Corporate Scandals in India
Governance Lessons from Scandals
What India's corporate scandals teach about auditors, boards, regulators and investors, and a recap of the module.
India’s scandals offer lessons for governance.
Lessons
- Auditors must verify, not just accept, management’s claims.
- Independent directors need independence and expertise.
- Regulators need timely powers and coordination.
- Complex group structures hide risks.
- Fast growth financed by debt needs scrutiny.
- Investors should diversify and question stories.
Reforms over time
- SEBI’s powers (1992).
- Electronic trading and demat.
- Companies Act, 2013.
- IBC (2016).
- Fugitive Economic Offenders Act (2018).
- National Financial Reporting Authority (NFRA) to oversee auditors (2018).
Module recap
- Scandals arise from pressure, opportunity and rationalisation.
- Harshad Mehta’s 1992 scam led to SEBI’s powers.
- Ketan Parekh manipulated stocks in 2001.
- Satyam inflated cash in 2009.
- The 2G allocation led to auctions.
- Kingfisher collapsed in 2012.
- Sahara raised funds without approval.
- IL&FS triggered an NBFC crisis in 2018.
- Yes Bank was rescued in 2020.
- DHFL was resolved under the IBC.
- Byju’s fell from its peak into insolvency.
The questioning investor
Before investing, an investor checks auditor reports, related-party deals and debt levels, avoiding a company later hit by scandal.
Thinking regulations prevent all scandals
Scandals keep prompting new reforms.
Key takeaways
- Auditors, boards and regulators each have roles.
- Reforms followed major scandals.
- Complexity and debt-fuelled growth are warning signs.
- Investors should diversify and ask questions.
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