“An Analysis of SATYAM Scandal in

Indian Corporate Sector”

A Project Report

B. Ramalinga RajuFounder & Chairman

Satyam Computers Ltd.

B. Rama Raju

Promoter & CEO,

Satyam Computer Ltd.

SHYAM LAL COLLEGE(E)

• Submitted by: Submitted to:• N.G.PRAVEEN Dr. R.K.MALIK• Roll No. 3653

B.Com (Hons) III Year

(Batch 2008-2011)

ACKNOWLEDGEMENT• I would like to convey my heart felt thanks to MY

PARENTS, who always gave their valuable suggestions and guidance for completion of my project. I would also

like to thank MY BROTHER, who always supported me during the course of completion of my project by making me understanding and remembering important details of my project that I would have otherwise lost. My project

has been a huge success only because of their support.

• NAME: N.G.PRAVEEN• ROLL NO: 3653

• Founded in 1987 by B.Ramalinga Raju.

• India’s 4th largest IT Software and Services Company.

• Satyam (NYSE: SAY) is a leading global business & IT services company .

• Satyam development and delivery centers in the US, Canada, Brazil, the UK, Hungary, Egypt, UAE, India, China, Malaysia, Singapore, and Australia.

• Satyam has strategic technology and marketing alliances with over 50 companies.

Introduction

• Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur , Delhi , Kolkata, Bhubaneswar, and Vishakhapatnam.

• Satyam BPO Limited (Satyam BPO), a majority-owned subsidiary of the Company, is engaged in providing business process outsourcing (BPO) services.

• Satyam operates in two segments: IT services and BPO services.

• On January 4, 2008, the Company acquired Nitor global Solutions Ltd. On April 4, 2008, it acquired Bridge Strategy Group LLC.

ACHIEVEMENT OF SATYAM COMPUTER:

• 1987: Established as corporate or private Limited

• 1991: Recognized as a Public Limited company

• 1993 :Awarded ISO 9001 Certification• 1999: Satyam launch 1st Internet service

(Sify Broadband)• 2002 : Satyam BPO launched in Singapore

• 2005: Largest global development center outside India

• 2006: Revenue exceeds US $ 1 billion.

• 2007: Becomes the first Asian company to feature in the Training Magazine’s list of Top 125 companies for learning.

• 2008: Won corporate governance (including GOLDEN PEACOCK global award twice)

Controversies Surrounding Satyam Ltd

• UPAID LAWSUIT• WORLD BANK BAN• MAYTAS ACQUISATION• ACCOUNTING SCANDAL OF 2009

UPAID CONTROVERSY:

• UK mobile payments company Upaid Systems filed a case of intellectual fraud and forgery against Satyam in 2007.

• On 9-December-2009 Satyam settled the lawsuit with UPAID for $70Mn, of which $45Mn was payable upon regulatory approval, and the remaining $25MM was payable a year after the initial payment

WORLD BANK BAN:

• The first crack in the company's reputation occurred during October, when the World Bank fired Satyam and issued an eight-year ban against the company.

• The World Bank accused Satyam of installing spy systems on its computers and stealing assets from the World Bank. In addition, during an October conference call reporting earnings, one stock analyst drew attention to large cash balances in non-interest bearing bank accounts.

Fraud is Uncovered:

• In December 2008, Satyam's Board of Directors unanimously approved the purchase of Maytas Properties and Maytas Infrastructure, two companies unrelated to the information technology field.

• The investors were outraged as Mr. Raju’s family was holding major share in both the companies than in Satyam.

• Shareholders viewed the transactions as an attempt to siphon money out of Satyam into the hands of the Raju family.

• Satyam's shares dropped nearly 10 percent and four of the five independent directors resigned. On December 30, analysts with Forrester Research advised clients to stop doing business with Satyam because of the fear of widespread fraud. Satyam hired Merrill Lynch to advise it on ways to increase shareholder value.

• By January 5, 2009, rumors circulated about several potential mergers between Satyam and competitors.

• On January 7, just hours before Mr. Raju

disclosed the fraud, Merrill Lynch sent a letter to the stock exchange indicating that it was withdrawing from its engagement with Satyam because during the course of its representation it learned of material accounting irregularities.

Satyam Scandal Finally Exposed

• Satyam fraud is the biggest fraud in the India’s Corporate history.

• The company management, primarily its disgraced Chairman B. Ramalinga Raju, kept everyone in darkness nearly for a decade.

The Scam & Raju’s Confession

• On 7 Jan 2009, previous Chairman B. Ramalinga Raju resigned after notifying Board Members & SEBI that Satyam Accounts were falsified.

• Raju confessed that Balance Sheet of 30 September 2008, contained:

cont….

`

1. Inflated figures of Cash & Bank balance of `5,040 crores as against `5,361 crores reflected in the books.

2. An accrued interest of `376 crores, which was non-exist.

3. An overstated Debtor’s position of `490 crores, as against `2651 crores in the book.

Raju’s confession statement…

NO ACCRUED INTEREST

CASH BALANCE WAS 320 CRORE,

INFLATED TO 5361.32 CRORES

ACTUAL DEBT WAS 2161 CRORE,

OVERSTATED BY 490 CRORES.

UNDERSTATED LIABILITY OF 1230 CRORES.

How the Fraud was Uncovered

• On January 7, 2009, Mr. Raju disclosed in a letter to Satyam's Board of Directors that he had been manipulating the company's accounting numbers for years. Mr. Raju said the manipulation started out small, and grew larger by the year. In the letter he stated, "It was like riding a tiger, not knowing how to get off without being eaten." Mr. Raju stated that eventually, the stress of hiding the fraud grew too much for him to bear

• "It was like riding a tiger, not knowing how to get off without being eaten." Mr. Raju stated that eventually, the stress of hiding the fraud grew too much for him to bear”

AFTERMATH

• The Indian stock market fell dramatically upon the disclosure of the Satyam scandal. Indian authorities quickly started an investigation and pursued criminal actions that ensnarled Satyam's executives, auditors, and Indian politicians. Satyam successfully emerged from the crisis through an asset sale during the spring of 2009. The authorities' swift actions also restored confidence in the Indian securities markets.

HOW DOES THE SCAM MATTER TO THE NATION ?

• JOB’S OF OVER 50,000 TECHNOCRATS WERE AT RISK

.• COUNTRY’S BOOMING ECONOMY FEARED

SLIGHT COLLAPSE AS COUNTRYS GDP FELL BY ESTIMATED 0.4%.

• INDIA’S IT SECTOR SUFFERED DOWNTURN AS IT’S IMAGE WAS TARNISHED GLOBAL.

• THE SATYAM FRAUD SCAM HAD RAISED CONCERNS ABOUT THE POTENTIAL DAMAGE TO INDIA’S APPEAL TO FOREIGN INVESTORS &THE IT SERVICES INDUSTRY IN PARTICULAR

Lessons learnt:

• As a consequence of this fiasco, the overseas client may take a hard look at most Indian outsourcing companies and investment flows could be hit.

• Their acts and conduct impact the reputation of India and, therefore, they must ensure that the highest standards of corporate governance are set.

THANKS!