The mammoth fraud at IT major Satyam, involving over Rs 14,000 crore as per CBI, proved to be the most brazen swindling act, forcing the government to re-write corporate governance rules during 2009 and tighten the norms for chartered accountants. While the investigating agencies had a tough time going through voluminous documents to get to the extent of the scam and uncover the modus-operandi of the fraud, disclosed by the company’s founder and then chief B Ramalinga Raju himself in January, it could still take quite some time for the courts to punish the guilty.
In the rarest of rare occasions, the government was forced to take over management of a global player to safeguard the credibility of India Inc, besides protecting the interest of investors and salvaging the nation’s image across the globe.
Satyam fraud also hit two other companies – Maytas Infra and Maytas Properties – promoted and owned by kins of Raju. The government acted swiftly and moved the Company Law Board (CLB) to take charge of those companies as well, besides appointing its own nominees on the board of Satyam to salvage thecompany.
The disclosure of accounting fraud by Satyam founder Raju towards the beginning 2009, then estimated at around Rs 7,800 crore, not only unnerved India Inc but also the market regulator Securities and Exchange Board of India (SEBI).
SEBI chairman C B Bhave had admitted that he verified the explosive communication of Raju admitting accounting fraud before posting it on the official website.
Following open admission of guilt by Raju, the Corporate Affairs Ministry worked on three fronts – to save the IT company, bring the guilty to books and streamlining regulations to prevent recurrence of such frauds in future.
The firefighting started with government moving the CLB to supersede the board of Satyam and initiate probe into the scandal by different investigating agencies, including the country’s premier investigating agency Central Bureau of Investigation (CBI), and Serious Fraud Investigating Office (SFIO).
In its latest charge-sheet filed last month, the CBI pegged the size of the Satyam fraud at Rs 14,000 crore.
Simultaneously, the scam was also probed by the SEBI and Institute of Chartered Accountants of India (ICAI). These agencies looked into specific aspects of the fraud, especially the role of the company’s auditor Price Waterhouse.
To check recurrence of such wrongdoings in future, the Ministry put in place early warning system and initiated steps to modify the draft Companies Bill to give statutory teeth to its investigating arm SFIO.
The Companies Bill, reintroduced in Parliament in August, seeks, among other things, promotion of shareholders’ democracy with protection of rights of minority shareholders, responsible self-regulation with adequate disclosure and accountability and lesser government control over internal corporate processes.
It also proposes to make it mandatory for listed companies to have 33 per cent independent directors, while defining clearly their roles and responsibilities.
The government is also planning to bring out a voluntary corporate governance code based on the recommendations of industry chambers like CII and FICCI.
The recommendations of a CII task force headed by Naresh Chandra, includes recommendations on a variety of corporate governance issues like the roles and responsibilities of independent directors, auditors, regulatory agencies, besides institutional investors and the press.
The report has also suggested setting up of a recommendation committee for fixing the remuneration of the company board, separation of the office of Chairman and CEO, certificate of independence for independent directors, an institution of mechanism for whistle blowers and a cap at 10 per cent on the revenues coming from a single client to an audit firm.