THE SATYAM SCAM
Presented by,
Ankit Jain - 10DM-016
Ankit Rungta - 10FN-016
Akhil T N - 10HR-003
Anurag Wate - 10HR-008
Anish Goenka - 10IB-011
COMPANY BACKGROUND
Set up in the year 1987 to provide services in IT sector
India’s 4th biggest software company in India
It is listed in BSE, NSE, NYSE and Euronext (Amsterdam).
BSE IPO oversubscribed 17 times when made public in 1991
The company employs 53,000 IT professionals across development
centers in 6 continents
AWARDS & ACHIEVEMENTS
First IT Company in the World Certified under ISO9001:2000
Ranked Among India’s Top 10 Best Employers, 2004 and 2003
Top 13 Best-Managed Companies in India
Winner, Corporate Citizen I award for Corporate Social
Responsibility
SAP Pinnacle Award 2008
Satyam Wins golden peacock award for excellence in Corporate
Governance on Global level for 2nd time
United Kingdom Trade and Investment India Business Award
for Corporate Social Responsibility
HOW DID IT HAPPEN?
Ramalinga Raju, the chairman of Satyam Computer Services , sent a
startling letter to his board and the Securities & Exchange Board of
India (SEBI). Raju acknowledged :-
His culpability in hiding news that he had inflated the amount of cash
on the balance sheet of India's fourth-largest IT company by nearly $1
billion;
Incurring a liability of $253 million on funds arranged by him
personally.
Overstating Satyam's September 2008 quarterly revenues by 76% and
profits by 97%.
7 TH
JANUARY
09:45 A.M. Satyam BSE scrip falls 78% Hunt for Raju brothers begin.
Satyam Chairman Ramalinga
Amid speculation over his
Raju writes the confession
whereabouts, Raju is
letter to the company board
believed to have left for the
DSP snaps ties with satyam.
United States in connection
with a court case.
Ram Mynampati takes over
as interim CEO according to
Raju’s letter
Satyam stripped of Golden
Peacock award
Auditing firm PWC under
scanner
NSE removes Satyam from its benchmark index Nifty. It was
replaced by Reliance Capital with effect from January 12. It
Govt. instructs RoC to was also be removed from various other indices like CNX
review report 100, S&P CNX 500,CNX IT and the CNX Services sector
index
CONFESSION LETTER
The brief description:
Inflated non-existent cash – Rs. 5040 crore
Accrued interest – Rs. 376 crore
Understand liability- Rs. 1230 crore
Over stated debtors position - Rs. 490 crore
Operative margin 24% as against actual of 3%
Every attempt made to eliminate the gap failed. It was like riding a Tiger, not
knowing how to get off without being eaten
Aborted MAYTAS acquisition deal was the last attempt to fill the fictitious
assets with real ones
Neither he nor the MD took any money from the company
Board of Directors were not aware of the fraud
BACKGROUND OF THE FRAUD CASE
o Maytas Infra Ltd., Company owned by Two sons of Raju were investing in the
real estate business and recently their real estate business was not in good shape.
o Raju started using the manpower and other resources for the Satyam Company for
the welfare of his sons’ real estate business.
o With Satyam's management focused elsewhere, business suffered. Clients
complained about lack of attention, and many professional managers began to
leave.
o Ramalinga Raju on Dec. 16 proposed that Satyam would buy a 31 percent stake in
Maytas Infra from his family, and an additional 20 percent from minority
shareholders, as well as all of Maytas Properties, for $1.6 billion
BACKGROUND OF THE FRAUD CASE
o Satyam ADR’s lost 50% of their value over night.
o Raju was forced to reverse his decision under the shareholder’s pressure.
o But what was widely seen as a move by Raju to bail out his sons was actually aimed at
covering Satyam's tracks through fictitious cash transfers.
o December also brought news of pending litigation by a former client, online mobile-
payments service Upaid Systems ,which filed a case of intellectual fraud and forgery
against Satyam in 2007; a Texas court is scheduled to conduct a hearing on the case Jan.
7.
ABOUT THE CASE
The case was initially registered by CB-CID, Andhra Pradesh on January
9, 2009 on a complaint received from Smt. Leela Mangat, a retd.
employee of Syndicate Bank stating that she had invested her retirement
benefits for purchase of the shares of the company on seeing the
performance of the company. She purchased 100 shares for a sum of Rs.
19000. She filed the complaint after the confessional letter of the chairman
made public
The case was handed over to CBI on February 16, 2009 by Government of
India under section 5 of DSPE Act and notification under 6 of DSPE Act
by the Government of Andhra Pradesh. ACB Hyderabad re-registered the
case and investigation was started
CHARGESHEET
PURCHASE OF LAND BY
COMPANY AND PROMOTERS
6000 acres of land purchased by 327 front companies
Promoters also purchased land and flats
Proceed of sale of shares and receipt of the dividends were used for
purchase of the land
Lands were purchased in the names of the close relatives also
Majority of land was agricultural land
Land purchased were spread over Andhra Pradesh, Tamil Nadu, Bangalore
and Nagpur
LOAN TAKEN FROM VARIOUS
BANKS
The company had availed short term loans and advances from Banks
and Institutions during the period between 2000 and 2008 on the basis
of false and fabricated board resolutions and majority of the loans
were not shown in the books.
The company had paid interest of 37.62 crore and availed 1493.84
crore loan from banks without accounted in the books.
Figures Speak It All
ACTUAL DEBT
WAS 2161.
OVERSTATED
490 CRORES.
ACTUAL CASH
IN BANK WAS
321 CRORES,
NO ACCRUED INFLATED
INTEREST 5040 CR.
376.34 CR.
Figures Speak It All
UNDERSTATED
LIABILITY 1230
Cr. Which was
ARRANGED BY
MR.RAJU
5,040 + 376
Rs. 1,230 Cr
Rs. 7,136
+ 490 (Rs.
Cr)
Cr
CORPORATE GOVERNANCE
All the directors were sponsored by B. Ramalinga Raju
The Audit Committee members were not serious in analyzing
the financial position of the company
The directors failed to perform their duties
The Directors got a handsome remuneration, stock options at
Rs. 2 against the market price of Rs. 500. The directors acted
as a rubber stamp and not even in a single dissent note was
recorded
CORPORATE GOVERNANCE
Meetings were conducted in perfunctory
manner
In the meetings the promoters were always
present to influence the decision
There were no open discussions
FICTITIOUS SALES
Period from 01.04.2003 to 31.12.2008, 7561 invoices
were found to be fake.
The value of the false invoices was Rs. 5118 crore
The fictitious invoices were not visible to all
MAYTAS ACQUISITION
• Valuation of Maytas duo was done at $1.6 bn as against actual
$ 225 mn
• Violation of Section 372A of the Companies act
• Deals with inter-corporate Loan, Investment, Guarantee and
Securities in connection with loan
The provisions under The Companies Act, 1956 that
Satyam bypassed
Section 293 (1)(c) imposes restrictions on the powers of the Board of
Directors of a public company or a private company which is a
subsidiary of a public company, and states that the directors shall
not, except with the consent of the company, in a general meeting,
of which they are directors, invest, other than in trust securities, in
any undertaking which it owns or substantially owns. The Chairman
of Satyam had the motive of purchasing Maytas, which is in
contravention of the statutory requirement.
The provisions under The Companies
Act, 1956 that Satyam bypassed
Section 297 of the Act states that the consent of the Board of Directors of a
company shall be required for underwriting the subscription of any shares
or debentures of a company, if the following persons are a party to the
contract:
(a) Director of the company or his relative,
(b) A firm in which such a director or the relative is a partner,
(c) Any other partner in such a firm as mentioned in (b)or,
(d) A private company in which the director is a member or director.
Ramalinga Raju contravened this provision of the Act as the company which
he wanted to buy was one which was controlled by his relatives and he did
not take the consent of the Board to buy the company.
The provisions under The Companies Act, 1956 that
Satyam bypassed
Section 299(1) the Act states that every director of a company who is in any way
interested in any contract or arrangement entered into by the company will
have to disclose his interest or concern at a meeting of the Board of Directors.
In the present case, Ramalinga Raju, who had an interest in Maytas, did not
disclose his interest in a meeting of the Directors. The only motive was to hush
up the deal so that the mistakes made could be covered up. Hence, the
mandatory provision of Section 299 was violated.
Section 372A (1)(c) prohibits a company from directly or indirectly acquiring
securities of a body corporate by way of subscription, purchase or otherwise.
There are, however, some exceptions provided in the provision which are in
the nature of exigencies. In the case of Central Government v. Pentamedia
Graphics Limited3, a company had violated the provisions of Section 372A.
The CLB accordingly allowed Central Government to nominate their directors
on the company's board so that they could take some corrective measures.
CHARGES UNDER IPC
Section 120-B
Criminal conspiracy to commit an offence
(1) Whoever is a party to a criminal conspiracy to commit an
offence punishable with death, 2[imprisonment for life] or
rigorous imprisonment for a term of two years or upwards
shall, where no express provision is made in this Code fro the
punishment of such a conspiracy, be punished in the same
abetted such offence.
(2) Whoever is a party to a criminal conspiracy other than a
criminal conspiracy to commit an offence punishable as
aforesaid shall be punished with imprisonment of either
description for a term not exceeding six months, or with fine
or with both.]
Section 409
Criminal breach of trust by public servant, or banker,
merchant or agent
Whoever, being in any manner entrusted with property, or
with any dominion over property in his capacity of a public
servant or in the way of his business as a banker, merchant,
factor, broker, attorney or agent, commits breach of trust in
respect of that property, shall be punished with
1[imprisonment for life], or with imprisonment of either
description for a term which may extend to ten years, and
shall also be liable to fine.
Section 420
Cheating
Whoever cheats and thereby dishonestly induces the person
deceived any property to any person, or to make, alter or
destroy the whole or any part of a valuable security, or
anything which is signed or sealed, and which is capable of
being converted into a valuable security, shall be punished
with imprisonment of either description for a term which may
extend to seven years, and shall also be liable to fine.
Section 467
Forgery of a valuable security
Whoever forges a document which purports to be a valuable
security or a will, or an authority to adopt a son, or which
purports to give authority to any person to make or transfer
any valuable security, or to receive the principal, interest or
dividends thereon, or to receive or deliver any money,
moveable property, or valuable security, or any document
purporting to be an acquittance or receipt acknowledging the
payment of money, or an acquittance or receipt for the
delivery of any moveable property or valuable security, shall
be punished with 1[imprisonment for life], or with
imprisonment of either description for a term which may
extend to ten years, and shall also be liable to fine.
Section 468
Forgery for the purpose of cheating
Whoever commits forgery, intending that the 1[document or
Electronic Record forged] shall be used for the purpose of
cheating, shall be punished with imprisonment of either
description for a term which may extend to seven years, and
shall also be liable to fine.
Section 471
Using as genuine a forged documents which is known
to be forged
Whoever fraudulently or dishonestly uses as genuine any
1[document or electronic record] which he knows or has
reason to believe to be a forged 1[document or electronic
record], shall be punished in the same manner as if he had
forged such 2[document or electronic record].
Section 477 A
Falsification of accounts
Whoever, being a clerk, officer or servant, or employed or
acting in the capacity of a clerk, officer or servant, wilfully,
and with intent to defraud, destroys, alters, mutilates or
falsifies any 2[book, electronic record, paper, writing],
valuable security or account which belongs to or is in the
possession of his employer, or has been received by him for or
on behalf of his employer, or wilfully, and with intent to
defraud, makes or abets the making of any false entry in, or
omits or alters or abets the omission or alteration of any
material particular of any material particular form or in, any
such 2[book, electronic record, paper, writing], valuable
security or account, shall be punished with imprisonment of
either description for a term which may extend to seven years,
or with fine, or with both.
Thank You
