Satyam Computer Services Ltd.
scam
1. Modus Operandi (How the scam was done)
2. Corporate Governance Issues (What went wrong in management and oversight)
3. Aftermath (What happened after the scam came out)
1. Modus Operandi – How the Satyam Scam Was Done
Satyam Computer Services Ltd. was one of India's top IT companies, founded by Ramalinga Raju in 1987.
The scam was basically a fake financial story created by the company to look more successful than it actually was.
What exactly did they do?
• Fake Profits: The company showed fake profits in its financial statements for several years.
• Inflated Revenue: They pretended to have more sales and income than they actually did.
• Fake Bank Balances: They created fake bank account statements to show they had over ₹5,000 crore cash,
which was not real.
• Manipulated Accounts: They used fake invoices, forged documents, and manipulated the software to match
the fake data.
In short: They lied about how much money they were making and how much cash they had.
2. Issues of Corporate Governance – What went wrong?
Corporate Governance means the rules and systems a company uses to make sure it's run honestly and responsibly.
At Satyam, many of these systems failed.
Major Governance Issues:
1. No Internal Checks:
o There was no proper internal audit or checking of the books.
o Raju had too much power and control.
2. Weak Board of Directors:
o The Board did not question Raju’s decisions.
o They even approved buying companies owned by Raju's family — a clear conflict of interest.
3. Failure of Auditors:
o The company's external auditor, PricewaterhouseCoopers (PwC), did not detect the fraud.
o They signed off on false financial statements for years.
4. Lack of Transparency:
o Real financial data was hidden.
o Shareholders and investors were misled.
3. Aftermath – What happened after the scam?
The scam came to light in January 2009, when Ramalinga Raju confessed in a letter that he had faked the company’s
accounts.
Consequences:
• Raju was arrested along with his brother and other top executives.
• SEBI (Securities and Exchange Board of India) banned Raju and others from the market.
• PwC was penalized and barred from auditing listed companies in India for two years.
🛠 Government Action:
• The Indian government quickly stepped in to protect the company’s employees and clients.
• A new board was formed by the government.
• Tech Mahindra bought Satyam in 2009 and merged it with itself. Today, it is known as Tech Mahindra.
Impact on Indian Corporate World:
• The Satyam scam shook investor confidence.
• It forced India to tighten corporate governance rules:
o Stronger auditing standards
o Independent directors made more accountable
o Stricter SEBI monitoring
• The Companies Act 2013 included new rules to improve transparency.
Summary in Simple Terms
Aspect Details
What Happened Satyam faked its profits, revenues, and cash to look more successful.
Who Did It Ramalinga Raju (Founder) and his team.
How False bank statements, fake invoices, fake profits, and poor auditing.
Why To attract more investment and maintain share prices.
What Went Wrong in Governance Weak board, bad auditing, no checks, conflict of interest.
What Happened Next Raju arrested, Tech Mahindra took over, new laws introduced.
Kingfisher Airlines Scam
1. Modus Operandi – How the Scam Was Done
Kingfisher Airlines was launched in 2005 by Vijay Mallya, owner of United Breweries (maker of Kingfisher beer). It
started as a luxurious airline but soon became financially unviable.
🛠 What actually happened?
Vijay Mallya took loans from multiple public sector banks (like SBI, PNB, IDBI, etc.) to run Kingfisher Airlines, but:
• The airline kept losing money due to:
o High operating costs
o Poor business planning
o Unprofitable routes
o Price wars in aviation sector
• Despite losses, Mallya kept borrowing more loans, sometimes using false promises and overvaluation of
assets.
In total, banks gave Kingfisher Airlines loans worth over ₹9,000 crore — which was never repaid.
How was this a scam?
• Mallya diverted the loan money to other group companies (like United Breweries).
• He used some of the money for personal luxuries (like parties, IPL team, yachts).
• Many loans were given without proper collateral and ignored his company’s weak financial condition.
It became a classic example of a "wilful default" — which means the borrower had the ability to pay but
intentionally did not.
2. Corporate Governance Issues – What Went Wrong?
Corporate governance refers to how a company is run, who checks decisions, and how responsibly they handle
money and power.
Key Governance Failures in Kingfisher:
1. Lack of Transparency:
o The company hid its true financial condition from banks and investors.
2. Poor Board Oversight:
o The Board of Directors did not stop Mallya’s risky decisions.
o No one questioned why money was being diverted.
3. No Internal Checks:
o Weak internal control systems.
o No system to check where the borrowed money was being spent.
4. False Financial Reporting:
o They overstated assets and performance to look creditworthy and get more loans.
5. Conflict of Interest:
o Mallya used his position and brand power to get favors from banks and keep getting loans despite
poor performance.
3. Aftermath – What Happened Next?
Collapse of Kingfisher Airlines:
• By 2012, Kingfisher Airlines stopped operations due to huge losses and unpaid salaries.
• It was officially declared a non-performing asset (NPA) by banks — meaning it defaulted on loans.
Vijay Mallya Flees:
• In March 2016, Mallya left India and moved to the UK as legal pressure increased.
• He was declared a "wilful defaulter" and later a "fugitive economic offender" — the first Indian to get this
tag under the Fugitive Economic Offenders Act, 2018.
Legal and Government Actions:
• Enforcement Directorate (ED) and CBI filed cases for money laundering and fraud.
• Indian government requested his extradition from the UK (still pending as of 2024).
• His properties, cars, and even shares were seized by Indian agencies.
• Banks managed to recover some amount by auctioning his assets and selling shares in other group
companies.
🇮🇳 Impact on Indian Banking and Corporate Rules
The Kingfisher case exposed serious issues in bank lending practices.
Reforms and Changes After the Scam:
1. Stricter Loan Monitoring:
o Banks now monitor how loan money is used more closely.
2. Prompt Corrective Action (PCA):
o RBI imposed tighter rules on banks with too many bad loans.
3. Fugitive Economic Offenders Act, 2018:
o Allows Indian government to seize properties of big financial offenders who flee the country.
4. More Accountability from Bank Officials:
o Officials who approve risky or illegal loans can be held personally responsible.
Summary Table
Aspect Details
What Happened Kingfisher borrowed huge loans, misused money, and defaulted.
Who Was Involved Vijay Mallya, Kingfisher Airlines, multiple public sector banks
How It Was Done Fake financial health, no repayments, diverted funds, misused loans
Governance Issues No oversight, poor audits, weak board, false reporting
Aftermath Airline shut down, Mallya fled, declared fugitive, partial recovery by banks
Reforms Stricter loan rules, PCA by RBI, Fugitive Act 2018
PNB (Punjab National Bank) Heist, also known as the Nirav Modi Scam
1. Modus Operandi – How the Scam Happened
This scam took place mainly between 2011 and 2018, and is one of the biggest bank frauds
in India, involving around ₹13,000 crore.
Who was involved?
• Nirav Modi, a celebrity diamond businessman.
• His uncle Mehul Choksi, also in the jewellery business.
• A few corrupt PNB employees.
• Some fake companies abroad controlled by Nirav Modi.
🛠 What exactly did they do?
They used something called LOUs (Letters of Undertaking).
LOU = A guarantee given by an Indian bank (PNB here) to another bank (usually foreign)
saying, “Don’t worry, we’ll pay the money if our customer fails.”
Here’s how they cheated:
1. Nirav Modi’s staff convinced PNB employees to issue LOUs without official approval
or collateral.
2. PNB employees didn’t enter these LOUs into the bank’s system, so no one else in the
bank knew.
3. Based on these LOUs, foreign banks gave loans to Nirav Modi's overseas companies.
4. Nirav Modi and Choksi never repaid the loans, and kept rolling over the money by
asking for new LOUs to repay old ones.
5. This continued for years, until ₹13,000+ crore worth of fake guarantees were given.
It was a giant "loan without loan papers" scam using internal access and blind trust
from other banks.
2. Corporate Governance Issues – What Went Wrong?
This scam shows massive failure in internal checks and bank governance.
Governance Problems in PNB:
1. Lack of Internal Controls:
o LOUs were being issued without being entered into the system.
o No audits or alerts were triggered.
2. Collusion by Employees:
o Two PNB employees (a deputy manager and a clerk) were directly involved.
o They helped Nirav Modi bypass rules.
3. No Supervision from Higher-Ups:
o Senior management didn’t monitor or question how Nirav Modi was getting
funds repeatedly.
4. Technology Failure:
o PNB had two different banking software systems.
o LOUs were issued from a system that didn’t sync with the main system, so
they went unnoticed.
5. Poor Due Diligence by Foreign Banks:
o Foreign banks trusted PNB’s LOUs blindly, without verifying the customer's
creditworthiness.
3. Aftermath – What Happened Next?
Scam Breaks Out:
• In February 2018, PNB filed a complaint with the CBI, saying Nirav Modi took loans
using unauthorized LOUs.
• The scam amount was ₹11,300 crore initially, which later grew to over ₹13,000 crore.
Nirav Modi & Mehul Choksi Flee:
• Nirav Modi fled to the UK.
• Mehul Choksi escaped to Antigua, where he took citizenship.
• Both became fugitives and are fighting extradition to India.
🏛 Government & Legal Actions:
• CBI and Enforcement Directorate (ED) began investigations.
• Assets of Nirav Modi and Mehul Choksi were seized, including luxury cars, jewellery,
bank accounts, and properties.
• Nirav Modi was arrested in the UK in 2019 and is fighting extradition.
Banking Reforms:
The scam shook the entire Indian banking system. As a result, several reforms were
introduced:
🛠 Reforms and Actions Taken After the Scam
Reform Explanation
All banks were told to link SWIFT (the messaging system used to
Swift Integration send LOUs) with their core banking system, so no LOU can be
hidden.
In 2018, RBI banned LOUs and LOCs for foreign trade finance to
Ban on LOUs
avoid similar scams.
Regular checks and audits made mandatory for all large
Better Internal Audits
transactions.
Stricter Employee More checks on employee actions, especially in sensitive
Monitoring departments.
Allowed government to confiscate properties of people who flee
Fugitive Economic
India after committing fraud (used against Nirav Modi and Vijay
Offenders Act, 2018
Mallya).
Summary in Simple Points
Topic Details
Scam Name PNB Scam / Nirav Modi Scam
Time Period 2011–2018
Main People Nirav Modi, Mehul Choksi, PNB employees
Scam Technique Issued fake LOUs without collateral, didn’t record them in system
Amount Involved ₹13,000+ crore
Governance Issues Employee collusion, weak audits, poor system checks
Scam exposed in 2018, Nirav Modi fled to UK, massive public and legal
Aftermath
reaction
Reforms Ban on LOUs, SWIFT integration, Fugitive Offenders Act, better bank
Introduced controls
IL&FS Group Crisis (2018)
What is IL&FS?
IL&FS stands for Infrastructure Leasing & Financial Services Ltd.
• It was a NBFC (Non-Banking Financial Company),
• Set up in 1987 to fund big infrastructure projects like roads, ports, power, etc.
It had over 300 subsidiaries and was considered too big to fail.
1. Modus Operandi – How the Crisis Happened
Between 2012 and 2018, IL&FS borrowed huge amounts of money to fund infrastructure
projects.
🛠 What went wrong?
1. Too much borrowing (debt-heavy model):
o IL&FS borrowed thousands of crores from banks, mutual funds, and insurance
companies.
o It used this borrowed money to finance long-term projects (like highways,
tunnels).
2. No income in return:
o Many projects were stuck, delayed, or loss-making.
o IL&FS wasn’t earning enough to repay its loans.
3. Borrowed more to repay old loans:
o Instead of cutting costs or fixing problems, IL&FS took new loans to repay old
ones — like a Ponzi scheme.
4. Showed fake profits:
o It hid its true financial condition by:
▪ Delaying payment disclosures
▪ Faking asset values
▪ Hiding debt inside subsidiaries
5. Sudden default in 2018:
o In September 2018, IL&FS and its subsidiaries defaulted on repayments to
banks and mutual funds.
o Investors and markets were shocked.
The default was around ₹91,000 crore – one of the biggest corporate debt defaults in
India.
2. Corporate Governance Issues – What Went Wrong Internally?
This crisis showed huge failures in governance, which allowed such a big problem to go
undetected.
Key Issues:
Problem What Happened
Fake Financial Reporting IL&FS showed fake profits and hid debts.
Weak Board Oversight Board members were inactive and didn’t ask questions.
Too Many Subsidiaries Over 300 companies made it hard to track money movement.
No Internal Controls No checks on how money was borrowed or spent.
Problem What Happened
Conflict of Interest Top executives approved loans for their own group companies.
Lack of Transparency Investors and regulators were kept in the dark.
Fun fact: IL&FS had a high credit rating (AAA) just weeks before it defaulted!
3. Aftermath – What Happened After the Scam Was Exposed
What happened in 2018?
• IL&FS defaulted on several repayments.
• This triggered a panic in the financial sector, especially among NBFCs and mutual
funds.
🏛 Government Action:
• Government removed the old IL&FS board.
• Appointed a new board led by Uday Kotak (Kotak Mahindra Bank) to clean up the
mess.
Investigation and Clean-Up:
• Serious Fraud Investigation Office (SFIO) and Enforcement Directorate (ED) started
probing.
• Multiple executives, including the former CEO and CFO, were arrested.
• Over 100 companies in the IL&FS group were found to be in financial trouble.
Recovery & Resolution:
• The new board tried to sell IL&FS’s assets and repay creditors.
• Some money was recovered, but many banks and mutual funds lost heavily.
Impact on Indian Economy:
1. NBFC Crisis:
o Many NBFCs lost investor trust.
o They found it hard to raise funds, leading to a credit crunch.
2. Liquidity Problem:
o Mutual funds, banks, and insurance firms became cautious, reducing overall
credit flow.
3. Increased Government Oversight:
o RBI and SEBI started tighter checks on NBFCs and rating agencies.
Summary Table
Topic Details
Name of Crisis IL&FS Financial Crisis
Year 2018
Main People
IL&FS top management, lenders, auditors
Involved
IL&FS defaulted on ₹91,000 crore debt after years of
What Happened
mismanagement
Modus Operandi Borrowed heavily, funded bad projects, faked financial health
Governance Issues No board control, fake reports, too many shell companies
Aftermath Collapse of IL&FS, NBFC panic, tighter rules, arrests, recovery process
NBFC regulations, credit rating reforms, group insolvency, better
Reforms Introduced
audits
ICICI Bank-Videocon Loan Scam
1. Modus Operandi – How the Scam Happened
Who was involved?
• Chanda Kochhar – Former MD & CEO of ICICI Bank
• Deepak Kochhar – Her husband, businessman
• Venugopal Dhoot – Owner of the Videocon Group
• ICICI Bank officials and certain private companies
What exactly happened?
• ICICI Bank gave a loan of ₹1,875 crore to Videocon Group between 2009–2011.
• At that time, Chanda Kochhar was the CEO and part of the committee that approved
the loan.
• Just a few months later, Venugopal Dhoot (Videocon’s owner) transferred a part of
the loan money to a company called NuPower Renewables, which was owned by
Chanda Kochhar’s husband.
In simple terms: ICICI Bank gave a big loan to Videocon, and Videocon gave benefits
(kickbacks) to the CEO’s husband.
How the money flowed:
1. ICICI Bank loaned ₹1,875 crore to Videocon.
2. Videocon defaulted (failed to repay) ₹1,730 crore.
3. Dhoot gave money (via circuitous route) to NuPower Renewables, which was
controlled by Deepak Kochhar.
4. This raised a big conflict of interest: Chanda Kochhar, being CEO, favored Videocon,
and her family gained from it.
2. Corporate Governance Issues – What Went Wrong at ICICI Bank?
Corporate governance means how well a company is run, managed, and held accountable.
In this case, many red flags were ignored.
Key Failures:
Issue What Happened
Conflict of Chanda Kochhar didn’t recuse herself from the loan committee even
Interest though her family stood to benefit.
Lack of The bank and Kochhar hid the links between Videocon and her
Transparency husband’s firm.
Weak Internal
No one from ICICI Bank flagged the related-party transaction.
Checks
Inaction by the Despite media reports in 2016, the board initially supported Chanda
Board Kochhar without independent investigation.
Falsified No disclosure of the indirect financial relationship between Chanda
Disclosures Kochhar’s family and Videocon.
3. Aftermath – What Happened Next?
Investigation & Legal Action:
• The matter came to light in 2016–2018 through whistleblowers and media.
• In 2018, Chanda Kochhar went on leave, and later resigned.
• CBI and ED launched criminal investigations into:
o Bribery
o Money laundering
o Corruption
• In 2019, the ICICI Bank Board said Kochhar had violated internal policies and revoked
all her benefits, including pension and bonuses.
• In 2023, Chanda Kochhar and her husband were arrested by the CBI. (Later released
on bail.)
Impact on ICICI Bank:
• Short-term reputation damage.
• Shareholders questioned the bank’s ethics.
• ICICI Bank brought in new leadership and strengthened governance.
Summary in Simple Table
Topic Details
Scam Name ICICI-Videocon Loan Scam
Main Person Chanda Kochhar (CEO), Deepak Kochhar (her husband), Venugopal
Involved Dhoot (Videocon)
Scam Type Conflict of interest, Quid pro quo (favors in return for loans)
Amount Involved ₹1,875 crore loan; ₹1,730 crore default
ICICI gave loan to Videocon → Videocon routed funds to Kochhar’s
How It Happened
husband’s firm
Governance
Conflict of interest, weak checks, no disclosure, board inaction
Failures
Topic Details
Aftermath Resignation, criminal cases, benefits withdrawn, arrests
Conflict rules tightened, RBI increased monitoring, bank governance
Reforms
improved
YES Bank Crisis (which peaked in 2020)
What is YES Bank?
YES Bank is a private sector bank in India, started in 2004.
It was known for being aggressive and fast-growing, especially under its co-founder and
CEO Rana Kapoor.
1. Modus Operandi – How the Scam Happened
Who was involved?
• Rana Kapoor – Founder and CEO of YES Bank till 2019
• Several high-risk companies and promoters who took loans from YES Bank
• Some YES Bank officials and borrowers colluded
What went wrong?
1. YES Bank gave huge loans to risky and troubled companies, like:
o DHFL (Dewan Housing)
o IL&FS
o Jet Airways
o Essel Group
o Anil Ambani’s firms
o Videocon, etc.
2. These companies failed to repay (i.e., became NPAs – Non-Performing Assets).
3. Despite these bad loans, the bank kept hiding the real picture by:
o Not reporting actual NPAs
o Showing false profits
o Giving new loans to old defaulters to make it look like they were repaying
4. In many cases, kickbacks (bribes) were given to Rana Kapoor’s family companies in
return for giving these bad loans.
5. By 2020, YES Bank was almost bankrupt, with ₹30,000 crore+ worth of bad loans.
2. Corporate Governance Issues – What Went Wrong Internally?
Major governance failures that allowed this crisis:
Problem Explanation
Loans were given to bankrupt or shady companies in return
Loan Fraud & Favoritism
for bribes.
Rana Kapoor’s family companies got investments from
Conflict of Interest
borrowers.
Real NPAs were hidden; financial health was falsely shown as
Fake Financial Reporting
strong.
No Risk Management No proper checks were done before giving large loans.
Weak Board Control The Board didn’t stop or question Kapoor's decisions.
Overexposure to Single Too much money was lent to a few risky borrowers, against
Groups banking rules.
3. Aftermath – What Happened After the Scam?
March 2020 – RBI Steps In
• YES Bank was on the verge of collapse — couldn’t pay depositors.
• RBI imposed a withdrawal limit of ₹50,000 per customer.
• Massive panic spread among customers and investors.
Rescue Plan
RBI quickly announced a rescue plan:
1. State Bank of India (SBI) and other big banks were asked to invest money in YES
Bank.
2. SBI became the largest shareholder (over 30%) and helped restore trust.
3. A new CEO was appointed and the old board was dissolved.
Legal Action
• Rana Kapoor was arrested by the Enforcement Directorate (ED) in 2020.
• Charges: Money laundering, bribery, and criminal conspiracy.
• His family’s companies and assets were also seized.
Summary in Simple Table
Topic Details
Crisis Name YES Bank Crisis
Year 2020
Main Person Involved Rana Kapoor (Founder & CEO)
Scam Type Loan fraud, bribery, hiding bad loans
What Happened YES Bank gave risky loans, hid NPAs, took bribes, nearly collapsed
Amount Involved Over ₹30,000 crore of bad loans
Governance Failures Weak board, conflict of interest, fake reporting
Aftermath RBI took control, SBI rescued the bank, Rana Kapoor arrested
Reforms Introduced Stricter NPA rules, oversight on private banks, CEO term limits
Common Corporate Governance Problems in Corporate Failures
Whether it’s Satyam, IL&FS, ICICI Bank, YES Bank (India) or Enron, Lehman Brothers,
Wirecard, Theranos (Abroad), the same types of problems show up again and again.
1. Conflict of Interest
When decision-makers personally benefit from the decisions they take for the company.
Examples:
• ICICI Bank: CEO Chanda Kochhar gave loans to Videocon, which then invested in her
husband’s business.
• Enron (USA): Executives created fake companies to hide debts and take profits
themselves.
Why it’s a problem?
Personal interests influence business decisions, which hurts the company and shareholders.
2. Lack of Board Independence
When the board of directors simply follows what top management says, without
questioning or stopping them.
Examples:
• Satyam Computers: The board approved buying real estate companies owned by the
promoter's family.
• Theranos (USA): The board had no experts in medical tech and never verified product
claims.
Why it’s a problem?
There’s no check on power — CEOs can do whatever they want without accountability.
3. Weak Internal Controls and Audits
When companies don’t have proper systems to check finances, operations, or fraud.
Examples:
• IL&FS: No proper audit of 300+ subsidiaries; fake profits were shown for years.
• Wirecard (Germany): Faked ₹15,000+ crore of cash in bank accounts — auditors
missed it.
Why it’s a problem?
Fraud goes undetected for years, causing huge damage by the time it's caught.
4. Window Dressing / Fake Financial Reporting
Showing fake profits, hiding losses or debts to look financially strong.
Examples:
• Satyam: ₹7,000 crore worth of fake cash shown in accounts.
• Enron: Hid debts using fake companies, inflated profits.
• YES Bank: Kept giving loans to defaulters and showed them as "repaid."
Why it’s a problem?
Investors get misled. When truth comes out, stock crashes and public loses trust.
5. Over-Lending and Risky Loans
Giving too many loans to unstable companies without checking their creditworthiness.
Examples:
• YES Bank & IL&FS: Gave massive loans to loss-making companies without due
diligence.
• Lehman Brothers (USA): Gave loans to subprime borrowers (low-income people) that
they couldn’t repay.
Why it’s a problem?
Companies collapse under bad debt, and banks can’t recover money.
6. Promoter Dominance / CEO Autocracy
When one person or promoter has too much control, and no one questions them.
Examples:
• Satyam: Ramalinga Raju controlled everything without checks.
• Theranos: Elizabeth Holmes controlled board decisions and silenced whistleblowers.
• IL&FS: Ravi Parthasarathy ran IL&FS like his personal kingdom for over 20 years.
Why it’s a problem?
No checks = no governance. Employees and board fear questioning decisions.
7. Insider Trading and Personal Gains
When insiders use confidential company information to profit privately.
Examples:
• Executives sell shares before bad news goes public.
• Leaking information to friendly companies or family.
Why it’s a problem?
It’s illegal and hurts small investors who don’t know what’s happening behind the scenes.
8. Inadequate Whistleblower Protection
When companies ignore or punish people who raise red flags about wrongdoing.
Examples:
• In Theranos, whistleblowers were threatened legally.
• In many Indian scams, internal employees tried to report, but were ignored or
removed.
Why it’s a problem?
Honest people get silenced, and fraud continues unchecked.
Summary Table – Common Governance Problems
Problem Meaning Example
Conflict of Interest Personal gain from company decisions ICICI Bank
Weak Board Board doesn’t stop bad decisions Satyam, Theranos
Fake Finances Showing fake profits, hiding losses Satyam, Wirecard
Risky Loans Loans given to untrustworthy companies YES Bank, IL&FS
One person has too much unchecked
Promoter Control Satyam, IL&FS
power
Insider Trading Using secret info for personal profit Many global cases
Weak Audits Auditors fail to catch fraud Wirecard, Enron
No Whistleblower Theranos, Indian
Internal complaints ignored
Safety PSUs
🛠 Lessons Learned (Globally & in India)
1. Independent and active board members are crucial.
2. Auditors must be rotated and held accountable.
3. Disclosures and transparency are key for trust.
4. Whistleblowers should be protected and heard.
5. SEBI, RBI, and regulators must do real-time monitoring.
