Moment of truth

Raju committed a huge fraud, conniving with his family members, senior employees and chartered accountants

The Satyam scam case, India's biggest corporate fraud which caused a huge loss of Rs 14,162 crore to investors, has finally seen the conviction of accused. A six-year intense legal battle has culminated in the CBI Special Court declaring Satyam Computers’ founder and chairman B Ramalinga Raju and nine others guilty of fudging accounts. Raju committed a huge fraud, conniving with his family members, senior employees and CAs.

He inflated revenue by raising false sales invoices, and forging bank statements with the knowledge and support of statutory and internal auditors. He perpetrated the fraud for several years and even hogged limelight along with none other than the then US President Bill Clinton. His company was ranked next to TCS, Infosys at one time and its scrip soared in 2008 with a market capitalization of Rs 36,600 crore.

The company ADRs on US bourses also saw a huge jump in valuations. However, ADR holders got a wind of goings-on in the company and one thing led to the other. Raju’s bid to reverse merge Satyam into another group company Maytas run by his son was opposed by the company board. The CBI painstakingly established how Raju fudged records, raised false invoices, floated shell companies etc.

As the scam broke out, the Centre quickly constituted a board headed by Deepak Parekh to ensure smooth changeover of management. The company was auctioned and Tech Mahindra emerged as winner. In a letter to Sebi, Raju stated that, "Every effort to fill the gap failed," adding "It was like riding a tiger, not knowing how to get off without being eaten.” It was assumed that Raju spent large sums of Satyam’s money to buy land for Maytas and when the land bubble burst, he could not adjust the money to Satyam.

In the whole scam, the role of statutory and internal auditors is vital. Strangely, the statutory auditing firm, Price WaterhouseCoopers, has washed its hands off, saying it was not be faulted for acting on the information provided by the company. However, this may not wash. Even, Enron auditor Arthur Andersen was blacklisted for a similar fraud committed in the US.

The verdict will have far-reaching implications on the related legal disputes involving Satyam's acquirer Tech Mahindra, auditors, tax authorities and Raju family. In a way, the Satyam case is a unique one. It was a torchbearer in the area of IT and ITES businesses. Its accounts were audited by PwC, one of the world's top auditors.

Former top bureaucrats were on the company’s board as independent directors. Even then a fraud of such magnitude could take place. Law makers and Sebi should attend to plugging loopholes to prevent such scams. Recent changes in the company law augur well for Indian Inc. In the end, a pertinent question is if the defrauded investors in Satyam will get justice.