This article has been written by Oishika Banerji of Amity Law School, Kolkata. This article provides a detailed case study of the Satyam fraud case. 

This article has been published by Sneha Mahawar.


Satyam Computers was once the crown jewel of the Indian Information Technology sector (IT sector), but it was brought to its knees in 2009 by its founders due to financial fraud. Satyam’s unexpected collapse sparked a debate over the Chief Executive Officer’s (CEO) role in propelling a firm to new heights of success, as well as the CEO’s relationship with the Board of Directors and the formation of key committees. The scandal brought to light the importance of corporate governance (CG) in designing audit committee standards and board member responsibilities. The Satyam scandal was a shock to the market, particularly to Satyam investors, and it was also responsible for harming India’s reputation in the global market. 

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Satyam fraud case

Satyam Computer Services Limited, a worldwide IT firm situated in India, has just been added to a renowned list of firms engaged in fraudulent financial operations. Mr. Ramalingam Raju, Satyam’s CEO, accepted responsibility for all of the accounting irregularities that exaggerated the company’s sales and earnings, as well as a cash position of about $1.04 billion that did not exist. In 2007 and 2009, Satyam received the Golden Peacock Award for the best-governed corporation in September 2008. Satyam Computers, formerly India’s IT crown jewel and the country’s fourth-largest company with high-profile customers, has now gotten engaged in the country’s greatest corporate scandal in living memory. Mr. Ramalinga Raju, who was apprehended and confessed to a $1.47 billion (Rs. 7,800 crores) scam, revealed that he had been making up earnings for years. It was alleged that Raju and his brother, Mr. B. Rama Raju, the Managing Director, disguised the lie from the company’s board, top management, and auditors. 

Background story of the Satyam fraud case

In the Indian outsourced IT-services market, Satyam Computer Services Limited was a rising star. Mr. Ramalinga Raju established the firm in Hyderabad in 1987. The company began with 20 workers and quickly expanded to become a worldwide company with operations in 65 countries across the world. Satyam was the first Indian business to be listed on three global stock exchanges, namely New York Stock Exchange (NYSE), DOW Jones, and EURONEXT.

After TCS, Infosys, and Wipro, it was recognized as India’s fourth-largest software exporter. The corporation had significant expansion in the 1990s. Satyam Renaissance, Satyam Info way, Satyam Spark Solutions, and Satyam Enterprise Solutions were formed as a result of the same. Satyam Info Way (Sify) was the first Indian internet business to be listed on the NASDAQ. In the new century, Satyam acquired a number of firms, extended its operations to a number of countries, and signed MoUs with a number of international corporations. 

Satyam continued to add feathers to its cap by becoming the first company in the world to start a Customer-Oriented Global Organisation training program in May 2000, signing contracts with a slew of international players including Microsoft, Emirates, TRW, i2 Technologies, and Ford, claiming the honour of being the first ISO 9001:2001 company in the world certified by BVQI, and establishing a global presence by opening offices in Singapore, Duba, and Dubai. 

In the fiscal year 2003-2004, Satyam’s total revenues were Rs. 25,415.4 million. By March 2008, the company’s sales revenue had increased by more than thrice. During that time, the firm grew at a compound annual growth rate of 38 percent. The average operational profit, net profit, and operating cash flows were 28, 33, and 35 percent, respectively. Additionally, profits per share (EPS) surged at a 40 percent compound annual growth rate, from $0.12 to $0.62. Satyam clearly generated significant corporate growth and shareholder value. In a worldwide IT business, the company was a rising star and a household brand. Unfortunately, Satyam became the focus of a large accounting scam within less than five months after earning the Global Peacock Award.

Timeline of events that contributed to the Satyam fraud case

  1. June 24, 1987: Satyam Computers was launched in Hyderabad.
  2. 1991: Debuts in Bombay Stock Exchange with an IPO oversubscribed 17 times.
  3. 2001: Gets listed on NYSE: Revenue crosses $1 billion.
  4. 2008: Revenue crosses $2 billion.
  5. December 16, 2008: Satyam Computers had announced the acquisition of a 100 percent share in Maytas Properties and Maytas Infra, two firms owned by Chairman Ramalinga Raju’s sons. The proposed $1.6 billion purchase was called off seven hours later owing to investor opposition to the buyout. However, Satyam’s stock dropped 55% in trade on the New York Stock Exchange.
  6. December 23, 2008: Satyam had been barred from conducting business with the World Bank’s direct contracts for an eight-year term, one of the harshest penalties imposed by a customer against an Indian outsourcing company. Satyam was found ineligible for contracts, according to the bank, since it provided illegal incentives to bank employees and failed to maintain documentation to justify costs charged to its subcontractors.
  7. December 25, 2008: Satyam had demanded an apology and a complete explanation from the World Bank for the assertions, which the outsourcer claims have harmed investor trust. Satyam did not challenge why the business was prohibited from contracts, nor did it seek for the prohibition to be lifted. Instead, it objected to the assertions made by bank personnel. It also ignores the accusations that the World Bank said rendered Satyam unsuitable for future contracts.
  8. December 26, 2008: Following the World Bank’s scathing pronouncements, Mangalam Srinivasan, an independent director of Satyam, resigned.
  9. December 28, 2008: Three additional directors had resigned. Satyam had moved its board meeting from December 29 to January 10, when it was likely to announce a management restructuring. The action was intended to give the company more time to consider options other than a prospective share purchase. Satyam had also hired Merrill Lynch to evaluate strategic options for increasing shareholder value.
  10. January 2, 2009: The promoters’ stake decreased from 8.64 percent to 5.13 percent when institutions that had pledged the shares ditched them.
  11. January 6, 2009: Promoters’ stake fell to 3.6%.
  12. January 7, 2009: Ramalinga Raju resigned after confessing to inflating the company’s financial statistics. He claimed that the company’s cash and bank accounts on the balance sheet were overstated and fudged to the tune of INR 50,400 million. Other Indian outsourcers were scrambling to prove their worth to clients and investors. The National Association of Software and Service Companies, an industry association in India, had jumped to defend the Indian IT sector as a whole.
  13. January 8, 2009: Satyam was attempting to reassure customers and investors that it could keep the firm viable following the admission by its former CEO of India’s largest-ever financial fraud. However, law firms Izard Nobel and Vianale & Vianale filed class-action lawsuits on behalf of US shareholders, marking the first legal action against Satyam management following the scam.
  14. January 11, 2009: The Indian government intervened in the Satyam outsourcing issue, appointing three persons to a newly formed Board of Directors in an attempt to save the company. Deepak S Parekh, Executive Chairman of Housing Development Finance Corporation (HDFC), C. Achuthan, Director of the National Stock Exchange and previous member of the Securities and Exchange Board of India, and Kiran Karnik, former President of NASSCOM, formed the new board.
  15. January 12, 2009: Satyam’s new Board of Directors conducted a news conference, revealing that the business was searching for methods to obtain capital and stay afloat throughout the crisis. One way to earn funds might be to ask many of its Triple A-rated consumers to pay for services in advance.

What led to the fraud in Satyam

  1. Satyam’s problems began when its chairman, Mr. Ramalinga Raju, announced a $1.6 billion offer for two Maytas firms, namely, Maytas Infrastructure Ltd and Maytas Properties Ltd, on December 16th, 2008, indicating that he wished to use the capital available for the benefit of investors. Raju’s family has promoted and controlled the two businesses. Investors and the market both gave him the thumbs down, forcing him to withdraw within 12 hours. Concerns regarding Satyam’s corporate governance caused a 55 percent drop in share values of the company. Satyam was forbidden from doing business with the World Bank for eight years on December 23, 2008, after the international institute charged it with data theft and corrupting its employees. 
  2. On December 28, 2008, one independent director of the company, US academician Mangalam Srinivasan, announced his resignation, followed by three more independent directors, Vinod K Dham (famously known as the father of the Pentium and an ex-Intel employee), M Rammohan Rao (Dean of the prestigious Indian School of Business), and Krishna Palepu (professor at Harvard Business School).
  3. B. Ramalinga Raju resigned as chairman of Satyam on January 7, 2009, after admitting to a financial scam involving over Rs. 7800 crore. In his letter, he indicated that his purchase of Maytas firms was his final attempt to replace fictional assets with genuine ones. It was like riding a tiger and not knowing how to get off without getting devoured, he said in his letter. Satyam’s proprietors, B Ramalinga Raju and his brother B Rama Raju, were detained by state police in Andhra Pradesh, and the firm was taken over by the Central Government.
  4. Under the Indian Penal Code, 1860, the Raju brothers were charged with criminal breach of trust, cheating, criminal conspiracy, and forgery. Satyam’s board was reformed by the Central Government, and three members were appointed, namely, the HDFC Chairman Deepak Parekh, Ex Nasscom Chairman and IT specialist Kiran Karnik, and former SEBI member C Achuthan.
  5. CII chief mentor Tarun Das, former president of the Institute for Chartered Accountants (ICAI) TN Manoharan, and LIC’s S Balakrishnan were all named to the reconstituted Board by the Central Government. Satyam’s auditors PricewaterhouseCoopers (PwC) ultimately stated that their audit report was incorrect because it was based on incorrect financial statements submitted by Satyam’s management, a week after Satyam founder B Ramalinga Raju’s sensational confession.
  6. Satyam’s CFO Srinivas Vadlamani confessed to having inflated the number of employees by 10,000 on January 22, 2009. He informed CID investigators that this enabled him to withdraw roughly Rs 20 crore per month from the related but fictitious salary accounts.
  7. Andhra Pradesh State CB-CID had raided the house of Suryanarayana Raju, Ramalinga Raju’s younger brother who owned 4.3 percent of Maytas Infra. 112 sale deeds of different land purchases and development agreements were recovered from the house. PricewaterhouseCoopers (PwC) senior partners S Gopalakrishnan and Srinivas Talluri were detained for their suspected participation in the Satyam scam. They were arrested by the state’s CID police on allegations of fraud (Section 420) and criminal conspiracy (Section 120B).

Parties who were responsible in the Satyam fraud case

Mr. Raju was the prime perpetrator of the deception. Mr. Raju, as well as secondary actors such as the CFO, the managing director, the company’s worldwide head of internal audit, and Mr. Raju’s brother, have been charged with the offence of fraud by Indian authorities. In addition, Satyam’s auditors and Board of Directors share some blame for the scam because they failed to locate it. Finally, the Satyam crisis was exacerbated by the ownership structure of Indian corporations.

Ssignificant role played by Mr. Raju in the Satyam fraud case

  1. Mr. Raju had alleged that he overvalued Satyam’s assets by $1.47 billion on the balance sheet. The corporation claimed to hold about $1.04 billion in bank loans and cash, but none of it existed. Satyam’s obligations were similarly understated on its balance sheet. 
  2. Over the course of several years, Satyam inflated income virtually every quarter in order to match analyst expectations. To further the deception, Mr. Raju faked many bank statements. 
  3. Mr. Raju fabricated bank accounts in order to inflate the balance sheet with fictitious funds. By claiming interest revenue from the fictitious bank accounts, he inflated his income statement.
  4. Mr. Raju further said that during the last three years (2006-2008), he created 6,000 false pay accounts and took the money when the corporation deposited it. To exaggerate revenue, the company’s worldwide head of internal audit established fake customer identities and made fraudulent invoices in their names. 
  5. In addition, the company’s worldwide head of internal audit faked board decisions and received financing unlawfully. It had also appeared that the funds obtained in the United States through American Depository Receipts (‘ADRs’) never made it to the company’s balance sheets.
  6. Mr. Raju initially claimed that he did not divert any funds to his personal accounts and that the company was not as profitable as it had claimed. However, during subsequent interrogations, Mr. Raju revealed that he had diverted a large sum of money to other companies that he owned and that he had been doing so since 2004. 
  7. Mr. Raju first claimed that he was the sole perpetrator of the scam. However, Indian authorities have also prosecuted Mr. Raju’s brother, the company’s CFO, the company’s worldwide head of internal audit, and one of the company’s managing directors, as previously mentioned.

The silent role played by Satyam’s auditors 

  1. PriceWaterhouseCoopers (PwC), a global auditing company, audited Satyam’s records from June 2000 until the fraud was discovered. PwC was heavily chastised by several commentators for failing to spot the scam. PwC signed Satyam’s financial accounts and was legally accountable for the figures. 
  2. The auditors did not appear to conduct independent verification with the banks where Satyam claimed to hold deposits. Furthermore, the deception lasted several years and included both balance sheet and income statement falsification. Satyam simply generated fictional sources whenever it required extra money to fulfil analyst projections, and it did it several times without the auditors ever noticing the deception.
  3. Surprisingly, Satyam paid PwC twice as much for the audit as other corporations would, raising doubts about whether PwC was participating in the scam. PwC examined the firm for approximately nine years and failed to identify the fraud, but Merrill Lynch identified the wrongdoing in just ten days as part of their due diligence. Put simply, Satyam’s audit committee failed to act on a whistleblower’s information. 
  4. According to Serious Fraud Investigation Officer’s (SFIO’s) findings, independent director Krishna Palepu received an anonymous email from an alias, Joseph Abraham, on December 18, 2008, two days after the Satyam board met and planned to buy two group entities, Maytas Infra Ltd and Maytas Properties Ltd.
  5. The deception was revealed as a result of the email. M. Rammmohan Rao, Chairman of the Audit Committee, forwarded the email to S. Gopalkrishnan, partner at PwC, the company’s auditors. Over the phone, Gopalkrishnan informed Rao that the claims were false and that he would get a full response in a projected presentation before the audit committee on December 29. That meeting never happened. 

Contribution of Satyam’s Board of Directors in the scam

  1. The Satyam Board of Directors had nine members. As required by Indian listing rules, five members of the Board were independent. Satyam stated in regulatory filings with the SEC that it did not have a financial specialist on its Board of Directors in 2008. Concerns also arose afterward about the Board of Directors’ lack of independence. 
  2. The Board of Directors included a number of well-known corporate heavyweights, which possibly contributed to Satyam’s lack of scrutiny. Krishna Palepu, a Harvard professor and corporate governance specialist, Rommohan Rao, the Dean of the Indian School of Business, and Vinod Dham, co-inventor of the Pentium Processor, were among the Board’s members.
  3. On December 16, 2008, the Board came under fire for approving Satyam’s purchase of real estate firms in which Mr. Raju had a significant stake. After a shareholder uprising, the Board of Directors revoked the approval. Within two days of the transaction’s cancellation, Krishna Palepu, Rommohan Rao, and Vinod Dham all resigned from the Board. 
  4. The bungled deal gave the appearance to investors that the Board of Directors was not actively monitoring Satyam. Furthermore, the Board of Directors should have noticed some of the same red signals that PwC, the auditor, missed.
  5. Furthermore, the fact that Mr. Raju reduced his Satyam shares considerably in the three years leading up to the fraud’s discovery should have troubled the Board of Directors. Mr. Raju’s stake in the company dropped from 15.67 percent in 2005-2006 to 2.3 percent in 2009.

Victims of the Satyam fraud case

  1. Satyam employees had stressful moments and restless nights as they faced nonpayment of salary, project cancellations, layoffs, and equally gloomy outside employment chances. They were morally, financially, legally, and socially trapped in a variety of ways.
  2. Satyam’s clients reported a lack of faith in the company and reassessed their contracts, opting to deal with other rivals instead. Satyam’s contracts with Cisco, Telstra, and the World Bank were all canceled. Customers were taken aback by the project’s lack of continuity, confidentiality, and expense overrun.
  3. Shareholders lost their money, and there was skepticism about India’s resurgence as a favoured investment location. In a statement, Mahindra’s VC and MD claimed the incident had “caused immeasurable and inexcusable damage to Brand India and Brand IT in particular.”
  4. Bankers were worried about the recovery of financial and non-financial exposure, as well as the recall of facilities.
  5. The Indian government was concerned that the country’s image and the IT sector might damage people’s willingness to invest or conduct business in the country.

Fraud cases : a common insight in the corporate world

Fraud is a global problem that affects people from all walks of life and all sectors of the economy. Fraud may affect any organization, no matter how big or minor it is. Financial reporting fraud may have serious ramifications for a firm and its stakeholders, as well as public trust in the capital markets. After the Enron fiasco, which served as a catalyst for others to imagine their own Enron in their different firms, corporate accounting fraud is not a new issue in our society. Investors lose faith in financial disclosures, the integrity of financial disclosures is questioned, and corporations face massive financial losses as a result of the growing trend in financial crimes throughout the world. The Satyam fraud highlighted the importance of corporate governance in setting the standards for the audit committee’s work and board members’ responsibilities. Recent corporate accounting scams and scandals, as well as the ensuing clamour for openness and honesty in reporting, have undoubtedly resulted in two dissimilar but natural conclusions.

  1. For starters, forensic accounting skills have become more important in breaking down the complex accounting manoeuvres that have disguised financial statement crimes.
  2. Second, public pressure for reform, as well as following regulatory action, has altered the corporate governance landscape. 

In reality, both of these developments share the purpose of resolving investors’ concerns about financial reporting transparency. The financial community has realised that there is a great need for skilled professionals who can identify, expose, and prevent structural weaknesses in three key areas, namely, poor CG, flawed internal controls, and fraudulent financial statements, as a result of the failure of the corporate communication structure.

Legal compliance with respect to the offence of fraud in India

Fraud has been defined under Section 17 of the Indian Contract Act, 1872 to include any false representation of a material fact related to the contract whether by words or conduct, bogus or misleading allegations, or non-disclosure of what should have been disclosed that is intended to deceive and deceives the other in such a way that the person acting on such misrepresentation acts to his or her own detriment. It also includes promises made without the purpose to keep them, as well as any other conduct or omission that has been considered fraudulent by law. The following are the essentials of fraud:

  1. Fraud must be perpetrated directly or indirectly by a contracting party or his representative. However, when the contract was formed as a consequence of a third party’s involvement for his or her personal gain, the contract cannot be avoided.
  2. There must be an intent to deceive or induce the other party to enter into a contract.
  3. To get redress in a fraud case, the plaintiff must establish that the defendant made false promises and that the plaintiff was misled and acted to his or her detriment. In layman’s words, a plaintiff cannot seek relief in both circumstances of deception without injury and damage without deception.

Factors that constitute a fraud under Section 17 of the Indian Contract Act, 1872

  1. Establishing facts without being convinced of their accuracy

Fraud is established when it is demonstrated that a false representation was made;

  1. either intentionally or unintentionally,
  2. without a firm trust in its accuracy, or
  3. irresponsibly irresponsible, regardless of whether it is true or not.”

As a result, the core of fraud is willful deception, which is dealt with in the first three clauses of Section 17.

  1. Promise without planning to keep the contractual obligations

Section 17 states that the original purpose of not executing the promise made is a required element of fraud and that such an intention cannot be inferred. The fraud anticipated by this provision is one that occurs at the outset of the transaction and does not involve any later activity or representation on the part of the party or their representative. This clause applies to a variety of situations, including,

  1. When one party contracts with another without the intent to perform in order to prevent the other from contracting with a third party,
  2. Contracting without the intent to pay the agreed consideration, and 
  3. One party promises the other something that he or she is certain he or she will not be able to accomplish within the contractual period.
  4. Active concealment

Active concealment occurs when one party fails to disclose key contract information despite having a legal obligation to do so. In simpler terms, it refers to a failure to disclose confidential information. It needs more than passive concealing and necessitates an overt act of concealment. It’s important to clarify that the passive hiding mentioned before refers to remaining quiet or silent. The clause clarifies that, while simple silence does not constitute fraud, it may do so in cases when the person has a responsibility to communicate or if silence is equal to speech. The following circumstances discussed hereunder speaks as to when silence amounts to fraud:

  1. Where there arises a duty to speak: When one party places their faith and confidence in the other and the other party accepts that trust, the duty to communicate emerges. Duty to communicate may also emerge in the situation of an uberrima fides contract or where one party lacks the means to seek the truth and must rely on the information provided by the other. Thus, if the parties do not have a fiduciary relationship, there is no need to communicate, and even if silence is regarded as deception, it does not constitute fraud. In insurance contracts, for example, the insurance company has no means of knowing whether the information provided by the insured is accurate. As a result, it must depend completely on the insured’s information. An obligation to speak arises when a party directly inquires about a substantial fact relating to the contract property.
  2. Where silence is deceptive: In certain circumstances, silence becomes a substitute for words. When a person remains silent despite knowing that his silence is dishonest, he or she is equally accountable for fraud. For example, if the buyer learns of certain important facts about the seller’s property that have an impact on its worth but chooses to keep silent about it. Silence like this might be construed as deception.
  3. Change of circumstances: When a statement is made, it may be accurate at the time it is stated, nevertheless, when it is actually acted upon by the other party, it may become false due to a change in circumstances. In such scenarios, the person who made the original representation owes it to the other party to tell them of the change in circumstances.
  4. Half-truths: Whenever a person shares something, whether or not it is his or her responsibility to talk, he or she is required to give complete information. If the informing person freely discloses anything and then quits halfway through, he or she may be charged with fraud. A lie is a half-truth. Suppression can easily lead to suggestio falsi.
  5. Any other act fitted to deceive

As fraud may take on an unlimited number of forms, attempting to define fraud accurately and exhaustively to account for all possible scenarios is pointless because various loopholes may become accessible to avoid culpability. Human invention and innovation know no limitations, hence Section 17 was written as a tool to assist the judiciary in providing effective and real justice. This provision may apply to any conduct that is done to deceive or defraud someone by using unfair means in order to cause unlawful loss or gain to the one who is deceived. The cheater’s intention must be to deceive the other person.

  1. Any act or omission specially declared to be fraudulent by law

The Supreme Court maintained in Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors (2020) that “Section 17 of the Indian Contract Act, 1872 only applies if the contract is secured by fraud or deception.” However, there is a distinction to be made between obtaining a contract by fraud and having a contract’s performance (which is entirely legitimate) vitiated by fraud or deceit. The latter would fall outside the jurisdiction of Section 17 of the 1872 Act, which allows for damages but not for recognizing the contract as invalid.

The burden of proof in fraud cases

The plaintiff must establish the facts that constitute fraud by providing particular specifics of the case. A case of fraud must be proven beyond a reasonable doubt in either a civil or criminal proceeding. It should be remembered that every charge of fraud must be precise, and fraud of any sort, other than the one alleged cannot be proven. Fraud may not be explicitly shown, but it can be inferred from the surrounding circumstances and the behaviour of parties before and after the agreement. The result of a fraud commission cannot be reached just on the basis of conjecture, such a determination must be founded on some useful and constructive evidence. As discussed previously, the fraud was apparent in Satyam’s case as a  result of an email that the dignitaries of the company had received.  Further, there was a considerable reduction in Mr. Raju’s shares considerably which added to the claims made in the email thereby disclosing the internal fraud that was taking place in the company. 

The complainant bears the burden of evidence in cases of suspected fraud. When a party has a fiduciary relationship with another, the former is obligated to operate in good faith and honesty in their dealings with the latter and to evaluate such transactions with greater diligence and caution than is normally required. When the parties are not on the same level, the law establishes an adequate presumption of deception. However, when both parties to a contract are in pari delicto, however, neither can profit from the transaction.

As a result, fraud can be inferred from circumstantial evidence that overcomes the natural presumption of good faith and fair dealing and persuades a reasonable person that such a presumption has been properly disproved.

Factors that contributed to the Satyam fraud case

The Satyam scam was caused by a number of causes. None of the Satyam’s independent board members (including the dean of the Indian School of Business, a Harvard Business School professor, and a former Intel star), the institutional investor community, the SEBI, retail investors, or the external auditor, including professional investors with detailed information and models at their disposal, detected the wrongdoing. The following is a list of factors that contributed to the fraud:

  1. Greed.
  2. Ambitious corporate growth.
  3. Deceptive reporting practices, lack of transparency.
  4. Excessive interest in maintaining stock prices.
  5. Executive incentives.
  6. Stock market expectations.
  7. Nature of accounting rules.
  8. ESOPs issued to those who prepared fake bills.
  9. High-risk deals that went sour.
  10. Audit failures (both Internal & External).
  11. The aggressiveness of investment banks, commercial banks,.
  12. Rating agencies & investors.
  13. Weak Independent directors and Audit committee.
  14. Whistle Whistleblower policy not being effective.

Consequences that follow the offence of fraud

When assent is gained by deception, the contract is voidable under Section 19 of the Indian Contracts Act, 1872. As a result, the person who has been deceived has the choice of either cancelling the contract or insisting that it be fulfilled in order to put him in the situation he would have been in if the deception had been accurate. If the cheated party decides to avoid the contract, he is responsible for restoring the advantage gained (if any) to the fraudulent party and may seek damages under Section 64

In order to ascertain damages for fraud, the court ought to refer to certain principles which were laid down in Doyle v. Olby (Ironmongers) Ltd (1969) and was reiterated by the Hon’ble Supreme court in Avitel Post Studioz Limited and Others. v. HSBC PI Holdings (Mauritius) Limited and Others (2020): 

  1. The defendant is obligated to compensate the plaintiff for all damages resulting immediately from the transaction. Thus the alleged contributors to the Satyam fraud owe the burden of compensating the fraud’s victims. 
  2. Despite the fact that such harm need not have been foreseen, it must have been produced directly by the transaction.
  3. In determining the extent of such loss, the plaintiff is entitled to collect the whole sum paid as damages, but he must account for any benefits acquired as a consequence of the transaction.
  4. In general, the advantages he receives include the market worth of the property purchased at the time of acquisition, nevertheless, this general rule is not to be implemented inflexibly if doing so would prevent him from receiving full compensation for the wrong experience.
  5. Although it is impossible to list all of the scenarios in which the general rule should not apply, it will usually not apply where either;
  1. The misrepresentation has continued to operate after the asset was acquired in order to persuade the plaintiff to keep the asset; or
  2. The facts of the case are such that the plaintiff is entrapped in the property as a result of the deception;
  1. In addition, the plaintiff is entitled to compensation for any damages incurred as a result of the transaction.
  2. Once the plaintiff discovers the deception, he must take all reasonable means to reduce his damage.

Satyam fraud’s aftermath 

  1. The Indian government launched an inquiry right away, but it kept its direct involvement to a bare minimum. Satyam was given a new board of directors by the government in an attempt to preserve the firm; the objective was to sell it within 100 days. 
  2. The board promptly gathered with bankers, accountants, attorneys, and government officials to prepare a selling strategy. The board of directors recruited Goldman Sachs and Avendus Capital to sell the firm in the quickest period feasible.
  3. Satyam was valued at Rs. 36,600 crore at its highest market capitalization in 2008. A year later, Tech Mahindra bought the scam-hit Satyam for Rs. 58 a share, giving it a market capitalization of Rs. 5600 crore. On January 9, 2009, when Raju confessed, the stock, which had reached an all-time high of Rs. 542 in 2008, plummeted to an unfathomable Rs. 6.30. 
  4. Satyam’s stock dropped to 11.50 rupees on January 10, 2009, its lowest level since March 1998, after reaching a high of 544 rupees in 2008. Satyam’s stock peaked at US$ 29.10 on the New York Stock Exchange in 2008, and by March 2009, it was trading at roughly US $1.80. As a result, Satyam stockholders lost $2.82 billion.
  5. Mr. Raju was charged with criminal conspiracy, breach of trust, and forgery, among other things. Following the Satyam debacle and PwC’s participation, investors grew apprehensive of PwC’s clients, resulting in a drop in share prices of roughly 100 firms ranging from 5% to 15%. The announcement of the scam (which was soon linked to Enron’s demise) caused anxieties in the Indian stock market, with the benchmark Sensex index falling more than 5%. Satyam’s stock has dropped by more than 70%.

Investigation in the Satyam fraud case 

  1. The Satyam scam has emphasized the role of numerous authorities, courts, and rules that are involved in a severe infraction committed by a publicly traded firm in India. The inquiry that followed the fraud’s discovery resulted in charges being filed against numerous separate groups of persons connected to Satyam. 
  2. On criminal allegations of fraud, Indian authorities detained Mr. Raju, Mr. Raju’s brother, B. Ramu Raju, the company’s former managing director, Srinivas Vdlamani, the company’s head of internal audit, and the company’s CFO.
  3. Several of the company’s auditors (PwC) were also detained and charged with fraud by Indian authorities. The CFO and the auditor were found guilty of professional misconduct by the Institute of Chartered Accountants of India (ICAI 2009). The CEO’s offshore holdings were also being investigated by the CBI. 
  4. The holders of Satyam’s ADRs have filed multiple civil complaints against the company in the United States. Several Indian politicians were also named in the probe. Civil and criminal lawsuit suits are still pending in India, while civil litigation is also pending in the United States.

India’s regulatory and corporate governance reforms

The Satyam scandal highlighted the many flaws of the Indian legal system while also throwing light on the developing democracy’s financial system. The reforms that were introduced post the well-known scandal has been laid down hereunder: 

  1. Investors and authorities urged for a stronger regulatory environment in the securities markets after the Satyam crisis. The SEBI increased corporate governance (CG) standards as well as financial reporting rules for publicly traded businesses listed in the nation in reaction to the Satyam scandal. In addition, the SEBI reaffirmed its commitment to the implementation of International Financial Accounting Reporting Standards (IFRS). The Ministry of Corporate Affairs (MCA) has also developed a new Corporate Code and is considering amending securities rules to make it simpler for shareholders to file class-action lawsuits. The following are some of India’s recent CG reforms:
  • Independent Directors are appointed,
  • Pledged securities disclosure.
  • Financial accounting disclosures increased.
  • IFRS, and
  • The Ministry of Corporate Affairs has created a new corporate code.

2. Satyam blatantly flouted all corporate governance requirements. The Satyam debacle served as a cautionary tale for improper CG practices. It had failed to maintain a positive relationship with its shareholders and staff. Satyam’s CG problem occurred as a result of the company’s failure to meet its obligations to many stakeholders. The following are of particular interest, 

  • Separating the duties of the board and management,
  • Separating the functions of the CEO and chairman,
  • Appointment to the board,
  • Directors and executive remuneration, and
  • Protecting the rights of shareholders and their executives.

3. Scandals ranging from Enron to the present financial crisis have repeatedly demonstrated the need for ethical behaviour based on solid ethics. It’s unsurprising that such deceptions may occur anywhere in the world at any moment. The Satyam scandal prompted the Indian government to strengthen CG regulations in order to prevent such frauds in the future. The government acted quickly to protect investors’ interests while also preserving India’s reputation and image at a global level.

Recommendations and suggestions to avoid such frauds in the future

Satyam’s culture, which was dominated by the board, represented an immoral culture. Unlike Enron, which collapsed owing to an issue with the agency, Satyam was driven to its knees by the tunnelling effect. All types of scams have demonstrated the importance of excellent behaviour based on strong ethics. Keeping in mind the management’s method of operation in the Satyam fraud,  some significant recommendations have been suggested hereunder:

  1. Corporations must promote their CEOs’ moral, ethical, and social principles.
  2. Board members must understand the gravity of the trust placed in them, and they must be proactive and vigilant in safeguarding the interests of owners.
  3. In Satyam’s situation, there was a lack of accurate and timely information. 
  4. Shareholder activism is an effective way to keep a firm and its management in check.
  5. Block-holders and institutional investors can also help ensure that the board and management are held accountable. Finally, the CG framework must be followed to the letter as well as the spirit.


The accounting fraud perpetrated by Satyam’s founders in 2009 is proof that “the science of conduct is affected in great part by human avarice, ambition, and passion for power, money, fame, and glory.” Scandals have demonstrated that “excellent behaviour based on solid corporate governance, ethics, and accounting and auditing standards is urgently needed.” In emerging nations, the Satyam case underlines the necessity of securities laws and CG. Indeed, Satyam fraud “spurred the government of India to tighten the CG norms to prevent recurrence of similar frauds in future.” As a result, big financial reporting frauds must be investigated for “takeaways” and “best practices” in order to limit the frequency of similar frauds in the future.


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