SATYAM SCAM CASE STUDY

SUBMITTED TO

ANITA SONI

SUBMITTED BY

ARSH KOUL MANISH MEHRA

FOR THE CLASS OF INDIAN FINANCIAL SYSTEM

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 Scam

Satyam scam

Satyam Computers had on December 16,2008, announced that it will acquire two group firms –

1. Maytas properties

2. Maytas Infra

The 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

TWIST IN WHOLE SCAM

Firms which he wanted to purchase

Maytas InfraThe company is run by the sons of Ramalinga RajuIt was started in the late 1980’s by Ramalinga RajuThe main reason for the debacle of Maytas Infra is due to the

debacle of Satyam

Maytas Properties LtdOne of the reasons for the debacle of Maytas properties was

the then ongoing economic slowdownThe company has huge land banks and the prices have dropped

down in the real estate significantly

HOW DID HE FAIL

The promoters decided to inflate the revenue and profit figures of Satyam. In the event, the company had a huge hole in its balance sheet

So 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 for

services that were never

rendered.

• To increase the Cash &

bank balance

correspondingly.

• Operating profits were

artificially boosted from

the 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.

HOW DID THIS SCAM COME IN NOTICE

7 January 2009

Company Chairman Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyam's 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 Satyam's 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 Satyam's 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.

India's 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 firm's 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 AwardsSatyam submits letter to SEBI regarding bidding processSatyam to Implement SAP at Vijay Dairy & Farm Products (P)

Ltd.Satyam Innovation Garners Progressive Manufacturing Award

for Rain CII CarbonSatyam Announces Outcome of Board MeetingSatyam Wins Consumer Health World Award for Tele-

Ophthalmology ProgramSatyam Announces Commencement of Process to Select an

InvestorSatyam receives SEBI approval on bidding processSatyam’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,

CNBC's 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.

Who controls Satyam now

Now Satyam is running with the help of following people

Mr Anand MahindraChairman

Mr Rakesh SoniCOO

C P GurmaniManaging Director