ITM UNIVERSITY,GWALIOR

CASE STUDY- SATYAM SCAM

SUBJECT-BUSINESS ENVIRONMENT

Presented to- Presented by-

Dr. Vandana Bharti Akhilendra nigam
Anshika sharma
Siddharth s. yadav
Sonam shrivas
Surbhi gupta
Yagyesh prakash sharma
Satyam Scam – The Story of
India’s Biggest Corporate Fraud!
When the 2008 recession hit the world, India was not only going through a financial crisis but also
an ethical crisis. Imagine a hypothetical scenario in the stock market where the very basic
financials provided to you by a company are manipulated. This was what happened with Satyam
Computer Services.
The Satyam scam was finally exposed early in 2009
The Flawless Public Facade
 Satyam Computer Services Ltd was founded in 1987 in Hyderabad by
brothers, Rama Raju and Ramalinga Raju (henceforth Raju). The name in
the ancient Indian language Sanskrit meant ‘Truth’. The firm began with 20
employees offering IT and BPO services across various sectors.
 The initial success of the company soon led to it getting listed and opting
for an IPO in the BSE in 1991. Post this the company soon got its first
Fortune 500 client- Deere and Co. This further allowed the business to
grow rapidly into becoming one of the top players in the market.
 Satyam soon became the fourth largest IT software exporter in the industry
after TCS, Wipro, and Infosys.
 At the peak of its success, Satyam employed more than 50,000
employees and operated in 60+ countries. Satyam was now seen as the
prime example of an Indian Success story. Its financials too were
perfect. The firm was worth $1billion in 2003. Satyam soon went on to
cross the $2billion mark in 2008.
 During this period the company had a CAGR of 40%, operating profits
averaging 21% with a 300% increase in its stock price. Satyam was
now an example to other companies as well. It was showered with
accolades from MZ Consult for being a ‘leader in Indian Corporate
Governance and Accountability, the ‘Golden Peacock Award’ for
Corporate Accountability in 2008.
 Mr Raju too was revered in the industry for his business acumen and was
awarded the Ernest and Young Entrepreneur of the Year Award in 2008. 
 Late in 2008, the board of Satyam decided to takeover Maytas a real estate
company owned by Mr Raju. This did not sit well with the shareholders
which led to the decision being reversed in 12 hours, impacting the stock
price. On December 23rd the World Bank barred Satyam from doing
business with any of the banks’ direct contacts for a period of 8 years.
 This was one of the most severe penalties imposed by the World Bank
against an Indian outsourcing company. The World Bank had alleged that
Satyam had failed to maintain documentation to support fees charged to its
subcontractors and the company also provided improper benefits to the
banks’ staff.
 But were these allegations true? At this point, Satyam was India’s crown
jewel! Just 2 days later Satyam replied demanded the World Bank to
explain itself and also apologize as its actions had damaged Satyams
investor confidence.
 As the investors were still coping up with the failed acquisition of Maytas
and the allegations by the World Bank on January 7th, 2009 the markets
received the resignation by Mr Raju and along with it a confession that he
had manipulated accounts of Rs. 7000 crores. Investors and clients all
around the World were left shocked. This just couldn’t be happening!
In order to understand the scam, we would have to go back to 1999. Mr
Raju had begun inflating the quarterly profits in order to meet the analyst
expectations. For eg the results announced on October 17, 2009, overstated
quarterly revenues by 75% and profits by 97%. Raju had done this along
with the company’s global head for internal audit.
Mr Raju used his personal computer to create a number of bank statements
in order to inflate the balance sheet with cash that simply did not exist. The
company’s global head for internal audit created fake customer identities
and fake invoices in order to inflate the revenue.
This, in turn, would allow the company easy access to loans and the
impression of its success led to an increase in the share price. Also, the cash
that the company had raised from the markets in the US never even made it
to the balance sheets. But this was not sufficient for Raju, he went on to
create records for fake employees and would withdraw salaries on their
behalf.
 The increased share price drove Raju to get rid of as many shares as
possible and maintain just enough to be a part of the company. This
allowed Raju to make profits from their sales at high prices. He also
withdrew $3 million every month as salaries on behalf of employees that
did not exist.
 he was also interested in the real estate business. The real estate business in
the early 2000s was booming in Hyderabad.He also set up a real estate
company called Maytas
 during the recession of 2008. By then almost a decade of manipulation of
the financial statements had led to the hugely overstated assets and
underreported liabilities. Nearly $1.04billion in bank loans and cash that
the books showed was nonexistent. The gap was simply too big to fill
 Gopalkrishnan assured Palepu that there were no truths in the mail and a
presentation would be held before the audit committee in order to assure
him on 29th December. The date was later revised to 10th January 2009.
 The plan included a takeover of Maytas by Satyam which would bridge the
gap that had accumulated over the years. The new financials would justify
that the cash had been used to purchase Maytas. But this plan was foiled
after shareholder opposition.  
Satyam Scam: How Raju was able to get
away with the Scandal?
 The answer to this lies in the miserable failure of Price Waterhouse
Coopers(PwC) their auditor. PwC was the external auditors to the company
and it was their duty to examine the financial records and ensure that they
are accurate. It is surprising how they did not notice 7561 fake bills after
auditing Satyam for almost 9 years.
 Suspicion towards PwC was later increased when it was found out that they
were paid twice the fees for their services.
 The shares fell to Rs.11.50 on that day compared to heights of Rs.544 in
2008. The CBI raided the house of the youngest Raju sibling where 112
sales deeds to different land purchases were found. The CBI also found
13,000 fake employee records created in Satyam and claimed that the scam
amounted to over Rs. 7000 crores.
 On 4th November 2011, bail was granted to Raju and two others accused.
In 2015 Raju, his 2 brothers, and 7 others were sentenced to 7 years in
prison. 
Ques 1. What issues does the case pertain to? What is the case about?

Ans. The case is basically about the failure of corporate governance. The CBI
raided the house of Raju’s youngest sibling where 112 sales deeds to different land
.
purchases were found The CBI also found 13000 fake employees records created in
Satyam and claimed that the scam counted to over Rs.7000 crores. The Indian stock
markets were now in turmoil.
It had been the example for the following ”poor performance” of corporate governance
producer. It had failed to show fair connections with the stakeholders ,shareholders as
null as the employees (farmers on whose name the properties were purchased.
corporate governance was the issue at Satyam arove because of non-fulfillment of
obligation of the company towards the various stakeholders.
then comes the twisting move, the World Bank announced on Dec 23,2008
That satyam has been banned from business with World Bank 4 for 8 yrs for providing
Bank staff the ”improper benefits “and charged with data theft and building the staff .
The case is about US $1.4 billion corporate governance fraud .satyam is India’s 4th
largest IT company .It offered IT services to around 690 clients ,including 185 fortune
500 companies such as GE ,Nissan Motors and general motors.
Ques 2. What are the reasons behind inadequate corporate governance at
system?

Ans. The implication which we observed in Satyam scam due to a vital role of
corporate governance failure can be define with in a short list that concerns its
difficulty in retaining clients. Satyam could not retain its contract worth US
$500 million and all its major clients moved to TCS, Satyam biggest
competitor .the second implication is for corporate India . Satyam’s collaps
triggered a crisis of trust and the whole Indian industry suffered from investors
who reviewed their outsourcing programs. The third implication touched
closely the credibility of international audit firms such as PWC, who neglected
their duties and allowed inaccuracies in Satyam’s audit.PWC was immediately
replaced by auditing firm like KPMG and Deloitte. The third implication was
also a result of the Satyam scam which led to questioning the presence of
adequate law for corporate governance in India . Satyam board was blamed for
allowing the Maytas transaction . But the responded saying that the depended
on PWC to present accurate auditing which they distrot .The last implication is
about government intervention . After that scandal exploded the government
took care of putting in jail . All major responsible in the affair and what even
furthur by designating new independent directors.
Ques 3. What is the role of independent and non-executive board members?

Ans. Independent directors plays a vital role in ensuring corporate governance

in a company. It is said that if the board of directors consists of right mixture
of executive and non-executive directors.
It comprises of independent directors who could discuss without any bias
matters pertaining to company affairs. Good governance would automatically
follow. The rationale behind having independent directors is that it would
increase the quality of board supervision and reduce the possibility of dama
conflict of interests.
The Satyam computer services incident rocked corporate India in 2009 with
its unwanted limelight when its chairman and founding member Ramalinga
Raju resigned and confessed the fraud of accounts of $1.47 billion.
Ques 4. What were the sequence of events after the scam?
 6 Jan 2009- Satyam letter from Mr. Ramalinga Raju to its board directors
admitting fraud.
 9 Jan 2009- Satyam’s Raju brothers arrested; 5 IPC sections slapped.
 23 Jan 2009- Satyam scam ;CID arrests 2 PWC auditors.
 6 Apr 2009- CBI files charge sheet against Satyam founder Raju and 8
others.
 18 Aug 2010- Satyam chief Ramalinga Raju granted bail.
 29 Oct 2011- SC issues notices to Satyam fraud accused to cancel bail.
 23 Nov 2011- SEBI to question Ramalinga Raju in satyam fraud case.
 17 Sept 2013- US court orders fresh proceedings into claims against Satyam.
 4 Apr 2014- Raju appears in court on money- laundering charges.
 16 July 2014- SEBI bans Satyam’s Ramalinga Raju for 14 years from
market; asks for 1849 Crore.
 8 Dec 2014- Satyam founder B Ramalinga Raju gets six months in jail in
corporate fraud case.
 9 Apr 2015- 23rd additional Chief Metropolitan Magistrate Court sentences
Raju and all the ten accused for 7 years in jail.
Ques 5. Are there any lessons to be learned from the case for the future prospects of
corporate governance?

Ans. The Satyam scam helps us learning some lessons from every
scandal. For instance , companies should know that all inaccuracies
should be investigated. If your accounts are not balance or if
something seems inaccurate , it must be investigate . Dividing
responsibilities across a team of people makes it easier to detect
irregularities or misappropriates future . Satyam company not only
ruined its reputation but also ruined the reputation of the country.
Earlier India was known to be fraud land . Therefore ,Indian rivals
will come under greater scrutiny by the regulators investors and
customers .The third lesson concerns the need of a good corporate
governance. Spitting up the rules of the CEO and the chairman of the
board . thus helps avoid situations like the one at Satyam.
Conclusion-
There has been no scam that affected the CA and audit firms like the
Satyam scam. the increasing nature of these scams has made
dependence on such professionals much more crucial highlighting the
importance of ethics and CG in their roles.
White-collared crimes like these do not only make the company look
bad but also the industry and the country.