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Satyam saga - revisited

posted 6 years ago

You might have read news regarding
PWC’s disqualification for 2 years from auditing.

Why did it happen?

8 years ago, almost to the date, I
received an email message – Satyam scandal with a copy of an email apparently
from Ramalinga Raju, Chairman of Satyam Computers to SEBI and stock exchanges.

Satyam used to be the bellwether for
corporate governance in India bagging highest awards at every event. It was the
fourth largest Indian company in the IT field, had around Rs. 40 billion cash
in its books and was looking to raise Rs. 150-200 billion from the market with
its astonishing and seemingly impeccable record.

The hallow had collapsed.

Mr. Raju confessed to masterminding a
Rs 70 billion scandal by falsifying the company’s accounts. He had been inflating
the cash and bank balances of the company for years. In his own words “I was
riding a tiger and did not know how to get off without being eaten”.

Mr. Raju also manipulated the books by
non-inclusion of certain receipts and payments, resulting in an overall
misstatement to the tune of Rs 123 billion over 5 years. Fake debtors to the
tune of Rs. 5 billion were created.

As a result, the company’s revenue got
over-stated by Rs 47 billion over this period.

Surprisingly, all this happened while
one of the Big 5 firm was handling the audit of Satyam for years and generating
millions of dollars. All the padding up and mischief continued to be undetected
until confessed by Mr. Raju himself.

The enormity of the manipulation
warranted a probe to continue for over 5 years.  

Ramalinga Raju was convicted with 10
others in 2015. The list included partners from PwC, namely, Subramani
Gopalakrishnan and T Srinivas.

SEBI passed an order yesterday finding
PWC guilty in the aforesaid Satyam scam and barred its network entities from
issuing audit certificates to any listed company in India for two years as well
as disgorgement of over Rs 130 million of wrongful gains from PWC and
its two ex-partners.

Satyam episode was an aberration to an
otherwise compliant and sane Indian corporate culture. It gave valuable lessons
to all quarters, hopefully to PWC as well.  

May there be honesty and diligence by
all at all levels!

 ***************

About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at [email protected].

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