Corporate Scandals in India
Satyam: India's Enron
How Satyam Computer Services' founder admitted in January 2009 that the company had inflated cash by thousands of crores, the rescue by Tech Mahindra, and corporate governance reforms.
On 7 January 2009, B. Ramalinga Raju, chairman of Satyam Computer Services, confessed to fraud.
The fraud
- Satyam, then India’s fourth-largest IT company, had inflated cash and bank balances by around 5,000 crore rupees or more.
- Raju described it as “riding a tiger, not knowing how to get off without being eaten”.
Why it happened
- Pressure to show growth.
- Auditors (PwC’s Indian affiliates) failed to verify bank balances.
- Independent directors didn’t catch it.
The rescue
- The government appointed a new board.
- Tech Mahindra acquired Satyam in 2009, later merging it as Mahindra Satyam.
- Jobs of tens of thousands of employees were largely saved.
Punishment
Raju and others were convicted in 2015.
Reforms
- The Companies Act, 2013 strengthened rules on independent directors, auditor rotation and fraud reporting.
- SEBI tightened governance norms.
The fake cash
Satyam's balance sheet showed thousands of crores in bank deposits that didn't exist.
Thinking audited accounts are always reliable
Auditors failed to verify Satyam's cash.
Key takeaways
- Satyam's chairman confessed to fraud on 7 January 2009.
- Cash was inflated by around 5,000 crore rupees or more.
- Tech Mahindra rescued the company.
- The Companies Act 2013 strengthened governance.
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