IIS (deemed to be University)

ASSIGNMENT ON CASE STUDY ON ETHICAL

ISSUE PAPER CODE – GBBA 102B
PAPER TITLE – Business Ethics and CSR Practical

SUBMITTED TO – SUBMITTED BY-

Ma’am Amita Sharma Saloni Jain

(Assistant Professor ENROLLMENT NO.- 31303
of Departmental Head
 of satyam
computer
services limited
(satyam scandal
)
 Satyam Computers Services Limited
(Mahindra Satyam)
INTRODUCTION:
Satyam Computers Services Limited was the one of most
successful company in Indian IT Services Industry. The company
was
  formed in 1987 in Hyderabad, India by Mr. Ramalinga Raju.
It offered IT and business process outsourcing services spanning
various sectors. It was ranked 4th in India in information technology
services.
On 13 April 2009, Satyam was purchased by Mahindra & Mahindra
owned company Tech Mahindra. In July 2009, Satyam rebranded its
services under the new Mahindra management as
"Mahindra Satyam".
CASE STUDY:
When housing and properties sector was at a boom, Raju decided to
invest in that sector and started buying more and more properties and
invested all his money. When he required more money for investments
he started manipulating SATYAM company accounts to get money.

He manipulated accounts sheets and showed more profits than actual

and increased the overall valuation of the company which lead to
increase in the stock price of SATYAM, Raju then sold some of his
holdings to get money which he further invested in properties, this
manipulation went on, to show more profit he used to show more sales.
He owned a lot of properties which he aimed to sell off at high prices and
balance the difference between actual profits and fake profits in
SATYAM, so as to make everything right again.

But in 2008 the whole world prices of properties fell drastically due to
 
which his plan flopped. In order to remove differences and to bring
SATYAM back to actual accounting he came up with another plan. He
thought of buying his own infra company MAYTAS on the name of
SATYAM so that all the fake profits shown could have been utilized in
buying MAYTAS.
Without shareholders approval, the directors went ahead with the
management's decision. The decision of acquisition was, however,
reversed when investors sold Satyam's stock and warned management
for action against them. In US, stakeholders filed law-suits for aborting the
MAYTAS deal.
 
Now Raju didn't have any plan left, on January 07, 2009, Raju wrote a
letter to Securities and Exchange Board of India admitting to the
fraudulent activities and financial irregularities in his company. He
revealed in his letter that he had been overstating its revenues and
inflating its profits from 2003 to 2009 .Satyam Balance sheet showed
nearly $1.5 billion in non-existent cash and bank balances, accrued
interest, and misstatements. 
Raju and the company's global head of internal audit used a number of
different techniques to the fraud. Raju created numerous bank statements to
advance the fraud. He 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. He also created 6000 fake
salary accounts and money in them was appropriated after the company
deposited the salaries. The company's global head of internal audit created
 
fake customer identities and generated fake invoices against their names to
inflate revenue.

Thus, investors lost $2.82 billion in Satyam. Criminal charges were brought
against Raju.
SEBI passed an order which had barred Raju from the markets for 14 years
and also asked to return Rs 1,849 crore in unlawful gains with interest.
At last ,Tech Mahindra bought Satyam and renamed as ‘Mahindra Satyam’.
 QUESTIONS&
ANSWERS
Q.1 What is the unethical conduct in “SATYAM SCANDAL”?
 

Ans. Raju’s way of conducting the business is the classical example of unethical practices
in the industry. He was solely driven by the greed of money and acquiring lands. Raju
chose the easiest yet the most immoral ways to achieve his goals. He forged the
accounting books for years, avoided taxes, and diverted the money received from
shareholders, created fake clients, account salaries and invoices. Raju showed his
company in very good financial health and attracted money from shareholders to buy
lands. Ethical standards thus in the company were poor.
Q.2 Who are the victims of the fraud?
Ans.
 Clients:
They expressed loss of trust and preferring to go with other competitors. Several global
clients cancelled their contracts with the Satyam.
 Shareholders:
They lost their valuable investments and there was doubt about revival of India, as a
preferred investment destination.
 
 Employees:
They faced non payment of salaries, project cancellations, layoffs. They were exploited in
many ways: morally, financially, legally, and socially.
 Bankers:
They were concerned about recovery of financial and non-financial exposure.
 Indian Government:
Gov. was worried about its image of the nation and IT-sector affecting faith to invest, or to do
business in the county.
Q.3 Will the response of the Securities and Exchange Board of India be
enough to prevent another scandal like Satyam?
Ans.  I do not believe that any response from the SEBI would be enough to prevent
another scandal as it is the most powerful regulating agency of the Government of India
which has the full powers in intervening in any of the Financial Affairs of the Companies
regarding
  the presentation of financial figures and insiders trading. The prices of the share
of Satyam Computers were increased many folds but SEBI was in total failure in detecting.
But it will be enough to discourage most companies from committing accounting fraud. The
fine of Rs 1,849 crore and banning the owner from the market for 14 years is a heavy
sanction from the SEBI.
Thank you