SUMMARY

THE SATYAM SCAM

The Satyam Scam, also dubbed as Indias Enron, was one of

the biggest frauds in Indias corporate history. B. Ramalinga
Raju, founder and CEO of Satyam Computers, Indias fourthlargest IT services firm, announced on January 7 that his
company had been falsifying its accounts for years, overstating
revenues and inflating profits by $1 billion.
At nearly Rs. 8,000 crore, the Satyam scam was among the
biggest in corporate India and tarred the image of the snow
white IT industry. The perpetrator: the soft-spoken founder and
Chairman B. Ramalinga Raju, in January 2009, when confessed
to cooking the books of then India's fourth-largest software
services company, investors in Satyam shares lost a whopping
Rs13,600 crore within a month and the company faced an
avalanche of lawsuits. Clients dropped off and many in the Raju
clan were arrested, and the external auditors came under fire.

However, with parliamentary elections a few months away, the

Union government intervened, dismissing the company's board
and appointing a new one in its place. In the bidding process for
the company, the Mahindra group beat Larsen & Toubro to
acquire it, less than four months later in April 2009. The scandal
raised questions about the state of corporate governance and the
role of independent directors in India. Since then, Raju has been
in and out of custody, even as he continues to fight a protracted
legal battle. Satyam has been rebranded as Mahindra Satyam
and is attempting to regain its past glory.

INTRODUCTION
THE SATYAM SCAM
Satyam Computer Services Limited (now Mahindra Satyam)
was an Indian IT services company based in Hyderabad, India.
The company was listed on the Pink Sheets, the National Stock
Exchange and Bombay Stock Exchange. It offered a range of
services, including software development, system maintenance,
packaged software integration and engineering design services.
Byrraju Ramalinga Raju (or B. Ramalinga Raju), founded
Satyam Computer Services along with one of his brothers-inlaw, DVS Raju at P&T colony in Secunderabad and 20
employees in the year 1987. In 1991, Satyam won its first
fortune 500 client John Deere. Raju navigated Indian
bureaucracy to obtain the required clearance to transmit data
from India. Satyam became the pioneer of outsourcing from
India. The company went public in 1992. In 1999, Raju
launched Satyam Infoway (Sify) as Satyam's internet subsidiary,
thereby becoming an early participant in the Indian internet
service market.

In a 2000 SEC filing, Satyam Computer Services claimed to be

the fourth largest provider of information technology services in
India, based on the amount of export revenues generated. There
were 7,560 technical associates servicing over 300 customers.
The five largest customers, on the basis of revenue, were
General Electric Company and its affiliates, State Farm Mutual
Automotive Insurance Company, Megasoft Inc., Caterpillar Inc.
and NCR Corporation. They together accounted for 42.4% of its
IT services revenues. About 26.1% of its total IT services
revenues were generated from fixed-price contracts. Satyam also
claimed topline growth of 68% to $164 million at 45% gross
profit margin.
In a 2005 SEC filing, Satyam claimed topline growth of 40% to
$794 million at 36% gross profit margin. There were 20,690
technical associates. The five largest customers accounted for
29.5% of IT services revenues. About 34.2% of its total IT
services revenues were generated from fixed-price contracts.

THE ACCOUNTING SCANDAL

Raju resigned from the Satyam board after admitting to
falsfiying revenues, margins and over Rs 50 billion of cash
balances as the company. The Indian affiliate of
PricewaterhouseCoopers, the company's auditors, appears to
have certified the company had $1.1 Billion in cash when the
real number was $78 million.
Just a few months before the scandal broke out, Mr. Raju tried to
persuade investors by claiming that the company is sound and
that past October he surprised analysts with better-than-expected
results, claiming that "the company had achieved this in a
challenging global macroencomic environment, and amidst the
volatile currency scenario that became reality".
A botched acquisition attempt involving Maytas in December
2008 led to a plunge in the share price of Satyam. [10] In January
2009, Raju indicated that Satyam's accounts had been falsified
over a number of years.[10] He admitted to an accounting dupery
to the tune of 7000 crore rupees or 1.5 Billion US Dollars and
resigned from the Satyam board on 7 January 2009. Satyam was
purchased by Tech Mahindra in April 2009 and renamed
Mahindra Satyam.

In his letter, Raju explained his modus operandi to something

that started as a single lie but led to another as "What started as a
marginal gap between actual operating profit and the one
reflected in the books continued to grow over the years. It has
attained unmanageable proportions as the size of the companys
operations grew over the years." Raju described how an initial
cover-up for a poor quarterly performance escalated: "It was like
riding a tiger, not knowing how to get off without being eaten."
Raju and his brother, B Rama Raju, were then arrested by the
CID Andhra Pradesh police headed by Mr. V S K Kaumudi, IPS
on charges of breach of trust, conspiracy, cheating and
falsification of records. Raju may face life imprisonment if
convicted of misleading investors. Raju had also used dummy
accounts to trade in Satyam's shares, violating the insider trading
norm.
The Andhra Pradesh government attached 44 properties
belonging to the family members of the promoters of Satyam
Computers in the case against Raju.
It has now been alleged that these accounts may have been the
means of siphoning off the missing funds. Raju has admitted to
overstating the company's cash reserves by USD$ 1.5 billion.
Raju was hospitalized in September 2009 following a minor
heart attack and underwent angioplasty. Raju was granted bail
on condition that he should report to the local police station once
a day and that he shouldn't attempt to tamper with the current

evidence. This bail was revoked on 26 October 2010 by the

Supreme Court of India and he has been ordered to surrender by
8 November 2010.
Investigation by the authorities revealed that Raju led a lavish
lifestyle including 321 pairs of shoes, 310 belts, 13 cars
including Mercedes and BMWs. His house contained a
telescope worth 140,000. It was also claimed that he donated
huge quantities of gold to temples in Andhra Pradesh and
possessed villas and properties in 63 countries.

SCAM AFTERMATH
Ramalingam 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.
Chartered accountants regulator ICAI issued show-cause notice
to Satyam's auditor PricewaterhouseCoopers (PwC) on the
accounts fudging. The Crime Investigation Department (CID)
team picked up Vadlamani Srinivas, Satyam's then-CFO, for
questioning. He was arrested later and kept in judicial custody.
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. Analysts

in India have termed the Satyam scandal India's own Enron
scandal. Some social commentators see it more as a part of a
broader problem relating to India's caste-based, family-owned
corporate environment. 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. The New York Stock
Exchange has halted trading in Satyam stock as of 7 January
2009. India's National Stock Exchange has announced that it
will remove Satyam from its S&P CNX Nifty 50-share index on
12 January. 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.
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 14 January 2009, Price Waterhouse, the Indian division of
PricewaterhouseCoopers, announced that its reliance on
potentially false information provided by the management of
Satyam may have rendered its audit reports "inaccurate and
unreliable"

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 INR200 million
(US$3 million) every month for paying these 13,000 nonexistent employees.

NEW C.E.O. AND SPECIAL

ADVISORS

On 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.

FROM SATYAM TO
MAHINDRA SATYAM AND
MERGING WITH TECH
MAHINDRA
On 13 April 2009, via a formal public auction process, a 46%
stake in Satyam was purchased by Mahindra & Mahindra owned
company Tech Mahindra, as part of its diversification strategy.
Tech Mahindra bid for Satyam Computer Services, and emerged

as a top bidder with an offer of Rs 58.90 a share for a 46 per

cent stake in the company, beating a strong rival Larsen &
Toubro.
Tech Mahindra announced its merger with Mahindra Satyam on
March 21, 2012, after the board of two companies gave the
approval, to build a 2.5-billion $ IT Company in India. The
shareholders of both Tech Mahindra and Mahindra Satyam have
unanimously approved the scheme of amalgamation and merger
of Satyam Computer Services Ltd, Venturbay Consultants, C&S
System Technologies, CanvasM Technologies and Mahindra
Logisoft Business Solutions with Tech Mahindra. On June 25,
2013, Tech Mahindra announced completion of Mahindra
Satyam's merger with itself to create nation's fifth largest
software services company with a turnover of USD 2.7 billion.
A new organization chart of the company came into force led by
Anand Mahindra as Chairman, Vineet Nayyar as Vice Chairman
and C. P. Gurnani as the CEO and Managing Director.
Tech Mahindra got the approval from the registrar of companies
for the merger which therefore, suspended Mahindra Satyam
(Satyam Computer Services) from trading with effect from July
4, 2013. Tech Mahindra completed share swap and allocated its
shares to the shareholders of Satyam Computer Services on July
12, 2013. The stock exchanges have accorded their approval for
trading the new shares effective July 12, 2013.

CONCLUSION
Thus, from Enron, WorldCom and now Satyam, it appears that
corporate accounting fraud is a major problem that is increasing
both in its frequency and severity. Research evidence has shown
that growing number of frauds have undermined the integrity of
financial reports, contributed to substantial economic losses, and
eroded investors confidence regarding the usefulness and
reliability of financial statements. The increasing rate of whitecollar crimes demands stiff penalties, exemplary punishments,
and effective enforcement of law with the right spirit. An
attempt made to examine and analyze in-depth the Satyam

Computers creative-accounting scandal, brought to limelight

the importance of ethics and corporate governance (CG). The
fraud committed by the founders of Satyam in 2009, is a
testament to the fact the science of conduct is swayed in large
by human greed, ambition, and hunger for power, money, fame
and glory. Unlike Enron, which sank due toagencyproblem,
Satyam was brought to its knee due to tunneling effect. The
Satyam scandal highlights the importance of securities laws and
CG in emerging markets. Indeed, Satyam fraud spurred the
Government of India to tighten the CG norms to prevent
recurrence of similar frauds in future. Thus, major financial
reporting frauds need to be studied for lessons-learned and
strategies-to-follow to reduce the incidents of such frauds in
the future.

BIBLIOGRAPHY
1) Google - www.google.com
2) Wikipedia The Encyclopedia - en.wikipedia.org
3) Wharton University of Pennsylvania https://knowledge.wharton.upenn.edu
4) Scientific Research, Open Access http://www.scirp.org
5) Supply Business - http://www.supplybusiness.com
6) The Economic Times http://economictimes.indiatimes.com
7) India Wikia - http://india.wikia.com
8) Forbes - http://www.forbes.com/

9) Study Mode - http://www.studymode.com

10) Scribd - http://www.scribd.com

INDEX
No
.

Title

1.

Summary

2.

Introduction - THE SATYAM SCAM

3.

The Accounting Scandal

4.

Scam Aftermath

5.

New C.E.O. and Special Advisors

Pg.
No.
4

6.

From Satyam to Mahindra Satyam and

merging with Tech Mahindra

7.

Conclusion

8.

Bibliography

y.c.c.
A PROJECT REPORT ON
THE SATYAM SCAM
SUBMITTED BY:
AISHWARYA V. KATKAR
ROLL NO: BM105
IN PARTIAL FULFILLMENT OF
BACHELOR OF MANAGEMENT STUDIES
SEMESTER II
ACADEMIC YEAR 2013-2014

UNDER THE GUIDANCE OF

PROF. MRS.VRUSHALI SHINDE
SUBMITTED TO:
UNIVERSITY OF MUMBAI
YASHWANTRAO CHAVAN COLLEGE
OF ARTS, COMMERCE
AND SCIENCE
KOPERKHAIRANE.