Question

Which professinal ethics breached in case of styam case?

Answer 1

Satyam Case and Ethics

Introduction

Mr. Ramalinga Raju , the chairman of Satyam Computers, wrote a letter on 7th January 2009 to the Board members of Satyam Computers and to the SEBI(Securities and Exchange Board of India) in which he confessed falsifying the accounts of the company.

He confessed that the balance sheet of the company dated 30th September 2008 carries:

1. Nonexistent bank balances and cash of Rs. 5040 crores (as against Rs. 5361 crores reflected in the books)

2. An accrued interest of Rs. 376 crores which is nonexistent

3. An understated liability of Rs.1,230 crores on account of funds was arranged by me

4. An overstated debtors position of Rs.490 crores (as against Rs.2,651 crores in the books)

He also stated that neither he nor the Managing Director or their spouses benefitted financially from these inflated results. He also confessed to the fact that none of the board members knew of the inflated figures and that there was no underlying assets to back the figures in the books.

According to him

"What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualised revenue run rate of Rs11,276 crore in the September quarter of 2008 and official reserves of Rs8,392 crore). As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. It was like riding a tiger, not knowing how to get off without being eaten...."

Byrraju Ramalinga Raju

Ramalinga Raju was born in a traditional agricultural family in the village of Garagaparru, Andhra Pradesh. He studied from Andhra Loyola College and did his MBA from Ohio University, USA. He started a host of companies ranging from a construction company to a spinning and weaving mill to the crown of his jewels, Satyam Computer Services.

He has won accolades for his contribution to the field of business most notably among them being:

* Ernst & Young Entrepreneur of the Year Services Award 1999

* Dataquest IT Man of the Year Award 2000

* Asia Business Leader Award 2002

Apart from them he also received the following awards which were then revoked on account of his disclosure of the scam:

* Ernst & Young Entrepreneur of the Year 2007

* Golden Peacock Award for Corporate Governance 2008 (For Satyam Computers)

The Satyam Scandal

Satyam proposed a deal to buy out Maytas Properties for $1.3bn and 51% stake in Maytas Infra for $300mn. Satyam had $1.1bn cash which would all be consumed by this deal. But the deal was not this simple, Raju and his family held a 35% stake in Maytas properties and 36% in Maytas Infra. This deal would not only use all the cash Satyam had but would leave it in a debt of $400mn.

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