Satyam Changed The Rule of Game
Satyam Changed The Rule of Game
Satyam Changed The Rule of Game
UNIVERSITY
Term Paper of
Business Environment
I hereby take this opportunity to thank Lovely School of business for providing me
an opportunity to do a Minor Project on “Comparative Study of Customer
Satisfaction in Public Sector and Private Sector Banks”.
I express my sincere gratitude to my mentor and guide, Mr. Rajbir Singh Shetty
who always provided me with necessary inputs, guidance and direction to carry out
this project. He provided me access to different domains of knowledge from where I
collected inputs for this project.
Last but not the least, my million thanks to all the people including customers of the
banks whom I have conversed with and taken inputs from to move ahead and
complete this project.
Amit Kumar
TABLE OF CONTENTS
TOPIC………………………………………………………………..PAGE NO
Introduction…………………………………………………………………………………..4
Conclusion………………………………………………………………………………….17
References………………………………………………………………………………….17
SATYAM SCAM
INTRODUCTION….
Satyam is a leading global business and information technology company, delivering
consulting, systems integration, and outsourcing solutions to clients in over 20
industries.
The company offers information technology (IT) services spanning various sectors,
and is listed on the New York Stock Exchange and Euronext.
It serves over 654 global companies, 185 of which are Fortune 500 corporations.
Satyam has strategic technology and marketing alliances with over 50 companies.
Just three months ago, India's fourth-largest software services exporter, Satyam
Computer Services received a Golden Peacock Global Award from a group of Indian
directors for excellence in corporate governance.
Ramalinga Raju himself was the recipient of many an award for corporate governance
and transparency.
The fraud has brought to light the fact that in India the distinction between owners
and management is still not very clear.
Where the owners are also the managers, such frauds are always a possibility.
Satyam is the biggest fraud in India's corporate history. That the company management,
mainly disgraced chairman B Ramalinga Raju, kept everyone -- seemingly -- in the dark for a
decade and tarnished shining India's image horribly, is as stupefying a fact as the Rs 7,800
crore (Rs 78 billion) scam itself.
The company's account books said that Satyam had over Rs 5,000 crore billion (Rs 50
billion) in the bank, when it did not. Raju said that he had been fudging the account books for
'several years' and despite this no one but he, and his brother, knew of this.
And though the two brothers, along with the CFO of the company Srinivas Vadlamani, have
been arrested, there aren't many takers for this story. So experts, analysts, corporate honchos,
lawyers and professionals are now pointing fingers at various people as being the culprits to
this shameful act.
So who is guilty in this sordid state of events? Of course, Raju is by far the father of this
fraud, but there were others who are also culpable, if not by complicity then by negligence.
Reports indicate that more arrests are likely to be made in connection with the Satyam fraud.
Inflated (non – existent) cash and bank balances of Rs.5040 crore (as against Rs.
5312 crore reflected in the books)
An accrued interest of Rs. 376 crore which is non – existent
An understated liability of Rs. 1230 crore on account of funds arranged by BR
Raju
An over stated debtors position of Rs. 490 crore (as against Rs. 2651 crore
reflected in the books)
For the second quarter Satyam reported of rs. 2112 crore and an actual operating
margin of Rs. 61 crore (3% of revenues)
This has resulted in artificial, cash and bank balances going up by Rs. 588 crore
in Q2 alone.
SO WHAT WERE THE AUDITORS, PRICE WATER HOUSE
COOPERS DOING??
There was no cash with in the company's banks and yet the auditors went ahead and signed
on the balance sheets saying that the money was there. Not just the cash, even they even
signed off on the non-existent interest that accrued on the non-existent cash balance! The
company officials said they relied on data from the reputed auditors. Satyam's chief financial
officer Srinivas Vadlamani has already been arrested. He has even admitted to signing on the
dotted line, saying he never really paid much attention to the balance sheet! But could only
two or three people have managed to cook the books for years of a company so large? Highly
unlikely. It is quite likely that some other top managers in the company too were in the know
of what was happening but chose to keep quiet.
The Securities and Exchange Board of India, which says it is 'horrified at the magnitude of
the fraud' had in December given a clean chit to Satyam saying that it had not found any
violation of norms relating to takeover and corporate governance in its preliminary
surveillance of the deal involving the acquisition of Maytas Infra by Satyam Computer
Services.
Thus there was no need for a formal investigation. Therefore, the probe would be limited to
the deal between the two listed entities -- Satyam and Maytas Infra -- and not cover the one
involving Satyam and unlisted firm Maytas Properties. Analysts say the market watchdog
lacks the teeth for ensuring compliance on governance. Now, after so much water has flown
under the bridge, Sebi has moved to 'take action' against the company.
• The company's bankers -- and it has a whole bunch of them, considering it is a huge
company -- too have been shown in poor light.
• Sat yam’s books showed cash to the tune of over Rs 5,300 crore (Rs 53 billion) in its
banks.
• Satyam's banks -- ICICI Bank, HDFC Bank, Bank of Baroda, etc -- were supposed to
provide bank statements on a quarterly basis and bank certificates on basis of which
auditors go ahead and signed the balance sheet.
So, if the auditors were conned, it means that either the bank statement and certificates
were forged or the auditors did not take any cognizance of the fact that bank statements
were showing one figure and the management was showing some other figure. Now,
banks are looking at options to stop sanctioning additional credit lines to the company and
seek an auditor's explanation. The banks said they would not be affected much following
the findings of fraudulent transactions in Satyam's balance sheet.
The role of the company's directors, including independent directors, in the entire
episode too has been exposed after the Satyam episode.
Most of them essentially remain 'nodders' in the boardroom and agree to whatever the
management or the promoters want to push through.
The Satyam board, including its five independent directors had approved the founder's
proposal to buy 51 per cent stake in Maytas Infrastructure and all of Maytas
Properties, owned by the family members of Satyam chairman B Ramalinga Raju.
Despite the shareholders not being taken into confidence, the directors went ahead
with the management's decision.
The decision of acquisition was, however, reversed 12 hours later after investors
dumped Satyam's stock and threatened action against the management.
When Raju sought to push through the Maytas deal without taking shareholders into
confidence, he was faced with huge protests.
The media, keen to help the underdog, too joined in the protest.
In hindsight, it appears that it would have perhaps saved Satyam if the deal had been
allowed to go through, as Satyam would have been able to use Maytas's assets to
shore up its own books.
Raju, who showed artificial cash on his books, had planned to use this 'non-existent
cash' to acquire the two Maytas (which is Satyam spelled in reverse) companies.
Since the Rajus held more than 36 percent stake in Maytas, it would have been easy to
push through the deal, at least from that side.
But with the shareholders and the media queering the pitch, the deal fell through and
now so has Satyam.
Investment banker DSP Merrill Lynch was appointed by Satyam to look for a partner
or buyer for the company a fortnight ago.
We now know that DSP Merrill terminated its engagement with the company soon
after it found financial irregularities.
Merrill Lynch is also understood to have sent the information and the reason for their
termination of the contract to the Bombay Stock Exchange, Sebi and even the New
York Stock Exchange, on which Satyam is listed.
However, despite the fact that DSP Merrill Lynch blew the whistle, it is not yet clear
why it took such a long time to inform the authorities, and why it did not let the public
know of Satyam's misdeeds.
Yet in the whole shady affair, DSP Merrill comes out the best party as it was finally
because of its move that Raju was forced to quit.
The government, on its part, was perhaps too busy projecting the stellar show of the
Indian IT sector and did not find it necessary to launch an enquiry into these
'complaints,' so to speak.
Thus by way of negligence the government too is equally guilty in not having
managed to save the shareholders, the employees and some clients of the company
from losing heavily.
Some ardent followers of B Ramalinga Raju and some employees of Maytas are
invoking the Almighty to come to the aid of the beleaguered IT strongman.
These fans conducted a prayer and havan service to help the disgraced former
chairman of Satyam Computer Services obtain bail.
The prayers are being held so that Raju comes out of this entire episode unscathed.
Satyam's three-member board constituted by the government met for the first time on
Monday to discuss ways to get the IT company back on track.
Eminent banker Deepak Parekh, IT expert Kiran Karnik and former Sebi member C
Achuthan arrived at the Infocity campus of Satyam in Hyderabad for the meeting, in
which the chairman of the board is expected to be elected.
Founder of Satyam Computer, B Ramalinga Raju, who lived like a 'king' before
admitting fudging of company accounts to the tune of Rs 7,800 crore (Rs 78 billion),
slept on the floor of the Chanchalguda jail here like other ordinary prisoners.
According to sources, the Raju brothers have been given the status of 'C' class
prisoners or undertrials.
The Raju brothers had to sleep on a mat on the ground like all other prisoners.
They were offered the usual prison dinner of rice and rasam, which the elder Raju
refused, sources said.
Srinivas Vadlamani, the chief financial officer of Satyam Computer, was remanded to
judicial custody till January 23 by the 6th Metropolitan Magistrate on Sunday.
He was later shifted to the Chanchalguda central jail, where former chairman of
Satyam B Ramalinga Raju and his younger brother Rama Raju have been lodged
since Saturday.
A prime prospect for probe by regulators and authorities investigating the Satyam
fraud, acting-CEO Ram Mynampati appears to be the IT company's most valued asset
and drew a salary more than that of founder Ramalinga Raju and all the directors put
together.
At the same time, its independent directors, many of whom have quit Satyam board
after the Maytas fiasco on December 16, got at least Rs 1 lakh (Rs 100,000) a month
as commission and sitting fees.
Mynampati, who is now being questioned by the team of market regulator SEBI, got a
total package of over Rs 3.5 crore (Rs 35 million) during the year ended March 2008,
while founder and Chairman had to contend with just about one fifth.
A perusal of company documents reveals all the directors, except Mynampati, got a
total of Rs 2.6 crore (Rs 26 million) as salary, commissions, sitting fees, professional
fees and other receivables.
What is surprising is the difference between the package of Mynampati and all the
others put together is about Rs 1 crore (Rs 10 million), almost the same that the
second best package that was given to independent Satyam director Krisha G Palepu.
After Mynampati the package for Ramalinga Raju totals Rs 60.4 lakh (Rs 6.04
million), followed by his brother Rama Raju at Rs 44.07 lakh (Rs 4.40 million).
The company paid a total of Rs 1.56 crore (Rs 15.6 million) to its seven non-
executive directors.
Other than V P Rama Rao, who was on the Satyam Board for just about a month,
independent directors got between Rs 12 lakh to Rs 13.2 lakh (Rs 1.2-1.32 million) a
year.
Harvard Business School professor Palepu bucked the trend and got Rs 91.91 lakh (Rs
9.19 million) for 2007-08, which includes a professional fees of Rs 79.51 lakh (Rs
7.95 million).
While welcoming the reconstitution of the scam-tainted Satyam board, the Nasscom
chairman Ganesh Natrajan said the apex body had advised its members to desist from
making "unsolicited offers" to the customers of the beleagured company, which has
earned the dubious reputation of being 'India's Enron'.
The IT industry in the country was "mature" enough to resist such undesirable
practices and poaching on the customer base of Satyam, whose business continuity
needs to be ensured, he told PTI.
The government had taken the right steps in the matter and Nasscom was hopeful that
new board with proven track record of its directors would restore credibility of
Satyam taking care of the liquidity aspect and uninterrupted business schedules,
Natrajan said.
It was important to ensure that in the outsourcing, customers did not lose their faith in
Indian companies, he stressed.
Asked about the specific damages sought in the lawsuit, law firm Vianale & Vianale
LLP's counsel Keneth J Vianale said that the sum duped could be in hundreds of
millions of dollars.
Vianale said in an emailed statement to PTI: "We have not alleged a specific damages
amount that we are seeking. That will be a subject of expert testimony.
"However, in cases of this sort, it is not unusual for the damages to be in the hundreds
of millions of dollars."
Another law firm Pomerantz Haudek Block Grossman & Gross said that it "has
commenced an investigation of the scandal on behalf of investor clients, and is
exploring the possible claims that can be raised, including under the federal securities
laws . . .
The trading could be resumed on Monday if its review is satisfactory, the exchange
said in a statement.
In these lawsuits, Satyam Computer has been charged with duping thousands of
American investors by artificially inflating share price.
While two lawsuits were filed on January 7, the day when Satyam's founder-chairman
Ramalinga Raju resigned after disclosing massive financial irregularities to the tune
of over a billion dollar, so far there has been nearly a dozen lawsuits that have been
filed against the company.
Earlier, nearly six law firms including Brodsky & Smith LLC, Glancy Binkow &
Goldberg LLP, Harwood Feffer LLP, Sarraf Gentile LLP, Vianale & Vianale LLP
and Izard Nobel LLP had filed class action law suits against Satyam Computer.
• "The government of India and Andhra Pradesh government should take all steps to
protect the interests of investors and the company's employees," senior BJP leader
Venkaiah Naidu said on the sidelines of the BJP's Youth Rally in Chennai.
"We today served show cause notice on PriceWaterhouse and asked it to reply within
21 days," Institute of Chartered Accountants of India resident Veda Jain told PTI.
If the reply to the notice does not come by 21 days, all members of PriceWaterhouse
who audited the Say tam accounts could be banned for life time, Jain said.
The firm has also been asked to submit balance sheets, financial statements and other
relevant documents of Satyam Computer audited by it for the last five years
The audit firm has maintained that it followed applicable audit standards and went by
audit evidence provided by the company.
The ICAI president said action against CAs, who audited the accounts of Satyam
Computer, can be expected in 2-3 months, if found guilty.
Jain said Satyam founder Ramalinga Raju's statement that only he knew about the
financial wrong-doings did not look like the whole truth, as he did not write the
accounts of his company.
Ramalinga Raju in a letter written to the company board admitted, "None of the board
members, past or present, had any knowledge of the situation in which the company is
placed." Chartered accountants body ICAI on Saturday served a show cause notice on
auditor Price Water house and asked it to submit balance sheets of Satyam Computer
audited by it in the last five years.
THE QUESTION OF SURVIVAL
• The big question on survival of Satyam Computer is giving anxious moments not only
to its over 50,000 employees but also to over half-a-million people, who would get
impacted indirectly if the IT firm does not come out of the trouble, Confederation of
Indian Industry president K V Kamath.
• Kamath said each of over 50,000 Satyam employees supports a family of four. "Every
white collar job creates four another jobs. (So) you are talking about anything
between half-a-million to a million people, who could directly or indirectly have been
impacted by this single event," Kamath said.
• He said the crisis had such a social magnitude that made the government act swiftly
and save the company.
• Besides CII, Assoc ham and Ficci have also welcomed disbanding of the Satyam
board of directors by the government.
• They expressed hope that the move would help restore investor confidence not only in
Satyam but in corporate India in general.
• "Instead of giving suggestions how to revive Satyam Computer and protect the
interest of its 53,000 employees, Opposition parties were making baseless allegations
against the government,"
• The '108' emergency services in the state, currently maintained by EMRI Satyam
Group Trust, would not be affected in wake of the financial fraud.
• Many philanthropists and organisations are coming forward to support and run the
emergency services (which can be availed by dialing 108), the minister added.
• "There would be no laxity against the guilty... So let us not talk about any individual
or the auditors (PwC) of the company," Minister for Corporate Affairs Perm Chan
Gupta told reporters when asked what action would be taken against Raju and
auditors.
• "We are very clear and a co-ordinated action would be taken," he said.
• The apex body of accounting firms Institutes of Chartered Accountants in India has
sought some information from the auditors of the company and Financial Reporting
Review Board, the minister said, adding that they can ask for working papers of the
audit and that has already happened. "Once that (the papers) is received, ICAI will
take its view," he added.
CONCLUSION
The unsolicited and the unprecedented Sat yam’s fiasco cast a shadow over the nature of
corporate governance in India.
We have never expected this to happen but this world is full of surprises. When you are
confident that everything is going fine something unwanted happens. As our market too
regained strength and started the rally, this shook the market as never before. Market crashed
by more than 6% on Wednesday. As investors returned after a long hibernation this event
scared them beyond anyone’s imagination. There are people who might have lost their life
saving. There are 53000 employs whose future is at stake, at the time when economy is
reeling under recession.
The only answer to Satyam fiasco that we have is this ‘bad corporate governance’. India Inc
now has to answer how to make the corporate governance more transparent and accountable.
With this I am closing my view on Satyam.
REFERENCES
http://en.wikipedia.org/wiki/Mahindra_Satyam
http://www.nhatky.in/wp-content/uploads/2009/01/2-pwc-auditors-arrested-by-cid-satyam-
scam.jpg
http://www.slideshare.net/tozo/satyam-scam-1188836
http://www.desihotmasala.com/2009/01/raju-ban-gaya-conman-satyam-rs-7000-cr.html
http://broadbandforum.in/equity-and-stock-forum/40201-satyam-fiasco/
http://www.wikinewforum.com/showthread.php?t=2675
http://en.wikinews.org/wiki/Former_Satyam_CEO_Raju,_his_brother_and_CFO_arrested_an
d_detained_in_profit-fraud_scandal