clients.
Inflated Cash Balances: Bank statements were forged to show that the company had more cash.
Overstated Profits: Expenses were shown as less and revenues as more, which made the profits look fake.
Payroll Manipulation: Money was siphoned off by creating thousands of fake employees.
Acquisition Diversion: There was also a plan to acquire Maytas Infra and Maytas Properties (which belonged to Raju’s family) in which Satyam’s money was diverted.
All these activities came before the auditors, but they also did not ask any questions.
The Confession
On 7 January 2009, Raju gave a letter to the board in which he wrote:
“It was like riding a tiger, not knowing how to get off without being eaten.”
He said that the cash of ₹5,040 crore and the interest income of ₹376 crore was fake. Investors from all over India and the world were shocked.
Legal Framework and Violation
When this scam happened, Satyam was subjected to Companies Act, 1956, SEBI Act, 1992 and Listing Agreement of Stock Exchanges.
Important Laws Broken:
Section 209 & 211 (Companies Act) – Manipulating accounts records
Section 628 – Submitting false statements.
SEBI norms – Violating transparency and disclosure.
IPC Sections 120B, 420, 467, 468, 471 – Conspiracy, cheating, forgery and use of fake documents.
Auditing firm PwC (PricewaterhouseCoopers) was also caught in this as they did not do their work properly. They were charged with misconduct under the Chartered Accountants Act, 1949.
Role of Auditors
Satyam’s auditor PwC did not detect fake bank balances and investments even in the years. They:
Did not conduct third-party verification of bank balances.
Ignored some anomalies in revenue and expenses.
Raised no questions about the company’s unusually high profit margins.
This raised serious questions about the accountability of the auditors.
Government and Regulatory Response
The government took several actions immediately after the scam:
Dismissing the board: The government removed the board of directors.
New board: Experts like Deepak Parekh and Kiran Karnik were appointed to the board.
SEBI & MCA investigation: SEBI banned Raju and some executives from stock market access.
CBI probe: The case was handed over to the CBI who started a criminal investigation.
Saving the company: In April 2009, Tech Mahindra acquired Satyam and named it Mahindra Satyam.
The Court Verdict
In April 2015, a special CBI court in Hyderabad declared Ramalinga Raju and 9 other people guilty. Important points:
Raju and his brother got rigorous imprisonment for 7 years.
Each accused was also fined between ₹5 lakh and ₹25 lakh.
Many people said the punishment was less, but this was a landmark judgement in the history of corporate fraud in India.
Impact on Indian Corporate Laws and Reforms
After Satyam scam, Indian lawmakers and regulators introduced some major changes:
1. Companies Act, 2013
Replaced the old 1956 Act.
Corporate governance was strengthened; whistleblower protection and strong penalties were included.
NFRA (National Financial Reporting Authority) was created as an oversight agency for auditors.
2. Role of Independent Directors
Their duties and responsibilities were defined.
If any fraud is detected, it was made mandatory for them to report.
3. Auditor Accountability and Rotation
Auditor rotation in listed companies was made mandatory (in a cycle of 5 or 10 years).
If an auditor misconducts, stricter punishments were introduced.
4. SEBI’s powers were enhanced.
Tight control was kept on disclosures and transactions of listed companies.
Extra scrutiny was done on related party transactions and promoter stake.
Comparative Insight: Satyam vs. Enron
Satyam scam is often compared with Enron (2001, USA). In both cases:
There was Auditor Completion: Enron’s auditor was Arthur Andersen, Satyam’s was PwC.
The Board did not challenge the Management.
Enron made off-balance sheet transactions, while Satyam committed fraud in direct books.
This comparison shows that whether it is India or US, transparency and accountability are equally important in both places.
Conclusion
Satyam scam was not just an accounting fraud of one company. It was a major system failure-auditors, board of directors, regulators all failed. But it was also a turning point. After this, major reforms were brought in the corporate laws of India which are relevant even today.
Unless there is ethical leadership and strong public scrutiny, no law can prevent fraud 100%. But the lessons given by Satyam definitely inspire us to make our system stronger.
FAQS
What was Satyam scam?
Satyam Computer Services manipulated its financial statements and showed fake profit of ₹14,000 crore.
Why did Raju confess?
The pressure on him increased, especially when he tried to acquire his family’s company Maytas, so he confessed.
Which laws were broken during the scam?
Companies Act, SEBI norms, and many sections of IPC (cheating, conspiracy, forgery, etc.) were violated.
What happened to Satyam after the scam?
Tech Mahindra acquired the company and named it Mahindra Satyam, which later merged with Tech Mahindra.
What reforms came after this scandal?
Companies Act 2013 came into force, NFRA was formed, audit norms became stricter, and powers of SEBI were increased.
