7/24/2019 Satyam Case Updates

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Case 2.3: Satyam Computer Services Ltd.

Updates to the case:

Satyam fraud was biggest ever corporate accounting scandal the country had ever

seen. Financial fraud to the tune of !!! crore was committed and shoc"ingly the

company#s auditors$ %ricewaterhouseCoopers did not notice this. &n the aftermath of

the scandal both$ the role of independent directors in an organi'ation has been

(ercely )uestioned and their ability to "eep a chec" on the promoters# activities

have been debated along with the authenticity and accountability of an auditing

(rm in such scandals.

*laring loopholes in the regulatory and legal framewor" were brought to light

caused by the scale of the scandal and the auditing (rm#s neglect. Such loopholes

dealt with the directors and the auditors of companies. +ventually$ all of this led to

changes in the law.

,efore Satyam$ -he companies ct$ /01 neither contained any provisions for

independent directors nor any stringent obligations on auditors. &n the aftermath of

the scandal$ C&& set up a tas" force to identify the reforms needed and SSC45

established a corporate governance and ethics committee under arayana 5urthy.

-his report addressed reforms pertaining to audit committees$ shareholder rights

and whistleblower policy. &n 2!/!$ S+,& amended the Listing greement to include

the provision dealing with the appointment of a CF4.

-he 2!/3 Company Law incorporated such reform suggestions from the above

committees$ thereby clearly establishing the responsibility and accountability of the

independent directors and auditors. &t also provided for compulsory rotation of

auditors.

, 6amalinga 6a7u$ his two brothers and seven others have been sentenced to seven

years in prison for their role in the Satyam fraud case. lso a (ne of 1 crore is

imposed on 6amalinga 6a7u. &n a fresh order$ S+,& has as"ed /! entities lin"ed with

the case including 6amalinga 6a7u to return over /8!! crore worth of illegal gains.

9ust as the US needed +nron scandal to clean up its act$ perhaps &ndia needed the

Satyam scandal to bring about changes to its (nancial reporting system. &t will not

be farfetched to say the Satyam Scandal brought about better corporate

governance$ helped to plug the loopholes and bring about eciency and

accountability in the system.