Académique Documents
Professionnel Documents
Culture Documents
1
on the dais, has become a villain in the corporate world
for valid reasons.
His emotionally charged four and half page letter of
startling revelations shook the entire corporate world
when he admitted of cooking the account and inflating
the figure by Rupees 5040 crores. He committed this
fraud and tried to hush up it by an abortive bid to
purchase Maytas infra, a company created by him and
run by his son Teja Raju. The move was opposed by
some of the directors and thus last attempt of Raju to
cover up the scam was thwarted. This is the story in
brief which all of us know.
This scam is being equated with Enron of USA because
here also the scam was orchestrated by its Auditor,
Arthur Anderson, in Satyam, Price Waterhouse cooper.
WHY DID RAJU UNFOLD THE SCAM HIMSELF-
There are two sets of serious questions which still
desperately require answers. Why did Raju, the
mastermind of the entire fraud, accept the guilt? Why
did he choose to surrender before Police and not run
away from India, which he could have easily done? Why
was this fudging done and for what? Secondly, what
were regulators and watch dogs like SEBI, ICAI, and
independent directors doing?
The question remained unanswered that whether this
fraud shook the conscience of Raju and he unravelled
the truth out of sagacity, or he was simply unable to
hush up the matter which was increasing day by day
assuming insurmountable proportions?
2
No, simply not. It was a well calculated, well strategized
blended with legal opinion and well thought move to
unfold the story and surrender before the police.
Mahabharata, the Great War was caused due to
Dhritarastra’s obsession for his son Duryodhana. The
lust of kingdom and its geographical expansion had led
many wars across the world.
Like many fathers, Raju too wanted to create
two separate empires for his sons, Teja Raju and Rama
Raju jr. He subsequently formed Maytas infra and
Maytas info for Teja and Rama respectively. By the end
of the 20th century, Satyam computers had made a
name for itself on the globe and had emerged as the 4th
largest software in the country. The meteoric rise of the
company can be substantiated by the fact that it was
established in 1987 as private company and got listed
by BSE in 1991. In 2001 its share was listed in NYSE
and in 2004 it made its place in European stock market.
According to company’s statement, its revenue exceeds
to 2 bn USD in 2008.
Similarly Raju’s son’s companies also were moving with
leaps and bound. Maytas infra got the ambitious Metro
projects and bagged many tenders including one of
construction of Technology Park.
It is in this perspective, the question that everyone is
willing to ask is that when everything was fit and fine
then why did Raju fudge the account of the company
and commit countries biggest fraud.
The fudging of account had started when the Maytas
were formed. Raju started diverting the cash from
3
Satyam into Maytas and many other companies which
he had formed either in his own name or benami like
Godavari bio, Godavari agro etc. In fact such practices
are very common and prevalent in many Indian
companies and it would not be a matter of surprise it
similar frauds are unravelled more in future. They do it
for simple reasons, to help establish their kiths and kin.
This ‘drain of wealth theory’ is substantiated by the fact
that the share of Promoters in the company which was
25.6% in 2001, diminished to 3.6% in January, 2009.
Similarly by 2008 Raju had pledged almost all his
shares and had thus siphoned off most of his shares. In
fact according to information retrieved from NSE, not
only Raju but CFO V.Srinivas, A.S.Murthy, V. Murli etc
has sold shares of 3,6500, 3,14,000, 1,83,000
respectively. Raju inflated the account for increasing
the price of shares so that he and his accomplices get
maximum profits, in which he succeeded also. The day
this news broke, the Satyam’s share was soaring. He
wanted to hush up the matter in December, 2008,
when he made a desperate but unsuccessful bid to
purchase his son’s Maytas. It was vehemently opposed
by one of the independent directors Mangalam Srinivas,
he subsequently resigned. Thus the entire game plan of
Raju was shattered. He, by now had come to know that
he is not going to succeed in his plan. He therefore,
wrote an emotional letter and confessed him fraud.
How did he do it? - As per the accounting practise,
the Bank accounts are presented before the Auditors of
the company by the CFO after its verification. It seems
that the fraud was initially connived by Raju and CFO
4
vadalamani srinivas. Later this nexus might have
widened after possible inclusion of auditors and the
Bankers. The continuous inflating and cooking of
accounts, that too on such a big scale was going
unnoticed and unchecked by the auditors and the
Bankers sounds absurd, therefore, the possibility of a
connivance of bankers and the auditors cannot be ruled
out. CID has claimed that Raju had inflated the
numbers of the employees also, if it goes true, the
involvement of Banks would be proved beyond a
shadow of doubt.
WHY DID RAJU SURRENDER AND NOT ESCAPE?- a
very pertinent question arises but surprisingly a very
few is asking as to if Raju was aware of the magnitude
of his crime as well as quantum of its punishment then
why did he not escape and choose to surrender before
the police.
Reasons are not far to search. The crime he has
committed would attract sections
406,409,420,465,471, etc of IPC and section 628 of
Company Act, 1956 and can undergo imprisonment up
to more than 7 years. He was fully aware of it but at the
same time he also knew that he would be sued in USA
under provisions of Security and Exchange Commission
Regulation rule 10-5 B. These suits are called Class law
suits and the compensation awarded under this is huge.
Raju knew it and thought that his entire earnings and
his family would be taken away and would be left with
naught. One the other hand, he fully understood the
loopholes in the Indian Criminal Justice system which
hardly punishes white collar criminals. Ketan Parikh
5
scam still is sub-Judice and is expected to go years and
years. It is this scam which ruined hundreds of
Cooperative Banks across Nation and plummeted Unit-
64 a popular mutual fund scheme of the UTI, India’s
largest mutual fund company. Harshad Mehta died
without being finally convicted. Global trust Bank scam
is still under the labyrinth of law. Examples are many,
results are same. He therefore preferred to surrender
than to face class law suits in USA.
IS CORPORATE GOVERNANCE IN INDIA NOT
WORLD CLASS? - Interestingly Satyam has bagged
Golden Peacock award for best corporate governance
by World Council for Corporate Governance only a few
years ago. The scam has raised many doubts about the
class of corporate governance in India. While speaking
at a seminar on corporate governance organised by CII,
Ministry of Company affairs and National foundation of
corporate governance, C.B.Bhave, the chairman of SEBI
said on 6th February, 2009 that the corporate
governance is an ongoing process. There is a
retrospection everywhere that some concrete steps
with respect to it should be done.
There are few importance elements of corporate
governance namely Auditing, Independent Directors,
Regulators and Finally the Board including CEO itself. If
we examine these constituents one by one, it would be
crystal clear that all the constituents either failed or did
not act as was required.
The role of Price waterhouse Coopers(PwC), the
Auditing firm of Satyam has been dealt. Institute of
Chartered Accountants of India (ICAI) constituted under
6
Charter Accountants Act, 1949 is the regulatory body of
all the accounting and auditing firms across the
countries. According to a report there is acute shortage
of qualified chartered accountants and auditors in India
and around the world also. The number of CAs passing
every year is hopelessly small. It is apprehended
therefore that the auditing firms out source unqualified
or semi-qualified commerce graduates of Post
graduates to do the auditing in the companies. The
prestigious firms get the assignment by virtue of their
name and fame which they recklessly sell in the market
by out sourcing the auditors at a very low
remuneration. In case of Satyam, the man who was
supposed to do audit was incidentally executive
member in ICAI.
In a startling revelation, the auditors say that they
approved the accounts because of Raju’s ‘towering
presence’ suggests how ridiculously the auditing was
being done.
Thus if Scam occurred, the onus would undoubtedly go
on the firm. The kind of attitude which is adopted here
in India in doing auditing is certainly not in congruent
with the standard of world class corporate
governance.In fact if we look at the functioning of
institutions like ICAI, we would come to know that they
are in a way hijacked by a group of people. They have
the vast statutory powers but without any
responsibilities.
Over a period of time so many extra
constitutional authorities have come up in India and
have taken up the State’s role and act as per their own
framed regulations. This needs to be changed. This is
the need of hour.
Secondly, the independent directors have also
failed to discharge their duties properly. Section 49 of
SEBI Act and section 229 A of Company Act, 1956
7
provides for appointment of Independent Directors in
the Companies for protecting the rights of public at
large in general and shareholders in particular. In the
case of satyam T.R.Prasad, the retired Cabinet
Secretary Govt of India was one of the directors. It
speaks a lot about the procedure of appointment of
independent directors. What kinds of people are being
appointed in the company? Moreover, they are
appointed by the Companies themselves and pay hefty
salaries and perks for virtually doing nothing. Under
this circumstance is it thinkable that these Independent
directors would dare to peep into the affairs of the
company against the wishes of the CEOs?
There are only two possibilities in Satyam with respect
to Independent directors. Either they connive with Raju
and knew everything that was going on, or they did not
know. In both the cases they failed miserably to
discharge their duties. What is the need of such
Independent Directors if they cannot do anything in this
matter? One unpalatable justification is given that the
Independent Directors participate in the meeting and
are not concerned with autonomy of the company. It
should be bone in mind the Enron scam was exposed
by Sherron Watkins, a women independent director.
12