LEGAL CASE STUDY ON SATYAM SCAM

B.A.LL.B (Integrated Law degree course)

Company Law - I (V Semester)

“ASSIGNMENT WORK”

“LEGAL CASE STUDY ON SATYAM SCAM”

Submission To: Submitted By:

Miss Mukta Jangir Rajat Kaushik

Faculty of Company Law-I 17RU11020

Designation: Assistant Professor Session:- 2017-2022

Semester:- V

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ACKNOWLEDGEMENT

I take this opportunity to express our humble gratitude and personal regards to Miss Mukta
Jangir for inspiring me and guiding me during the course of this project work and also for her
cooperation and guidance from time to time during the course of this project work on the topic
“CORPORATE GOVERNANCE” and helped me during this, “CASE STUDY ON SATYAM SCAM”.

Date of Submission: 13-11-2019

Name of Student: Rajat Kaushik

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INTRODUCTION:

Satyam is the fourth largest IT Company in India. The CEO of the company Ramlinga Raju has
made a scam of around $2 billion. There has been a lot of controversy regarding the misuse of
the post by the CEO of the company. The fake number of jobs which was shown by the CEO
was an abuse of power and it was a clear violation of the prevailing laws in India. This gives the
impression that in India the power and position is what matters and the people in the top position
make a clear violation of the rights provided to them.

This scam has seriously affected the corporate bodies in India. The role of an incorporated
company is to satisfy desires of investors, and to channelize their investment. But most of the
time entrepreneurs play with money of the investors. There are laws to safeguards investors
interest but the Satyam scam has raised the question on the fundamental role of the government
and corporate governance. On 16th December, 2008 Satyam board got the approval for
acquisition of Maya’s Infrastructure and Maya’s Properties (companies owned by his relatives).
However the company could not go on with the investment plan due to resistance by the
investors. Between 25th and 28th December, 2008, 3 independent directors of Satyam board
resigned and later on Mr. Raju confessed to fraud in the form of misappropriation in the balance
sheet of the company.

BACKGROUND:

In 1987, B. Ramalinga Raju ("Mr. Raju") formed Satyam in Hyderabad, India with fewer than 20
employees. Ironically, Satyam means "truth" in the ancient Indian language Sanskrit. The
company specializes in information technology, business services, computer software, and is a
leading outsourcing company in India. Satyam immediately experienced success after it issued
an initial public offering on the Bombay Stock Exchange in 1991. Established on 24th June 1987
by B. Ramalinga Raju and his brother-in-law, D. V. S. Raju, Satyam Computer Services Limited
was incorporated in 1991 as a public limited company and also got its first Fortune 500 client,
Deere and Co. In a short span of time, it became a leading global consulting and IT services
company spanning 55 countries before nemesis caught up with it. It was one of the few Indian IT
services companies listed on the New York Stock Exchange. It was ranked as India‘s fourth

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largest software exporter, after TCS, Infosys and Wipro. The 1990s were an era of considerable
growth for the company. It also caused the formation of a number of subsidiary companies such
as Satyam Renaissance, Satyam Info way, Satyam Spark Solutions and Satyam Enterprise
Solutions; Satyam Info way (Sify) incidentally became the first Indian internet company to be
listed on the NASDAQ. Satyam acquired a lot of businesses and expanded its operations to many
countries and signed MoUs with many multinational companies in the new millennium. Satyam
added feather after feather to its cap by becoming the first company in the world to start a
programme known as the Customer-Oriented Global Organization training in May 2000, signing
contracts with numerous international players such as Microsoft, Emirates, TRW, i2
Technologies and Ford, claiming the privilege of being the first ISO 9001:2001 company in the
world certified by BVQI, and earning the name as a global company by opening offices in
Singapore, Dubai and Sydney. In 2005, it acquired a 100 per cent stake in Singapore-based
Knowledge Dynamix and 75 per cent stake in London based Citisoft Plc. Satyam was a company
on the fast track to success and has justifiably earned for itself a name for consulting in the area
of strategy right through to implementing IT solutions for customers.

At the peak of its business, Satyam employed nearly 50,000 employees and operated in 67
countries. Satyam was as an example of India's growing success. Satyam won numerous awards
for innovation, governance, and corporate accountability. In 2007, Ernst & Young awarded Mr.
Raju with the Entrepreneur of the Year award. On April 14, 2008, Satyam won awards from MZ
Consult's for being a leader in India in corporate governance and accountability. In September
2008, the World Council for Corporate Governance awarded Satyam with the "Global Peacock
Award" for global excellence in corporate accountability. Unfortunately, less than five months
after winning the Global Peacock Award, Satyam became the centerpiece of a massive
accounting fraud.

ISSUES:

Issues in Satyam begin when on December 16th, 2008; its chairman Mr. Ramalinga Raju, in a
surprise move announced a $1.6 billion bid for two Maytas companies i.e. Maytas Infrastructure
Ltd and Maytas Properties Ltd saying he wanted to deploy the cash available for the benefit of
investors. The two companies have been promoted and controlled by Raju‘s family. The thumbs

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down given by investors and the market forced him to retreat within 12 hours. Share prices
plunges by 55% on concerns about Sat yam’s corporate governance. In a surprise move, the
World Bank announced on December 23, 2008 that Satyam has been barred from business with
World Bank for eight years for providing Bank staff with ―improper benefits‖ and charged with
data theft and bribing the staff. Share prices fell another 14% to the lowest in over 4 years. The
one independent director since 1991, US academician Mangalam Srinivasan, announced
resignation followed by the resignation of three more independent directors on December 28 i.e.
Vinod K Dham (famously known as father of the Pentium and an ex Intel employee), M
Rammohan Rao (Dean of the renowned Indian School of Business) and Krishna Palepu
(professor at Harvard Business School). At last, on January 7, 2009, B. Ramalinga Raju
announced confession of over Rs. 7800 crore financial fraud and he resigned as chairman of
Satyam. He revealed in his letter that his attempt to buy Maytas companies was his last attempt
to ―fill fictitious assets with real ones‖. He admitted in his letter, it was like riding a tiger
without knowing how to get off without being eaten. Satyam’s promoters, two brothers B
Ramalinga Raju and B Rama Raju were arrested by the State of Andhra Pradesh police and the
Central government took control of the tainted company. The Raju brothers were booked for
criminal breach of trust, cheating, criminal conspiracy and forgery under the Indian Penal Code.
The Central Government reconstituted Satyam's board that included three-members, HDFC
Chairman, Deepak Parekh, Ex Nasscom chairman and IT expert, Kiran Karnik and former SEBI
member C Achuthan. The Central Government added three more directors to the reconstituted
Board i.e., CII chief mentor Tarun Das, former president of the Institute for Chartered
Accountants (ICAI) TN Manoharan and LIC's S Balakrishnan.

A week after Satyam founder B Ramalinga Raju’s scandalous confession, Satyam’s auditors
Price Waterhouse finally admitted that its audit report was wrong as it was based on wrong
financial statements provided by the Satyam’s management. On January 22, 2009, Satyam’s
CFO Srinivas Vadlamani confessed to having inflated the number of employees by 10,000. He
told CID officials interrogating him that this helped in drawing around Rs 20 crore per month
from the related but fictitious salary accounts.

Andhra Pradesh State CB-CID raided the house of Suryanarayana Raju, the youngest sibling of
Ramalinga Raju who owned 4.3 per cent in Maytas Infra, and recovered 112 sale deeds of

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different land purchases and development agreements. Senior partners S Gopalakrishnan and
Srinivas Talluri of the auditing firm PricewaterhouseCoopers (PwC) were arrested for their
alleged role in the Satyam scandal. The State‘s CID police booked them, on charges of fraud
(Section 420 of the IPC) and criminal conspiracy (120B).

FRAUD:

Responsible Parties:- Mr. Raju was the primary individual responsible for the fraud. Indian
authorities accused Mr. Raju, and subsidiary players such as the CFO, a managing director, the
company's global head of internal audit, and Mr. Raju's brother, with responsibility for the fraud
and filed charges against them. Additionally, Satyam's auditors and Board of Directors bear
some responsibility for the fraud because of their failure to detect it. Finally, the ownership
structure of Indian businesses contributed to the Satyam scandal.

a. Mr. Raju and Company Insiders' Role- Mr. Raju claimed that he overstated assets on
Satyam's balance sheet by $1.47 billion. Nearly $1.04 billion in bank loans and cash that
the company claimed to own was nonexistent. Satyam also underreported liabilities on its
balance sheet. Satyam overstated income nearly every quarter over the course of several
years in order to meet analyst expectations. Mr. Raju created numerous bank statements
to advance the fraud. Mr. Raju falsified the bank accounts to inflate the balance sheet
with balances that did not exist. He inflated the income statement by claiming interest
income from the fake bank accounts. Mr. Raju also revealed that he created 6,000 fake
salary accounts over the past few years and appropriated the money after the company
deposited it. The company's global head of internal audit created fake customer identities
and generated fake invoices against their names to inflate revenue. The global head of
internal audit also forged board resolutions and illegally obtained loans for the company.
It also appeared that the cash that the company raised through American Depository
Receipts ("ADRs") in the United States never made it to the balance sheets.
Mr. Raju initially asserted that he did not divert any of the money to his personal
accounts and that the company was not as profitable as it had reported; however, during
later interrogations, Mr. Raju revealed that he had diverted a large amount of cash to
other firms that he owned and that he had been doing this since 2004. Mr. Raju also

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initially asserted that he acted alone in perpetrating the fraud. However, as noted above,
Indian authorities also charged Mr. Raju's brother, the company's CFO, the company's
global head of internal audit and one of the company's managing directors.
b. Auditors Role: Global auditing firm Price Waterhouse Coopers ("PWC") audited
Satyam's books from June 2000 until the discovery of the fraud. Several commentators
criticized PWC harshly for failing to detect the fraud. PWC signed Satyam's financial
statements and was responsible for the numbers under Indian law. It appears that the
auditors did not independently verify with the banks in which Satyam claimed to have
deposits. Additionally, the fraud went on for a number of years and involved both the
manipulation of balance sheets and income statements. Whenever Satyam needed more
income to meet analyst estimates, it simply created fictitious sources and it did so
numerous times without the auditors ever discovering the fraud. Suspiciously, Satyam
also paid PWC twice what other firms would charge for the audit, which raises questions
about whether PWC was complicit in the fraud. Furthermore, PWC audited the company
for nearly 9 years and did not uncover the fraud, whereas Merrill Lynch discovered the
fraud as part of its due diligence in merely 10 days. The audit committee of Satyam failed
its duty to act on a whistle blower’s expose. As per the investigations of SFIO, on 18
December 2008, two days after the Satyam board met and decided to acquire two group
firms Maytas Infra Ltd and Maytas Properties Ltd independent director Krishna Palepu
received an anonymous email by an alias, Joseph Abraham. That email exposed the
fraud. Palepu forwarded the email to another independent director, M. Rammmohan Rao,
Chairman of the Audit Committee forwarded that email to S. Gopalkrishnan, partner at
Price Waterhouse, the company‘s auditors. Gopalkrishnan told Rao over phone that there
was no truth to the allegations and assured him of a detailed reply in a proposed
presentation before the Audit Committee on 29 December. That meeting did not take
place. A new date 10 January was fixed.
c. Board of Directors Role: Satyam's Board of Directors consisted of nine members. Five
members of the Board were independent as required by Indian listing standards. In its
regulatory filings with the SEC, Saytam revealed that it did not have a financial expert on
the board during 2008. Further, concerns later developed surrounding the Board of
Directors lack of independence. The Board contained several prominent figures in the

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business world, a fact that likely contributed to the lack of scrutiny that Satyam received.
Members of the Board included Krishna Palepu who is a Harvard Professor and corporate
governance expert, Rommohan Rao, the Dean of the Indian School of Business, and
Vinod Dham, co-inventor of the Pentium Processor. The Board first came under fire on
December 16, 2008 when it approved Satyam's purchase of real estate companies in
which Mr. Raju owned a large stake. The Board rescinded the approval after shareholders
led a revolt of the deal. Krishna Palepu, Rommohan Rao, and Vinod Dham all resigned
from the Board within two days of the rescission of the transaction. The botched
transaction provided the investors with the impression that the Board was not actively
monitoring Satyam. Furthermore, the Board should have caught some of the same red
flags that the auditor, PWC, missed. Additionally, the Board of Directors should have
been concerned with the knowledge that Mr. Raju decreased his holdings of Satyam
significantly over the three years leading up the disclosure of the fraud. Mr. Raju's
holdings fell from 15.67 percent in 2005-2006 to 2.3 percent in 2009.

VICTIMS OF FRAUD:

Employees of Satyam spent anxious moments and sleepless nights as they faced non‐payment of
salaries, project cancellations, layoffs and equally bleak prospects of outside employment. They
were stranded in many ways – morally, financially, legally, and socially.

Clients of Satyam expressed loss of trust and reviewed their contracts preferring to go with other
competitors. Cisco, Telstra and World Bank cancelled contracts with Satyam. ―Customers were
shocked and worried about the project continuity, confidentiality, and cost overrun.

Shareholders lost their valuable investments and there was doubt about revival of India as a
preferred investment destination. The VC and MD of Mahindra, in a statement, said that the
development had "resulted in incalculable and unjustifiable damage to Brand India and Brand IT
in particular."

Bankers were concerned about recovery of financial and nonfinancial exposure and recalled
facilities.

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Indian Government was worried about its image of the Nation & IT Sector affecting faith to
invest or to do business in the country.

ANALYSIS:

Satyam scam has been the greatest scam in the history of corporate world of the India. Satyam is
the fourth largest IT Company in India. The CEO of the company Ramlinga Raju has made a
scam of around $2 billion. There has been a lot of controversy regarding the misuse of the post
by the CEO of the company. The fake number of jobs which was shown by the CEO was an
abuse of power and it was a clear violation of the prevailing laws in India. This gives the
impression that in India the power and position is what matters and the people in the top position
make a clear violation of the rights provided to them. This scam has seriously affected the
corporate bodies in India. The role of an incorporated company is to satisfy desires of investors,
and to channelize their investment. But most of the time entrepreneur’s play with money of the
investors. There are laws to safeguards investors’ interest but the Satyam scam has raised the
question on the fundamental role of the government and corporate governance. On 16th
December, 2008 Satyam board got the approval for acquisition of Mayta’s Infrastructure and
Mayta’s Properties (companies owned by his relatives). However the company could not go on
with the investment plan due to resistance by the investors. Between 25th and 28th December,
2008, 3 independent directors of Satyam board resigned and later on Mr. Raju confessed to fraud
in the form of misappropriation in the balance sheet of the company.

Exactly five years ago, Indians woke up to read a confession by B Ramalinga Raju, chief
promoter of Satyam Computer Services, that he had committed financial fraud by overstating
profits and cash in the bank to the tune of around Rs 6,000 crore. This confession was made in a
statement sent to the stock exchanges on 7 January 2009. It was an open-and-shut case: a
confession that was sent voluntarily and not obtained under duress. All the Central Bureau of
Investigation (CBI) had to do was to arrest Raju, get him to make the same confession in front of
any magistrate (possibly under section 164) so that the confession is valid as evidence, and get
him sentenced – even while investigating his other frauds and dubious actions. But then, Satyam
is not just any other case. It is a case of super crony-capitalism, where Raju was favored by
several powerful Andhra Pradesh politicians, including and especially the Congress party’s

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strongman, the late YS Rajasekhara Reddy. When powerful politicians are involved, you can be
sure that crony capitalists will get a lot of leeway from the legal system. This is precisely what
has happened. Even though the CBI claims to have iron-clad evidence to nail Raju, few months
ago the Enforcement Directorate (ED) launched another case against Raju and 212 others for
allegedly laundering money using a “corporate veil.” Normally, such cases would have to be
heard elsewhere, but the legal system sent this case too to the Special Court hearing the primary
case. And depending on what the judge decides, the cases could get clubbed and/or prolonged
indefinitely. As is the practice is all such cases, Raju duly retracted his confessional statement -
in which he said that the balance-sheet as on 30 September had inflated cash and bank balances
by Rs 5,040 crore, accrued interest by Rs 376 crore, and had an overstated debtors’ position by
Rs 490 crore.

According to a Times of India report, Raju told the court in April 2010 that “I am not the author
of the email sent to various agencies that admitted to the Satyam accounts being inflated.” This
is, of course, disingenuous, for in the same mail Raju also claimed that he had lent the company
Rs 1,230 crore from personal funds, and in the second half of 2012, 37 companies belonging to
the Raju family and IL & FS, the company which took over another Raju company, Maytas, tried
to block the merger of Satyam with TechMahindra claiming they were owed money. The
confession apparently only denies the fraud, but not the part which claimed that Raju and his
private companies lent money to keep Satyam afloat. In his 7 January 2009 confessional, after
admitting to overstating cash and accrued income, Raju had also said that the company had an
“understated liability of Rs 1,230 crore on account of funds arranged by me.” It is not clear how
long the Satyam case will drag on . As someone who is already out of bail, the longer the case
prolongs, the better it is for Raju. Both CBI and ED took their time to file charge-sheets - which
show how much importance they attach to this case.

Recent news about this case in Economics Times on 4th April, 2014 says, Satyam Computers
founder Ramalinga Raju and another accused appeared before a court here in connection with a
prosecution complaint filed by Enforcement Directorate against them for offences under the
Prevention of Money Laundering Act (PMLA).

The Enforcement Directorate in October last year had file the complaint against Raju and 212
others, including 166 companies, before the XXI Additional Chief Metropolitan Magistrate

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Court cum Special Sessions Judge here for allegedly laundering funds under a "corporate veil" to
perpetrate the accounting scam that rocked the business world in 2009. ED in its prosecution
investigation report sought to "prosecute the accused for offence of money laundering" under
PMLA.
The court subsequently took cognisance of the complaint and had issued summons against the
accused seeking their appearance and accordingly they did.

The ED report said that Ramalinga Raju and the other accused, who have also been probed by
CBI, "derived proceeds of crime from the sale and pledge of inflated shares of M/s Satyam
Computers and Services Ltd (SCSL)".

The prosecution complaint (charge sheet), names 213 accused -- 47 individuals (among them
Ramalinga Raju and nine other accused already named in the CBI charge sheet in the multi-crore
Satyam accounting fraud case) and 166 firms -- including SCSL.

Besides, Raju, the former chairman of Satyam Computers, his brother B Suryanarayana Raju,
Satyam's former MD B Rama Raju, ex-CFO Vadlamani Srinivas, former PwC auditors
Subramani Gopalakrishnan, T Srinivas and Satyam's former internal chief auditor V S Prabhakar
Gupta were among others who appeared in the court and executed personal bonds of Rs 10,000
each.

ED which had earlier interrogated prime accused Ramalinga Raju, Rama Raju, and the others
had registered a case against the Satyam founder and his family under PMLA, which defines
money laundering offences as those involving money derived from any activity connected with
the proceeds of crime.

The Act provides for the freezing and seizure of the proceeds of crime. So far, 350 immovable
and five movable properties, valued at a cumulative Rs 1,075 crore, have been attached in the
case, ED had said.

The Satyam scandal has often been compared to that of Enron by several writers and analysts.
However, a close scrutiny of the facts relating to both the companies reveals that there are more
dissimilarity, than similarities between the two scams: (i) One similarity between the two
companies is like Enron, Satyam too had a board with the required quota of independent
directors. Enron, for instance, had 80 per cent of its board consisting of independent directors,

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one of whom, a distinguished accounting professor, chaired the auditing committee of the firm.
Likewise, in Satyam’s case, Krishna Palepu, one of the seven independent directors on its board,
was the Ross Graham Walker Professor of Business Administration and Senior Associate Dean
for International Development, at the Harvard Business School. A specialist in corporate
governance, Krishna Palepu was an advocate of tougher auditing rules and (ii) Another similarity
between Enron and Satyam has been the nexus, the heads of both the corporations established
with political bigwigs mainly with the view to currying favours from them. Enron’s Chairman
Kenneth Lay had established very close personal relationship with both President Bill Clinton
and President George Bush and also had donated generously to their election funds. ‘With the
political clout they acquired through hefty political contributions, Enron tried to influence public
policies, either covertly or overtly, especially in the areas of business they were
operating. Likewise, Ramalinga Raju had developed close liaison with the then chief ministers
Chandrababu Naidu and Rajesekara Reddy, who were pitted against each other and were heading
parties on the opposite sides of political spectrum. Raju obtained several favours from both of
them, managed to get out-of-turn contracts for building gigantic infrastructure projects and
acquired huge tracts of public lands at throwaway prices.

But the dissimilarities between the two are more telling: (i) Satyam’s is a much bigger scandal
than Enron. G. Ramakrishna, former SEBI chairman, holds the view that the Satyam fraud was
unique for its scale, the period of its perpetration and the number of people involved. For
instance, the amount stolen by insiders from Enron was INR 28.66 million at current exchange
rates. In the Satyam case, according to the CBI’s charge sheet, a much bigger amount of INR 140
billion was involved. Viewed from the Indian context, Satyam scam is by far the biggest. Even
globally, it ranks as the largest self-confessed scam. Also greater are the number of defaulting
agencies and their failures (ii) The impact of the Satyam scandal had greater ramifications in as
much as it adversely impacted its 53,000 employees—a number higher than the 40,000 Enron
employees. Though initially it was suspected that Satyam had only 40,000 employees and Raju
siphoned off the compensations of the non-existent 13,000 employees, a closer scrutiny of the
company’s records supported by Provident Fund accounts confirmed the fact that the company
did have 53,000 employees on its payroll (iii) The Enron fiasco, besides, was almost a stand-
alone incident which affected only the immediate stakeholders of the company, while in the case
of the Satyam swindle, the entire IT industry was badly hit just when the global economic

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slowdown has already been severely hurting it. The World Bank’s ban on Satyam, Wipro and
Mega-soft for unethical practices further aggravated the industry’s difficulties and (iv) Satyam’s
fiasco has caused a lot of damage to the image, credibility, accountability and trust of India,
Indian Corporate Inc., Indian Outsourcing Industry and the Software Industry in the eyes of the
shareholders/stakeholders/public, the likes of which nobody had ever seen and probably would
never see. The harm cannot be quantified, the extent of the rot, never imagined, and issues which
it has raised and the levels at which it has raised are of gargantuan proportions.

From Enron, WorldCom and Satyam, it appears that corporate accounting fraud is a major
problem that is increasing both in its frequency and severity. Research evidence has shown that
growing number of frauds have undermined the integrity of financial reports, contributed to
substantial economic losses, and eroded investors’ confidence regarding the usefulness and
reliability of financial statements. The increasing rate of white-collar crimes demands stiff
penalties, exemplary punishments, and effective enforcement of law with the right spirit.An
attempt is made to examine and analyze in-depth the Satyam Computer’s “creative-accounting”
scandal, which brought to limelight the importance of “ethics and corporate governance” (CG).
The fraud committed by the founders of Satyam in 2009, is a testament to the fact “the science of
conduct is swayed in large by human greed, ambition, and hunger for power, money, fame and
glory”. Unlike Enron, which sank due to “agency” problem, Satyam was brought to its knee due
to ‘tunneling’ effect.

The Satyam scandal highlights the importance of securities laws and CG in ‘emerging’ markets.
Indeed, Satyam fraud “spurred the government of India to tighten the CG norms to prevent
recurrence of similar frauds in future”. Thus, major financial reporting frauds need to be studied
for “lessons-learned” and “strategies-to-follow” to reduce the incidents of such frauds in the
future.

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CONCLUSION:

The Satyam fraud has shattered the dreams of different categories of investors, shocked the
government and regulators alike and led to questioning the accounting practices of statutory
auditors and corporate governance norms in India. Severe corporate governance problems
emerge out of the above-mentioned corporate wreckage. Many of these governance problems
were noticed in several other such corporate failures in USA, UK and Europe. These countries

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reacted strongly to the corporate failures and codes & standards on corporate governance came to
the center stage.

Even to a casual observer of the Satyam fiasco, the enormity of the scandal is a great eye opener.
Corporate scams and frauds committed against unwary investors have been a regular and almost
an annual feature in India. But the scale, magnitude, the reach and impact that the Satyam scam
had created is unparalleled in the corporate history of India, and as some keen corporate
observers point out, the world itself. That the reckless and couldn’t care-less’ swindlers were
operating with impunity within the Company for so long, notwithstanding the army of
professional managers, internal auditors, and independent-directors dominated board of directors,
the market regulator SEBI, the Company Law Board, the Department of Corporate Affairs and
the system of jurisprudence only go to show with what great disdain the scamsters looked at all
these institutions and authorities. There is a perception that most Indian, especially the first
generation promoters hardly make a distinction between a proprietary enterprise and a public
limited company in terms of their rights and privileges and the corresponding responsibilities and
accountability. It is a fact ―that a vast majority of Indian corporations are controlled by
promoter families which while owning a negligible proportion of share capital in their
companies, rule them as if they are their personal fiefdoms. The idea of a corporation, and the
values and principles that should guide its governance has hardly been imbibed by theses
promoters. Besides, the growth of corporate culture, not only was implanted much later in India
than in the Western countries, but also checkmated by the very same forces that make the
emergence of ethical business a difficult proportion in the Indian context. A lax administration,
ill-equipped regulatory system and terribly delayed justice delivery process only make things
easier for the corporate crooks to make a killing. It is not our case that there are more crooks in
the Indian corporate world than found elsewhere, but the overall system here is so conducive and
even attractive for them to flourish, rather than make lives difficult for them to continue their
trail of crimes.

Corporate scandals especially in the United States triggered reforms in corporate governance,
accounting practices and disclosures the world over. Enron debacle in 2001 and number of other
scandals involving large US companies around that period set in motion the corporate
governance reform process and resulted in the passing of the Sarbanes-Oxley Act, 2002. The

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main objective of the Oxley Act is to repose investor‘s confidence by preventing corporate
frauds and ensuring transparency and disclosures. Similar kinds of corporate governance reforms
are needed in India too. There is need to reform corporate governance in India by taking harsh
policy measures. Even though corporate governance mechanisms cannot prevent unethical
activity by top management completely, but they can at least act as a means of detecting such
activity before it is too late. When an apple is rotten there is no cure, but at least the rotten apple
can be removed before the infection spreads and infects the whole basket. This is really what
effective governance is about.

Corporate governance framework needs to be implemented in letter as well as spirit. The

increasing rates of white collar crimes demands stiff penalties and punishment. The small
distortions created by few immoral executives lad far reaching negative consequences.
Hopefully, creating an awareness of the large consequences of small lies may help some to avoid
this trap.

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