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4. Satyam Scam
The Satyam Computer Services scandal is a corporate scandal that worked in India in 2009
where chairman Ramalinga Raju confessed that the company's accounts had been falsified.
The Global corporate community was shocked and scandalised when the chairman of
Satyam, Ramalinga Raju resigned on 7 January 2009 and confessed that he had manipulated
the accounts by US$1.47-Billion. In February 2009, CBI took over the investigation and filed
three charge sheets (on 7 April 2009, 24 November 2009 and 7 January 2010), which were
later clubbed into one. On 10 April 2015, Ramalinga Raju was convicted with 10 other
members.
Role of Auditors:
PricewaterhouseCoopers affiliates served as independent auditors of Satyam Computer
Services when the report of scandal in the account books of Satyam Computer Services
broke. The Indian arm of PwC was fined $6 million by the SEC (US Securities and Exchange
Commission) for not following the code of conduct and auditing standards in the
performance of its duties related to the auditing of the accounts of Satyam Computer
Services.
Aftermath:
Ramalinga Raju along with 2 other accused of the scandal, had been granted bail from
Supreme court on 4 November 2011 as the investigation agency CBI failed to file the
chargesheet even after more than 33 months Raju being arrested.
Raju had appointed a task force to address the Maytas situation in the last few days before
revealing the news of the accounting fraud. After the scandal broke, the then-board members
elected Ram Mynampati to be Satyam's interim CEO. Mynampati's statement on Satyam's
website said:
On 10 January 2009, the 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 Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI
issued show-cause notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts
fudging. "We have asked PwC to reply within 21 days," ICAI President Ved Jain said.
On 11 January 2009, the government nominated noted banker Deepak Parekh,
former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's
board.
The founder of Satyam was arrested two days after he admitted to falsifying the firm's
accounts. Ramalinga Raju is charged with several offences, including criminal conspiracy,
breach of trust, and forgery.
Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998,
compared to a high of 544 rupees in 2008. In New York Stock Exchange Satyam shares
peaked in 2008 at US$29.10; by March 2009 they were trading around US$1.80.
The Indian Government has stated that it may provide temporary direct or indirect liquidity
support to the company. However, whether employment will continue at pre-crisis levels,
particularly for new recruits, is questionable .
On 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 200
million (US$3 million) every month for paying these 13,000 non-existent employees.
The Indian government deginated A. S. Murthy became the new CEO of Satyam effective 5
February 2009. Special advisors were also appointed, Homi Khusrokhan of Tata
Chemicals and Chartered Accountant Partho Datta.
On 15 September 2014, the special CBI court hearing the case has asked the concerned
parties to appear before the court on 27 October. Date of judgement will be indicated later on
that day.
On 9 April 2015: Raju and nine others found guilty of collaborating to inflate the company's
revenue, falsifying accounts and income tax returns and fabricating invoices among other
things and sentenced seven years imprisonment by Hyderabad court. Raju and his brother
were also fined by the court 55 million rupees ($883,960) each.
2.2. In Companies Act, 1956, SEBI has been given power only to administer provisions
pertaining to issue and transfer of securities and non-payment of dividend.
2.3. Apart from the basic provisions of the Companies Act, every listed company needs to
comply with the provisions of the listing agreement as per Section 21 of Securities.
Contract Regulations Act, 1956. Non-compliance with the same, would lead to delisting
under Section 22A or monetary penalties under Section 23 E of the said Act.
2.4. Further, SEBI is empowered under Section 11 and Section 11A of SEBI Act to prescribe
conditions for listing. However, Section 32 of the SEBI Act, 1992 states that the provisions of
the SEBI Act, 1992 shall be in addition to, and not in derogation of, the provisions of any
other law for the time being in force.
5
2.5. Considering the emergence of code of best Corporate Governance practices all over the
world (like Cadbury Greenbury and Hampel Committee reports), in 1999, SEBI constituted a
Committee on Corporate Governance under the Chairmanship of Shri Kumar Mangalam
Birla, to promote and raise the standard of Corporate Governance in respect of listed
companies. SEBIs Board, in its meeting held on January 25, 2000, considered the
recommendations of the Committee and decided to make the amendments to the listing
agreement on February 21, 2000 for incorporating the recommendations of the committee by
inserting a new clause in the Equity Listing Agreement i.e. Clause 49
3. Clause 49:
3.1. Clause 49 of the Equity Listing Agreement consists of mandatory as well as
nonmandatory provisions. Those which are absolutely essential for corporate governance can
be defined with precision and which can be enforced without any legislative amendments are
classified as mandatory. Others, which are either desirable or which may require change of
laws are classified as non-mandatory. The non-mandatory requirements may be implemented
at the discretion of the company. However, the disclosures of the compliance with mandatory
requirements and adoption (and compliance) / non-adoption of the non-mandatory
requirements shall be made in the section on corporate governance of the Annual Report. Gist
of Cause 49 is as follows:
Mandatory provisions comprises of the following:
Composition of Board and its procedure - frequency of meeting, number of
independent
directors, code of conduct for Board of directors and senior
management;
Audit Committee, its composition, and role
Provision relating to Subsidiary Companies
Disclosure to Audit committee, Board and the Shareholders
CEO/CFO certification o Quarterly report on corporate governance
Annual compliance certificate
Non-mandatory provisions consist of the following:
Apart from Clause 49 of the Equity Listing Agreement, there are certain other clauses in the
listing agreement, which are protecting the minority share holders and ensuring proper
disclosures
Disclosure of Shareholding Pattern
Maintenance of minimum public shareholding (25%) o Disclosure and publication of
periodical results
Disclosure of Price Sensitive Information o Disclosure and open offer requirements
under SAST
Refrences:
http://www.slideshare.net
http://www/scribd.com
http://wikipedia.com
http://investopedia.com