Professional Documents
Culture Documents
Sh. J. L. Negi Gm/Rbi/Cbi Gmrbi@cbi - Gov.in
Sh. J. L. Negi Gm/Rbi/Cbi Gmrbi@cbi - Gov.in
Negi
GM/RBI/CBI
jlnegi@rbi.org.in
gmrbi@cbi.gov.in
Satyam Company Services Ltd. was incorporated
on June 24, 1987
Promoters holding of the shares in 1992 was
18.78%
Main business of the company was IT related
fields and it came into prominence after Y2K
problem
In 1991, it was in a rented house having 10
Engineers.
Company was listed in Bombay Stock Exchange in
1992
company bags its first fortune 500 client John
Deere & Co
Formed the joint venture with Dun & Bradstreet
for IT services
Listing in NASDAQ, USA- 1999
Listed on New York Stock Exchange- 2001
Revenue crossed $1 Billion-2006
Ramalinga Raju got the Ernst & Young
Entrepreneur of the Year Award -2007
Revenue crossed $2 Billion -2008
B. Ramalinga Raju – Born on 16.09.1954 at
Garagaparru village of Andhra Pradesh. He got
commerce degree from Loyola College and
headed to Ohio University, USA for MBA , Vice
Chairman, NASSCOM, Chairman of IT Committee
in FICCI, Awarded Corporate Citizen of the Year
Award-2002, IT Man of the Year Award-2001 and
he was the Chairman of the company
B. Rama Raju – He was the Co-founder and MD
of the company. He did a MA(Eco.) from Loyola
College, Chennai and MBA from Loredo State
University Texas, USA and he is the younger
brother of Ramalinga Raju
V. P. Rama Rao- He was an IAS officer and he
was a member of Satyam’s Board from July 1991
Mrs. Mangalam Srinivasan- She was a member of
the Board since July 1991. A senior fellow at
Havard University. Expert in International
Financial Management.
Vinod K. Dham- He was on the Board from
2003.Inventor of Pentium chip
Krishna G. Palepu- He was a member of
Board from January, 2003, Professor of
Business Administration at Harvard School
and expert in Corporate Governance
M. Mohan Rao- He was dean of Indian Business School,
Hyderabad and expert in Corporate Finance and Financial
Derivatives. He was appointed to the Board on July, 2005
Ram Mynampati – He was inducted on the Board as whole
time Director in August, 2006. He was in- charge of half of
the Sales Portfolio of the company
V. S. Raju- He was appointed as Directors in April 2007 .
He was Chairman of DRDO and Director of the IIT, Delhi
T.R. Prasad- He was appointed as member of the Board in
April 2007 and was the ex. Cabinet Secretary,
Government of India
The case was initially registered by CB-CID, Andhra Pradesh
on January 9, 2009 on a complaint received from Smt.
Leela Mangat, a retd. employee of Syndicate Bank stating
that she had invested her retirement benefits for purchase
of the shares of the company on seeing the performance
of the company. She purchased 100 shares for a sum of
Rs. 19000. She filed the complaint after the confessional
letter of the chairman made public
The case was handed over to CBI on February 16, 2009 by
Government of India under section 5 of DSPE Act and
notification under 6 of DSPE Act by the Government of
Andhra Pradesh. ACB Hyderabad re-registered the case and
investigation was started
The confession letter by B. Ramalinga
Raju was submitted to SEBI/BSE and to
the Board of Directors on January 7, 2009
which stated that balance sheet as on
30.09.2008, cash and bank balance,
interest accrued on fixed deposits,
debtors were overstated and liabilities
were understated Company inflated
operating profit. The gap in balance sheet
was on account of inflated profits shown
over a period
WhistleBlower
E-mail dated 18.12.2008 from Joe Abraham to
Mr. Krishna G. Palepu and subsequently
circulated to other Board Members wherein
misdeed of the chairman/company was
narrated
Subsequently, Hemant Kothari, Non Executive
Chairman of DSP, Marril lynch Ltd. after
having discussion with B. Ramalinga Raju
forced him to confess as during the
discussion it was revealed that there was a
big hole in the balance sheet.
The brief discretion:
Inflated non-existent cash – Rs. 5040 crore
SHINE Excel
Porting
Excel Porting facility was provided for
bypassing the regular flow of invoices
generation for emergency case
However, this facility was misused
extensively. The invoices inserted
through excel porting did not contain any
trail up to PBMS
Normal course, whenever a Purchase Order
is placed by a customer, the concerned
Business Relation Manager sends the details
through the FIC of a business circle to
OPTIMA and the same is sent to Satyam
Projects Repository (SPR), where the FICs
and the Associate In-charges of the Circles
approve the project and after approval a
unique serial number called the Project ID
gets generated in Satyam Project Repository
(SPR). Then, details regarding associates are
provided by another application called
‘SHINE’
OPTIMA forwards the details to ONTIME
wherein the man-hours required is calculated
and the billing on the customer gets decided.
From there, it moves to next application
PBMS. In PBMS, a bill is generated with
unique serial number and details of the
associates, their efforts in terms of man-
hours, amount per hour against each
associate, total number of such associates
along with the period and finally, a bill is
raised in PBMS
Then, this bill is exported to IMS and the
same gets consolidated in IMS and the
Consolidated Bill is generated with a unique
serial number. Based on this Consolidated
Bill, a final invoice is generated to be sent to
the customer. The invoice contains details of
total amount, name of the customer, project
ID, project name, Purchase Order, etc. Then
these invoices are ported to the Oracle
Financials and as and when payments are
received, they get adjusted and if the
payments are outstanding, then the same are
shown as debtors
IMSapplication played the various roles like
Admin Role, superior user role, FIC role. The
Admin role was having absolute rights. IMS
application was having superior user role and
with this invoices can be hide and unhide.
The hidden invoices is not visible to all
except few users who have superior user
role. The invoices were divided into two
parts ‘H’ & ‘S’, ‘H’ stands for hide and ‘S’
stands for show. But the fictitious invoices
were generated under ‘S’ by swapping the
role of ‘H’ & ‘S’. This facility was
incorporated at the instance of G.
Ramakrishna who was a process owner
There were two methods by which fictitious sales were
shown
1. Invoices generated through Excel porting
2. Actual development of the products
Period from 01.04.2003 to 31.12.2008, 7561 invoices were
found to be fake. All these invoices were directly inserted
in IMS through EXCEL porting.
The value of the false invoices was Rs. 5118 crore
It had fraudulently entered 6,631 false invoices into the
receivables module of Oracle Finance amounting to
Rs.4,766.20 crore
These invoices were having the status of S which actual
means should be visible but they got it changed to hide
The false invoices were generated with the help of Super
User facility
Particular set of people used to generate the
fictitious invoices during the odd hours
towards the end of the month/quarter
The fictitious invoices were not visible to all
Possibility of viewing these invoices by the
Key persons chose not to assess through OF
Key persons were aware of invoices
generated without purchase order
Actual development of the products
Execution of projects in the name of non –existing 7
customers i.e, Mobitel, Cellnet, E –care, Synony, Northsea,
Autotech and Hargreaves
M D asked the business heads to develop the products
stating that customers will be introduced subsequently
Without the purchase orders, products were developed and
revenue was recognized. Products after development is
still with the company
Fictitious mails were generated as if it originated from
these customers
The domain was created in rediffmail and mails were sent
63 invoices were raised having value Rs. 430.66 crore
The company had booked Rs. 31.18 crore
as exchange profit on account of fictitious
sales during the fraud period
All the directors were sponsored by B. Ramalinga Raju
The Audit Committee members were not serious in
analyzing the financial position of the company
The directors were failed to perform their duties
The Directors got hand-sum remuneration, stock options
at Rs. 2 against the market price of Rs. 500. The directors
acted as a rubber stamp and not even in a single dissent
note was recorded
Meetings were conducted in perfunctory manner
In the meetings the promoters were always present to
influence the decision
There was not open discussions
6000 acres of land purchased by 327 front companies
Promoters also purchased land and flats
Land ceiling act was circumvented by floating the companies
Proceed of sale of shares and receipt of the dividends were used
for purchase of the land
Lands were purchased in the names of the close relatives also
Majority of land was agricultural land
Land purchased were spread over AP. TN, Bangalore and Nagpur
Number of properties acquired between 10.4.1999
the books
Company tried to purchase MPL and MIL to fill the gap of
hole in the balance sheet
Valuation was not done properly
Amount arrived at was almost equivalent to the fictitious
amounts
Valuation was done even for the properties not owned by
MPL
The liabilities were not factored into
Due diligence report was not taken into accounts
Valuation was done for different purpose
Valuation was done on unsigned financial position of MPL
Out of the sources of funds of Rs. 10,961.03
crore, an amount of Rs. 8,842.54 crore (Sundry
debtors Rs. 2651.36 crore, cash and bank
balances Rs. 5312.62 crore and other current
assets Rs. 878.56 crore) were liquid assets which
could be immediately utilized for the purpose of
acquisition. Only after using the available
reserves and raising a loan of 25% of the
acquisition cost, the company was suppose to
acquire 51% of MIL and 100% of MPL by having
the minimum balance . The company was
having only Rs. 2,944.50 crore (after removing
fake amount of Rs. 5899 crore )of liquid assets
and after considering the proposed borrowing of
Rs. 1979.52 crore there would still be a shortfall
of Rs. 2991.58 crore
Valuation of MPL was done by E&Y
Excess FSI taken
Some of the projects were only on paper
Valuation was done in one day
Valuation done not as per the guidelines prescribed by RBI
Equity value as on 30.9.2008 was assessed at Rs. 6525.30
crore
The cash and bank balances shown in
various banks in the form of current
account and Fixed Deposit ws Rs. 5160.34
crores for the period 2002 to 2008. While
actual balances was only 139.78 crore.
Thus, there was a difference of Rs.
5020.55 crore. The company was having
account with 36 banks in India and 7
banks overseas. The certificate shown to
the auditors did not carry details of Fixed
Deposit number
No actual physical Fixed Deposit existed ,
balance conformation letter did not tally the
amount actually maintained with banks, balance
did not contained account number, no mention
about signatories name and employment number
etc.
The company has shown accrued