CENTRAL UNIVERSITY OF SOUTH BIHAR

Case-Study
Satyam Case and Corporate Governance:
A Critical Analysis

Submitted To Course Instructor Submitted By Student

Dr. Pradip Kumar Das Amitesh-Tejaswi

Associate Professor, Law BA.LLB.(Hons)
School Of Law And Governance IXth Semester
Subject- Corporate Governance Vth Year
Course Code -Law 506 Enrollment No.
Continuous Assessment-II CUSB1613125060

Page 1 of 18
 Index
 Acknowledgement

 Research Methodology

 Introduction

 Analysis of Fact

 Issue of Case

 Analysis of Legal Provision associated with the case

 Decision of the Case

 Relevant Case Law regarding the judgement

 In favour of the Judgement

 Critical Analysis of the case

 Role of Corporate Governance in Satyam Case

 Government of India adopted New Law after Satyam S candal

 Conclusion

 Bibliography

Page 2 of 18
 ACKNOWLEDGEMENT
At this point of time I would like to express my gratitude to all those who gave me their
support to complete this project.

I am grateful to my Corporate Governance teacher, who is Dr. Pradip Kumar Das for
giving me permission to commence this project in the first instance and to do necessary
study and research. I want to thank law faculty members and other faculty members for
all their professional advice, value added time, effort and enterprise help, support, interest
and valuable hints that encouraged me to go ahead with my project.

I am deeply indebted to my colleagues for their meticulous planning, layout, presentation

and above all for their consideration and time.

My heartfelt appreciation also goes to seniors and my classmate for their stimulating
suggestions and encouragement which helped me at each level of my research and in
writing of this project.

Especially, I would like to give my special thanks to my parents, family members and
god whose patient love enabled me to complete this project.

I have tried my best to enclose practical approach and also theoretical approach of
Satyam Case and Corporate Governance to my project.

(Signature of the Student)

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 RESEARCH METHODOLOGY

Method of Research

The researcher has adopted a purely doctrinal method of research. The researcher has
made extensive use of the available resources at library of the Central University of South
Bihar and also the internet sources.

Scope and Limitations

Though the study of this topic is an immense project and pages can be written over the
topic but due to certain restrictions and limitations the researcher has not been able to
deal with the topic in great detail.

Sources of Data:

The following secondary sources of data have been used in the project-

1. Cases

2. Books

3. Journals

Method of Writing:

The method of writing followed in the course of this research paper is primarily
analytical.

Mode of Citation

The researcher has followed the Indian Law Institute of citation throughout the course of
this research paper.

Page 4 of 18
Introduction:- Karl Marx said "Business is all green, only philosophy is grey".

He meant that business is all about profits and Gains to its rich owners and discomforts for all
other sectors of society who are at the receiving end of the business. But we have to accept the
fact that progress in the world would not have been possible without entrepreneurship and
business which involves risk and planning.

The name of this case is Satyam Venture Engineering Services Private Limited and Ors. VS.
Deputy Commissioner of Income Tax. This is case is also known as Satyam Scandal. This case
was decided under the jurisdiction of Hyderabad Bench.

This case is related to a Section 37 (1) of the Income Tax Act, 1961 which deals with the
computation of total income and it also deals with failure of corporate governance, breach of
trust, conspiracy, cheating and falsification of records.

The Satyam Computer Services scandal was a corporate scandal affecting India-based company
Satyam Computer Services in 2009, in which chairman Ramalinga Raju confessed that the
company's accounts had been falsified.

The Satyam scandal was a Rs 7,000-crore corporate scandal in which chairman Ramalinga Raju
confessed that the company’s accounts had been falsified. On January 7, 2009, Ramalinga Raju
sent off an email to Sebi and stock exchanges, wherein he admitted and confessed to inflating the
cash and bank balances of the company. Weeks before the scam began to unravel with his
famous statement that he was riding a tiger and did not know how to get off without being eaten.
Raju had said in an interview that Satyam, the then fourth-largest IT company, had a cash
balance of Rs 4,000 crore and could leverage it further to raise another Rs 15,000-20,000 crore.

Ramalinga Raju was convicted with 10 other members on 9 April 2015. The 10 people found
guilty in the case are: B Ramalinga Raju; his brother and Satyam’s former managing director B
Rama Raju; former chief financial officer Vadlamani Srinivas; former PwC auditors Subramani
Gopalakrishnan and T Srinivas; Raju’s another brother B Suryanarayana Raju; former employees
G Ramakrishna, D Venkatpathi Raju and Ch Srisailam; and Satyam’s former internal chief
auditor V S Prabhakar Gupta. Ramalinga Raju and three others given six months jail term by
SFIO on 8 December 2014.

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Analysis of Fact:- Satyam Computers Services Ltd. was one of the pioneers in the field of
Information Technology and it was ranked fourth in the India in the business of computers and
information technology services. Satyam has won the Golden Peacock Award for the best
Governance in the year 2007 and again in 2009.

A company was incorporated as a private limited company with two companies as promoters.
These two promoters hold share capital in assessee company in equal proportion. At the relevant
point of time, one company was a leading global consulting company. Other company was an
foreign based tier one automotive component supplier and developmental services. It had
expertise in interior and exterior trimming, compound tooling and manufacturing. Both
companies were rendering engineering services to various entities in automotive industries prior
to the formation of assessee company.

One company being the leader in automotive designing has entered into joint venture with other
company and had decided to share their expertise. By virtue of joint venture agreement, various
terms and conditions were proposed. There was an export sales commission agreement by which
assessee-company was to pay ten percent commission on all the export sales, other than those
orders received. There was another sales commission agreement as well at ten percent on all
domestic sales, other than orders received from promoter or its affiliates.

On the reason that there was no necessity for paying commission on the sales received, in the TP
study, the TPO disallowed an amount being commission paid to promoter. It was contested
before the Commissioner that the TPO's methodology in adopting CUP method was not correct
and further determining the amount at NIL was also not correct. Commissioner however, in his
order had examined the commission payment in a different perspective and held that there was
no need to pay the commission under Section 37(1) of Act and accordingly, he disallowed the
amount invoking the provisions of Section 37(1) of Act.

Issue of the Case: -

1. Whether disallowance made towards commission paid to one of promoter was liable to
be deleted?
2. Whether Satyam Venture Engineering Services Private Limited has committed the
offence cheating and criminal conspiracy?

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 3. Whether Satyam Venture Engineering Services Private Limited was involved in
corporate crime like insider trading, corporate fraud etc.?

Analysis of Legal Provision associated with the Case:-

Section 37 (1) of the Income Tax Act, 1961:- Any expenditure (not being expenditure of the
nature described in sections 30 to 36 and not being in the nature of capital expenditure or
personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes
of the business or profession shall be allowed in computing the income chargeable under the
head "Profits and gains of business or profession".

Explanation 1.—For the removal of doubts, it is hereby declared that any expenditure incurred
by an assessee for any purpose which is an offence or which is prohibited by law shall not be
deemed to have been incurred for the purpose of business or profession and no deduction or
allowance shall be made in respect of such expenditure.

Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-
section (1), any expenditure incurred by an assessee on the activities relating to corporate social
responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be
deemed to be an expenditure incurred by the assessee for the purposes of the business or
profession. 1

Section 120A of the Indian Penal Code, 1860:- Definition of criminal conspiracy.—When two
or more persons agree to do, or cause to be done,—

(1) an illegal act, or

(2) an act which is not illegal by illegal means, such an agree-ment is designated a criminal
conspiracy: Provided that no agreement except an agreement to commit an offence shall amount
to a criminal conspiracy unless some act besides the agreement is done by one or more parties to
such agreement in pursuance thereof.2

1
The Income Tax Act, 1961 (43 of 1961), S. 37 (1)
2
The Indian Penal Code (45 of 1860), S. 120A

Page 7 of 18
Section 415 of the Indian Penal Code, 1860:- Cheating.—Whoever, by deceiving any person,
fraudulently or dishonestly induces the person so deceived to deliver any property to any person,
or to consent that any person shall retain any property, or intentionally induces the person so
deceived to do or omit to do anything which he would not do or omit if he were not so deceived,
and which act or omission causes or is likely to cause damage or harm to that person in body,
mind, reputation or property, is said to “cheat”.3

Section 34(2) of the Companies Act, 2013:- From the date of incorporation mentioned in the
certificate of incorporation, such of the subscribers of the memorandum and other persons, as
may from time to time be members of the company, shall be a body corporate by the name
contained in the memorandum, capable forthwith of exercising all the functions of an
incorporated company, and having perpetual succession and a common seal, but with such
liability on the part of the members to contribute to the assets of the company in the event of its
being wound up as is mentioned in this Act.4

Decision of the Case:- All the accused were found guilty of criminal conspiracy and cheating.
The court found Ramalinga Raju and former vice-president of finance G. Ramakrishna guilty of
destroying evidence. Ramalinga Raju and Rama Raju were found guilty of criminal breach of
trust.

There was fundamental flaw in analysis of the TPO in considering one company as affiliate of
company to whom commission was paid. Be that as it may, while accepting that payment of
commission was permissible as per agreement, the TPO and Commissioner had erred in
restricting the disallowance on the so called sales made to Satyam.

The commission was being paid to promoter, as part of export/domestic sales commission
agreements. The sales made, whether directly or indirectly passed on from the orders received
from other automotive companies form part of domestic sales of assessee-company and
commission was payable to promoter from the agreement. Therefore, there was see any reason to
disallow the amount of commission, particularly with reference to sales made to/orders received.
Assessee also placed on record that most of the orders received were part of consolidated orders
received from various other automobile/automotive companies, a part of which was passed to

3
The Indian Penal Code (45 of 1860), S 415
4
The Companies Act, 2013 (18 of 2013), S. 34 (2)

Page 8 of 18
assessee-company. These sales were not made to any affiliated company of promoter. Therefore,
the commission was payable to promoter. Accordingly, the same was allowable under Section
37(1) of the Act.

Relevant case law regarding the judgement:-

1. M/s. Karnataka Forest Development Corporation Ltd., Vs. ACIT,

The Hon’ble Court held that submitted that parties must act bonafidely, expeditiously and with
due care. A casual or negligent litigant who has acted with utter irresponsibility attitude cannot
claim the condonation of delay in law and right has accrued to the other side. He also relied on
various case law and the fact that the director was travelling abroad as made out by the A.O. do
indicate that there was no cause for condonation of delay. 5

2. Foramer France Vs. DCIT

The Hon’ble Delhi High Court held that it has elaborated the principles relying on various
Supreme Court judgments and formulated certain principles reiterating them. It was submitted
that the delay may be condoned and the appeal may be admitted to render substantial justice to
assessee.6

3. ITO Vs. Sak Soft Ltd.

In this case, it has been held that communication charges etc., attributable to the delivery of the
computer software outside India which are to be reduced from the export turnover should also be
reduced from the total turnover as well, while computing the deduction u/s. 10A. Therefore,
following the ratio laid down in the aforesaid cases, we uphold the direction of Ld. CIT(A) to
reduce the amount from the export turnover as well as total turnover, while computing the
deduction u/s. 10A of the I.T. Act.7

5
ITA No. 266/Bang/08, dt. 23.10.2008
6
[2 ITR (Trib) 773] (Del)
7
[313 ITR (AT) 353]

Page 9 of 18
 4. CIT Vs. Gem Plus Jewellery India Ltd.The Hon'ble Bombay High Court in this case
directed that the A.O. to exclude whatever communication expenses disallowed from the
export turnover, also from the total turnover while computing the deduction u/s. 10A.
With these, the ground is considered allowed. 8

In favour of the judgement:- Yes I am in favour of the judgement which is delivered in the
case Satyam Venture Engineering Services Private Limited and Ors. VS. Deputy Commissioner
of Income Tax. Because in this case the 2009 Satyam scandal in India highlighted the ne-
farious potential of an improperly governed corporate leader. As the fallout continues, and the
effects were felt throughout the global economy, the prevailing hope is that some good can
come from the scandal in terms of lessons learned.

Corporate frauds and the outcry for transparency and honesty in reporting have given rise to
two outcomes. First, forensic accounting skills have become very crucial in untangling the
complicated accounting maneuvers that have obfuscated financial statements. Second, public
demand for change and subsequent regulatory action has transformed CG scenario across the
globe. In fact, both these trends have the common goal of addressing the investors’ concerns
about the transparent financial re- porting system. The failure of the corporate communication
structure, therefore, has made the financial community realize that “there is a great need for
skilled professionals that can identify, expose, and prevent structural weaknesses in three key
areas: poor corporate governance, flawed internal controls, and fraudulent financial statements.

In addition, the CG framework needs to be first of all strengthened and then implemented in
“let-ter as well as in right spirit”. The increasing rate of white-collar crimes, without doubt,
demands stiff penal- ties and punishments.

8
[MANU/MH/0690/2010 : 330 ITR 175] (Bom)

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Critical Analysis of the Case:- After Satyam Scandal there were various recommendations
and changes was bought by the Government of India.

Lessons and Recommendations: - The Govt. and regulator SEBI has learned lesson from that
financial scam by Mr. Ramlinga Raju and others. The Govt. had given the power to SEBI to
arrest in these types of cases. Ministry of Company affairs made a body of retired Judges of
Supreme Court and High court named Serious Fraud Investigation Organisation (SFIO). Institute
of Chartered Accountants also barred PWC to do audit in India. ICAI will also act as a watchdog
on these Auditing firms. Besides this SEBI has done lot of hard work in the proper
implementation of Corporate Governance in India, yet there is a lot of work which is to be done
in this direction. Besides Strengthening the SEBI more, the Government of Indian also has to
take some concrete steps in strengthening the Legal framework in India especially with regards
to Indian Companies Act 1956. Though many important provisions of listing requirements have
now being included in the Indian Companies (Amendments) Act, 2013 still there is a
requirement of few additional provisions in Companies Act with respect to the actions against
wrong Financial Reporting and Insider Trading. 9

The lesson learned by the Government of India are:-

 Investigate All Inaccuracies: The fraud scheme at Satyam started very small, eventually
growing into $276 million white-elephant in the room. Indeed, a lot of fraud schemes
initially start out small, with the perpetrator thinking that small changes here and there
would not make a big difference, and is less likely to be detected. This sends a message
to a lot of companies: if your accounts are not balancing, or if something seems
inaccurate (even just a tiny bit), it is worth investigating. Dividing responsibilities across
a team of people makes it easier to detect irregularities or misappropriated funds. 10

9
Financial Express available at: financialexpress.com/industry/what-was-satyam-scam-which-toppled-indias-
fourth-largest-it-company-from-the-top-slots/1010389/ (last visited on October 4, 2020)
10
Blog My Law available at: http://blog.mylaw.net/after-satyam-how-a-scandal-changed-corporate-governance-
law-in-india(last visited on October 4, 2020)

Page 11 of 18
  Ruined Reputations: Fraud does not just look bad on a company; it looks bad on the
whole industry and a country. “India’s biggest corporate scandal in memory threatens
future foreign investment flows into Asia’s third largest economy and casts a cloud over
growth in its once-booming outsourcing sector.The news sent Indian equity markets into
a tail-spin, with Bombay’s main benchmark index tumbling 7.3% and the Indian rupee
fell”. Now, because of the Satyam scandal, Indian rivals will come under greater scrutiny
by the regulators, investors and customers. 11
 Corporate Governance Needs to Be Stronger: The Satyam case is just another example
supporting the need for stronger CG. All public-companies must be careful when
selecting executives and top-level managers. These are the people who set the tone for
the company: if there is corruption at the top, it is bound to trickle-down. Also, separate
the role of CEO and Chairman of the Board. Splitting up the roles, thus, helps avoid
situations like the one at Satyam. The Satyam Computer Services’ scandal brought to
light the importance of ethics and its relevance to corpo- rate culture. The fraud
committed by the founders of Satyam is a testament to the fact that “the science of
conduct” is swayed in large by human greed, ambition, and hunger for power, money,
fame and glory.12

Role of Corporate Governance in a Satyam Case:- The case study of Satyam Computers
is a sheer case of failure of Corporate Governance in India. It is really very unfortunate that
within five months after winning the Global Peacock Award, Satyam became the centrepiece of
a “massive” accounting fraud. Satyam Computers services Ltd has failed on almost every front
of Corporate Governance and deceived every Government regulator like SEBI, Registrar of
Companies and Department of Corporate Affairs. The total case of failure of reporting and
misrepresentation of Facts may be divided under three major heads. First there is a failure of
Corporate Governance, Secondly there is a Failure of SEBI and lastly there is failure of Auditors
(M/s Price Waterhouse Coopers). We are presenting these failures one by one: -

11
Market Watch available http://www.marketwatch.com/story/satyam-shares-crash-mumbai-after (last visited
on October 4, 2020)
12
Blog My Law available at: http://blog.mylaw.net/after-satyam-how-a-scandal-changed-corporate-governance-
law-in-india(last visited on October 4, 2020)

Page 12 of 18
Failure of Corporate Governance in Satyam Computers Services Ltd:

1. Failure of Concept of Independent Auditors: - At the time of Application of Concept of

Corporate Governance, SEBI has highlighted the role of Independent Directors in the
presentation of Financial Figures before Government that Independent Directors will present the
true and fair view of financial figures and take the active part in audit process of Companies
better than Traditional Directors, but here in this case, this concept was a total failure.

2. Failure of the role of Audit Committee: - Audit Committee of the Satyam Computers played
hardly any role in curbing the financial misrepresentation of facts. So, another important pillar of
Corporate Governance has shattered in this case.

3. Failure of the role of CEO/CFO: - It is presented in the concept of Corporate Governance

that the CEO/CFO of the company will certify about the truthfulness and fairness of Financial
Statements of the Company but in this case the CEO/CFO of the Company Mr.Ramlinga Raju/
Srinivas Vadlamani has certified the wrong financial position of the Company. 13

4. Failure of presenting the ture report on compliance of Corporate Governance in the

Financial Statements of the Company: - In case of Satyam Computers, the Annual Report of
this company included the report on the Compliance of Corporate Governance but hardly any
fact of that report was true in real sense.

5. Failure of SEBI in timely detection of this Finance Scam: - The Security Exchange Board
of India is the most powerful regulating agency of the Government of India which has the full
powers in intervening in any of the Financial Affairs of the Companies regarding the
presentation of Financial Figures and insiders trading. The prices of the share of Satyam
Computers were increased many folds but SEBI was in total failure in detecting or even smelling
any foul smell. 14

13
Business Standard available at: http://www.business-standard.com/article/economy-policy/satyam-how-
guilty-are-the-independent-directors-109011201009_1.html (last visited on October 4, 2020)
14
Blog My Law available at: http://blog.mylaw.net/after-satyam-how-a-scandal-changed-corporate-governance-
law-in-india(last visited on October 4, 2020)

Page 13 of 18
The result of all that insider trading was that the promoters of the Company have deliberately
made money in crores by misrepresenting the financial figures and there by increased the market
value of the shares and sold their shares at those higher values and the end result was that there
was the erosion of the funds of the common people who have invested in the shares of Satyam
Computers relying upon the financial figures of the that Company. 15

6. Failure of Auditors in the Due Deligence in their duties: - M/s Pricewaterhouse Coopers is
one of the best auditing firms around the Globe. This firm is equally responsible for the financial
scam since there are many factors which may work as indicators for demanding further
investigation like Cash lying with the company without any income on that. The PWC is total
fail in due diligence of their duties for example PWC never verifies the forged statements with
the bank and debtors etc. The failure of PWC can be judged from the fact that Investment banker
Merillynch found the financial scam merely in 10 days. In nutshell we can arrived at a
conclusion that if PWC work with due diligence the Satyam scam may not occurred. 16

Government of India adopted new Laws after Satyam Scandal:-

After Satyam, corporate governance has been enhanced. Sebi has issued detailed guidelines for
corporate governance and better governance to audit committee. The ICAI also came out with
guidelines for greater disclosure of FD (fixed deposits) and assets. Besides these, a lot of other
small steps have been taken after Satyam to make the board more accountable and responsible.

1. Committees:- In 2009, the Confederation of Indian Industries set up a task force headed by
former cabinet secretary Naresh Chandra to suggest reforms. Based on the recommendations of
this task force, the Ministry of Corporate affairs issued Voluntary Guidelines for Corporate
Governance in 2009. The National Association of Software and Services Companies also
established a corporate governance and ethics committee. This Committee suggested reforms
relating to audit committees, shareholder rights, and whistle-blower policy

15
Blog My Law available at: http://blog.mylaw.net/after-satyam-how-a-scandal-changed-corporate-governance-
law-in-india(last visited on October 4, 2020)
16
Economic Times available at: http://economictimes.indiatimes.com/tech/software/its-baby-steps-still-but-in-
right-direction/articleshow/5334722.cms?intenttarget=(last visited on October 4, 2020)

Page 14 of 18
2. The Securities and Exchange Board of India (SEBI):- In April 2014, SEBI amended the
Listing Agreement to include provisions relating to establishment of a vigil mechanism, role of
Audit Committee in cases of suspected fraud or irregularity, and the role of the Chief Executive
Officer and the Chief Financial Officer pertaining to financial reporting and disclosure to the
Audit Committee. In 2015, SEBI framed the SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015 (“LODR”), applicable to all listed companies, and provided for
stringent guidelines relating to reporting / disclosure of material events and actual and suspected
fraud. 17

3. Companies Act, 2013:- The Companies Act 1956 came to be repealed with the new
Companies Act 2013 (Act). The new Act has made a clear departure from the old Act and has
brought in several measures intended to benefit the larger stakeholder community, with the
resulting increase in compliance costs for the company. The Act provides for corporate fraud as a
criminal offence. It sets out clear obligations for reporting of instances of fraud on auditors, cost
accountants and company secretaries. It clearly outlines the responsibility and accountability of
auditors and independent directors, who are expected to play a more active role. The checks and
balances introduced to ensure proper governance and management in the company require the
hitherto passive actors to play a vital role, in the interest of the shareholders, creditors, vendors,
customers and other stakeholders in the company. To detect and report instances of fraud and
other irregularities, the Act provides for all listed companies to have a vigil mechanism, and
mandates a Directors' Responsibility Statement to be a part of the Report of Board of Directors.
It provides for compulsory rotation of individual auditors after five years and audit firms after
ten years to rule out malpractices and financial oversight and ensure independence of auditors.
The auditors are also obligated now to report instances of fraud noticed by them during the
performance of their duties. The Institute of Chartered Accountants of India (ICAI) came out
with a Guidance Note on Reporting on Fraud (ICAI Guidance Note, 2016). The Act also puts
forth a stringent framework for related party transactions. 18

17
SEBI available at:https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=3&smid=0
(last visited on October 4, 2020)
18
Ministry of Corporate Affairs available at: https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf (last
visited on October 4, 2020)

Page 15 of 18
4. Serious Fraud Investigation Office (SFIO):- The SFIO under the new Act has a statutory
status and has recently also been conferred the power to arrest. The SFIO has been actively
investigating cases relating to corporate fraud. In the years since the Satyam scam broke out,
substantial changes have been made with respect to corporate governance in India. The use of
criminal sanctions by the Parliament to regulate corporate conduct has been on the rise. The
regulators and the investigative bodies are more vigilant. The increased compliance costs of
companies only serves well to protect the interests of all the stakeholders in the company.

Conclusion:- Corporate Governance is concerned about promoting corporate fairness,

transparency and accountability. Corporate governance refers to the set of systems, principles
and processes by which a company is governed. Corporate Governance is essentially all about
how corporations are detected, managed, controlled and held accountable to their shareholders. It
refers to combination of laws, rules regulations procedures and voluntary practices to enable the
companies to maximize the share of all the stakeholders. It should lead to increasing customer
satisfaction, shareholder value and Wealth.

Recent corporate frauds and the outcry for transparency and honesty in reporting have given rise
to two outcomes. First, forensic accounting skills have become very crucial in untangling the
complicated accounting maneuvers that have obfuscated financial statements. Second, public
demand for change and subsequent regulatory action has transformed CG scenario across the
global. In fact, both these trends have the common goal of addressing the investors’ concerns
about the transparent financial re- porting system. The failure of the corporate communication
structure, therefore, has made the financial community realize that “there is a great need for
skilled professionals that can identify, expose, and prevent structural weaknesses in three key
areas: poor corporate governance, flawed internal controls, and fraudulent financial statements.
In addition, the CG framework needs to be first of all strengthened and then implemented in “let-
ter as well as in right spirit”. The increasing rate of white-collar crimes, without doubt, demands
stiff penal- ties and punishments.

Perhaps, no financial fraud had a greater impact on accounting and auditing profession than
Enron, World- Com, and recently, India’s Enron: “Satyam”. All these frauds have led to the
passage of the Sarbanes-Oxley Act in July 2002, and a new federal agency and financial
standard-setting body, the Public Companies Accounting Oversight Board (PCAOB).

Page 16 of 18
It also was the impetus for the American Institute of Certified Public Accountants’ (AICPA)
adoption of SAS No. 99, “Consideration of Fraud in a Financial Statement Audit”. But it may be
that the greatest impact of Enron and WorldCom was in the significant increased focus and
awareness related to fraud. It establishes external auditors’ responsibility to plan and perform
audits to provide a reasonable assurance that the audited financial statements are free of ma-
terial frauds.

The culture at Satyam, especially dominated by the board, symbolized an unethical culture. On
one hand, his rise to stardom in the corporate world, coupled with immense pressure to impress
investors, made Mr. Raju a “compelled leader to deliver outstanding results”.

As part of this research study, one of the key objectives was “to examine and analyze in-depth
the Satyam Computers Limited’s accounting scandal by portraying the sequence of events, the
aftermath of events, the key par- ties involved, major reforms undertaken in India, and learn
some lessons from it”. Unlike Enron, which sank due to “agency” problem, Satyam was brought
to its knee due to “tunneling”. The Satyam scandal highlights the importance of securities laws
and corporate governance in emerging markets. There is a broad consensus that emerging market
countries must strive to create a regulatory environment in their securities markets that fosters
effective corporate governance. India has managed its transition into a global economy well, and
although it suffers from corporate governance issues, it is not alone as both developed countries
and emerging countries experience accounting and CG scandals. The Satyam scan- dal brought
to light, once again, the importance of ethics and its relevance to corporate culture.

On the contrary, Mr. Raju had to suppress his own morals and values in favor of the greater good
of the company. The board connived with his actions and stood as a blind spectator; the lure of
big compensation to members further encouraged such behavior. But, in the end, truth is sought
and those violating the legal, ethical, and societal norms are taken to task as per process of law.
The public confession of fraud by Mr. Ramalinga Raju speaks of integrity still left in him as an
individual. His acceptance of guilt and blame for the whole fiasco shows a bright.

Page 17 of 18
Bibliography:-

Text-Books:-

1. Taxmann’s Corporate Governance:- By Dr. C. L. Bansal

2. Taxmann’s Company Law:- By Dr. G. K. Kapoor and By Dr. Sanjay Dhamija

3. Company Law:- By Avtar Singh

4. Company Law and Practice:- By A.K Majumar and Dr. GK Kapoor

Act Referred:-

1. The Negotiable Instruments Act, 1881

2. The Companies Act, 2013

Websites-Referred:-

1. https://indiankanoon.org/doc/1438381/

2. https://www.manupatrafast.com/

3. https://www.livelaw.in/

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