THE DEVELOPMENT OF INDIAN CORPORATE LAW VIS A VIS INDEPENDENT DIRECTORS POST THE REVELATION OF THE SATYAM SCANDAL

Abstract

One of the largest financial frauds ever to be committed in India was the Satyam scam. When it was unveiled, Satyam Computers Services Limited was the 4th largest company in India. This scam was committed through a combination of misrepresentation of company data, manipulation of assets and liabilities as well as the forging of bills to back such false data. The perpetrator of this scam was Mr. Ramalinga Raju, also the managing director of Satyam Computer Services Ltd. He was involved in manipulating the accounts of the company by underreporting liabilities and making up total assets for around 7-8 years before this came to light. The scam initially started with minor misrepresentations made up by the managing director and it gradually developed into a multi-billion-dollar scam. After recognizing that this scandal was becoming too large to manage, Mr. Raju decided that the only option he had to prevent himself from being caught red handed was to reduce the amount of revenues in the books and to increase the actual number of assets to a figure closer to what was depicted in the books of Satyam Computer Services Ltd. In order to do this, he made a final attempt to make Satyam buy two companies involved in business of infrastructure development as well as construction works (Maytas Properties and Maytas Infra) and make them subsidiaries of his Company. This was to be made possible because Mr. Raju along with some of this family members had a majority stake in these companies and Mr. Raju planned to buy them through the revenue cash balance in the books which in reality did not exist and depict the assets of these two new subsidiaries on the books of Satyam Computer Services Ltd to narrow the deficit between the fabricated numbers and the real numbers. This acquisition could not materialize because the shareholders sensed something fishy as these two companies had no business relating to the Information Technology sector and the top brass of Satyam clearly had an indirect interest in this acquisition.