SATYAM SCAM CASE STUDY FOR THE CLASS OF INDIAN FINANCIAL SYSTEM SUBMITTED TO SUBMITTED BYANITA SONI ARSH KOUL MANISH MEHRA
Introduction Byrraju Ramalinga Raju was born on September 16, 1954 in a family of farmers. He did his B. Com from Andhra Loyola College at Vijayawada and subsequently did his MBA from Ohio University, USA. Ramalinga Raju had a stint at Harvard too. He attended the Owner / President course at Harvard.
Family background He has two brothers and a sister. Raju is married to Nandini. They have two sons, Teja Raju and Rama Raju, Who runs the Hyderabad- based Maytas Properties and Maytas Infra And a daughter, Deepti, who is married.
After returning to India in 1977, Ramalinga Raju moved away from the traditional agriculture business and set up a spinning and weaving mill named Sri Satyam. Thereafter he shifted to the real estate business and started a construction company called Satyam Constructions.
In 1987, Ramalinga Raju founded Satyam Computer Services along with one of his brothers-in-law, DVS Raju. The company went public in 1992. With the launch of Satyam Infoway (Sify) Satyam became one of the first to enter Indian internet service market.
Ramalinga Raju have promoted and have been associated with Satyam for well over twenty years now He has seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has established an excellent leadership and competency base at all levels.
Satyam scamSatyam Computers had on December 16,2008, announced that it will acquire two group firms –1. Maytas properties2. Maytas InfraThe Board Of Directors of Satyam had approved the founder’s proposal to buy 51 per cent stake in Maytas Infrastructure and 100 % in Maytas Properties
The total outflow for both the acquisitions was expected to be US$ 1.6 bn comprising of US$ 1.3 bn for the 100% stake in Maytas Properties and US$ 0.3 bn for the 51% stake in Maytas Infra. This is the move that sparked a row over alleged violation of corporate governance laws. This deal is not profitable for investors .So after this announcement they started to raise their voices against the deal
Firms which he wanted to purchaseMaytas Infra The company is run by the sons of Ramalinga Raju It was started in the late 1980’s by Ramalinga Raju The main reason for the debacle of Maytas Infra is due to the debacle of SatyamMaytas Properties Ltd One of the reasons for the debacle of Maytas properties was the then ongoing economic slowdown The company has huge land banks and the prices have dropped down in the real estate significantly
The promoters decided to inflate the revenue and profit figures of Satyam. In the event, the company had a huge hole in its balance sheetSo to fill up this gap…….. Company announced Acquisition of 51% stake in Maytas Infra and 100% stake in Maytas Properties on 16th Dec 2008 but The deal was not profitable for investors Investors dumped Satyam’s stock and threatened action against the management.
Why was this action done This was mainly done to hide the irregularities in the accounts of Satyam. It is also said the close association with the political leaders is one of the reasons.
• Raising fictitious bills forservices that were neverrendered.• To increase the Cash &bank balancecorrespondingly.• Operating profits wereartificially boosted fromthe actual Rs 61 crore to 5064 crores
Its financial statements for years were totally false, cooked up Never had Rs 5064 crores (US$ 1.05 Billion) shown as cash for several years. Its liability was understated by $ 1.23 Billions The Debtors were overstated by 400 millions plus.
7 January 2009 Company Chairman Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyams accounts had been falsified
11 January 2009 Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer." said then Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued show-cause notice to Satyams auditor Price waterhouse Coopers (PwC) on the accounts fudging. "We have asked PwC to reply within 21 days," then ICAI President Ved Jain said.
11 January 2009 The government nominated noted banker Deepak Parekh, former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyams board. Merrill Lynch (Now with Bank of America) terminated its engagement with the company. The New York Stock Exchange had halted trading in Satyam stock as of 7 January 2009. Indias National Stock Exchange had announced that it will remove Satyam from its S&P CNX Nifty 50- share index on January 12. The founder of Satyam was arrested two days after he admitted to falsifying the firms accounts. Ramalinga Raju is charged with several offences, including criminal conspiracy, breach of trust, and forgery.
14 January 2009 Price Waterhouse, the Indian division of Price water house Coopers, announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable"
22 January 2009 CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing INR 20 crore rupees every month for paying these 13,000 non- existent employees
5 February 2009 The six-member board appointed by the Government of India named A. S. Murthy as the new CEO of the firm with immediate effect. Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company. The two-day-long board meeting also appointed Homi Khusrokhan (formerly with Tata Chemicals) and Partho Datta, a Chartered Accountant as special advisors
February 2009 Satyam announces Renewed customer confidence; Wins new business of over USD 250 Mn. in last seven weeks Company Law Board Authorizes Satyam to Induct Strategic Investor, Raise Authorized Equity Capital and Make Preferential Allotment of Equity Shares Order passed by the Hon’ble Company Law Board dated 19th of February Satyam Ranks Eighth in Training Top 125
March 2009 Satyam Wins Corporate University Xchange Awards Satyam submits letter to SEBI regarding bidding process Satyam to Implement SAP at Vijay Dairy & Farm Products (P) Ltd. Satyam Innovation Garners Progressive Manufacturing Award for Rain CII Carbon Satyam Announces Outcome of Board Meeting Satyam Wins Consumer Health World Award for Tele- Ophthalmology Program Satyam Announces Commencement of Process to Select an Investor Satyam receives SEBI approval on bidding process Satyam’s New CEO Assures Singapore “It’s Business As Usual”
April 2009 Satyam announces approval from the Federal Cartel Office of Germany and in-principle approval from BSE and NSE Satyam receives SEBI approval - Corrigendum SEBI Clarification dated April 21, 2009 SEBI Letter dated April 20, 2009 -Satyam receives SEBI approval Tech Mahindra issues Public Announcement of the Offer
Tech Mahindra and Satyam Discuss Transition Tech Mahindra receives Company Law Board approval Satyam files application to delist ADSs from Euronext Amsterdam Tech Mahindra selected as the Highest Bidder Satyam Completes Bidding Process Satyam Refines Bidding Process
May Appointment of Venturbay Nominees to the Board of Directors of Satyam Effective May 27, 2009 Satyam allots shares to Venturbay
June Tech Mahindra and Mahindra Satyam strengthen their boards with executive leadership appointments Satyam Unveils Its New Brand Identity – “Mahindra Satyam” Satyam receives accolades from American Society for Training & Development Satyam initiates Virtual Pool Program to manage surplus staff Satyam Appoints New Leadership in Australia and New Zealand
July Company Law Board Withdraws Four Government- Appointed Directors from Mahindra Satyam Board Satyam allots shares to Venturbay Mahindra Satyam signs a 5 year multi-million dollar SAP contract with GSK
Some good side of R.Raju Achievement: Founder and Chairman of Satyam Computer Services Ltd; Chosen as Ernst & Young Entrepreneur of the Year for Services in 1999 Ramalinga Raju is one of the pioneers of the Information Technology industry in India. He is the founder and Chairman of Satyam Computer Services Ltd.
Awards Dataquest IT Man of the Year in 2000, CNBCs Asian Business Leader Corporate Citizen of the Year award in 2002 and E&Y Entrepreneur of the Year Award in 2007.
Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues, which was stripped from them in the aftermath of the scandal.