"Addiction is the disease that makes you too selfish to see the havoc you created or care about the people whose lives you have shattered".
The quote goes very well with the Satyam Case as the addiction of buying properties was the root cause of beginning of India’s largest scams.
INTRODUCTION
Satyam Case is of the largest financial scams of India. In 1987, B. Ramalinga Raju along with his brother established a company named Satyam Computers. It is a Hyderabad based IT company. This company was listed in the Bombay Stock Exchange (BSE) in 1990-1991. And was listed in New York Stock Exchange in 2001.
Satyam computers were considered as the jewel of the IT industry and were also the fourth-largest company of India but in reality, this company was an outcome of a financial crime.
Satyam Computers demising before time leaves a lot of questions in the public mind. The most highlighted area in this scam was the role of Corporate Governance. Corporate Government helps in shaping a lot of protocols like working of auditing committees, duties of board members etc.
In January 2003, the share price of the company was Rs. 138.08 per share and in March 2008, Rs. 526.25 per share indicating 300% rise with a net worth of 2.1 billion. This is explained further in the article how such rapid increase took place.
THE SCAM
Satyam Computers was one of the fastest-growing companies of India but an ongoing boom in the Real Estate caught the eye of Ramalinga and he started to move in that sector. Real Estate rates were rising at a fast pace. In the result of which Ramalinga started investing in the Real Estate in different states as well.
In fact, Maytas Infrastructure and Maytas Properties were companies of Ramalinga. He also started purchasing properties in name of his relatives. The continuous addiction of buying property inspired Ramalinga and this is where the scam started.
To buy more properties Ramalinga needed more money, he then started manipulating the financial statements of Satyam Computers. Example: if the profit earned by the company was rupees 50 crores then Ramalinga was showing it as rupees 500 crores, he was misrepresenting its accounts in front of the board, investors, stockholders, stock exchange and other stakeholders.
This practice of misrepresenting the financial statements was misleading the market.
The company was lying about financial help to all the stakeholders. Raju showed his company’s revenues, operating profits, interest liabilities or cash balances in a completely inflated state, i.e. showed everything ten times more than it was in actual. By seeing the company’s fast pace growth, the share prices of the company started rising. After the rise in the share prices of the company Ramalinga and his brother started selling their shares as well and took a loan from the bank based on the rest of the shares in their possession and bought properties from the loan amount.
Not only this Ramalinga got too addicted to buying of properties that he even made his workers on the farm, the directors of few companies and started buying property on their name as well. This shows that Ramalinga was buying property aggressively by hook or by crook. Not only this but Ramalinga Raju also had a lot of internal information relating the metro route which was being made in Hyderabad and he very smartly invested inland along the metro route so that when the metro line is built there will be a rise in the price of the property situated along the metro line.
Some of the money earned through Real Estate was then invested in Satyam Computers and again the financial statements were highly manipulated by Ramalinga. To show Satyam’s rising sales he further started showing fake sale invoices, by showing this he showed that the sales are rising but what about the profits? The sale was rising but not the profits. To cover this he showed false bank reserves and further stated that cash reserves are kept in the bank which was not the truth in reality. By this, he attracted a lot of new investors which resulted in an increase in the share prices of Satyam Computers. Ramalinga bought property by selling the shares of his company. As the operations of Satyam started rising the gap between the original figures and fake figures widened which became a very huge amount. With the recession in 2008, there was a downfall in the Real Estate sector and the plan of selling the property at a much higher price than the purchasing price to cover the gap between company’s original figures and fake figures was held unsuccessful due to the recession. Ramalinga also planned to sell his other companies Maytas Infrastructure and Maytas Properties to Satyam Computers at rupees 7800 crores, this was the last resort for Ramalinga to fill in the gaps between the actual and fake figures of the company. But this plan was also a flop due to which there was a decrease in the price of share prices of Satyam.
PUNISHMENT
Ultimately in 2009, Ramalinga came forward and confessed that Satyam Computers were manipulating the financial statements for a long time. After this confession, the special court of CBI gave rigorous imprisonment of 7 years to Ramalinga Raju, his brother along with seven other people. In fact, there was a fine of rupees 5 crores that was imposed on Ramalinga Raju and his brother. Along with these two brothers all the other accused were also imposed with the fine of rupees 20-25 lacs.
World Bank also imposed a business ban of 8 years on Satyam Computers. After the scam, government and SEBI got very alert and due to this there was an obligation which was imposed on the companies that the auditors should be changed in every 10 years.
ANALYSIS
Satyam Computers achieved great name and success over a short period of time company had also created a name and goodwill for themselves until Ramalinga started misleading the financial statements of the company to increase the share prices to attract more shareholders and investors. Ramalinga Raju showed fake statements as follows:
· Actual Cash and Bank Balance: $1.04 Billion
Cash and Bank Balance in Books: $1.10 Billion
· Fake Interest and Fake Account: $ 77.46 Million
· Understated Liabilities: $ 253.38 Million
· Fake Revenue Shown: Rs. 2700 crore
Actual Revenue: Rs. 2112 crore
By doing this he was successful in achieving short term goals but the company's goodwill was badly tarnished and also there was a ban imposed on the business operations of the company by the world bank.
Corporate Governance was not practised and the company did not perform social corporate responsibility which lead to a decrease in share prices and even the directors resigned and severe legal actions were taken against the Company, Ramalinga Raju, his brother along with seven other accused.
Therefore, to run a successful business it is important to implement good corporate governance and oblige to the corporate social responsibility of the company to maintain a reliable image in the market.
By- Adv. Shreya Sharma
Kommentare