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Men in Suits
  • Directors' Institute


Updated: Jun 19, 2023


Satyam Computer Services Ltd, which was designated as the IT crown jewel, at some point engaged in one of the biggest corporate fiddles in the history of the Indian Securities Market. The irony here is that the company that received the Golden Peacock Award in 2007-08 for having the best governance practices turned out later to be a classic example of bad corporate governance. It was the fourth largest software company in India and the first Indian company to be listed on three global stock exchanges, namely NYSE (New York Stock Exchange), Dow Jones and EURONEXT. It rose to immense success globally. The success however was not the outcome of ethical decisions but fraudulent decisions of the CEO, because of which the company was bound to go indigent. The scandal is popularly termed India’s Enron.

The founder and CEO of Satyam, Ramlinga Raju, swindled investors of thousands of crores of rupees by manipulating the balance sheet of the company. This fraud was exposed through a letter of confession sent by Raju. This letter in which he admitted his financial misdemeanours to the extent of $1.47 billion was sent to the Board of Directors (BOD) of Satyam as well as to the chairman of SEBI on 7th January 2009. The share price of Satyam which clocked at ₹544 in 2008 steeply declined to ₹11.50 after the confession.

The financial statements of Satyam revealed that the company’s promoters effectuated a sale of stocks worth ₹312.88 crore approximately, which earned them an illicit gain of around ₹2500 crore. The above-mentioned gains made by the company resulted from sales that took place in a span of 8 years from early 2001 to early 2009. The shares of Satyam were sold in large volumes when its price was at peak. Ramlinga Raju along with his brother and other officials of the company were arrested for resorting to fraudulent measures to create misrepresentations in the balance sheet, manipulating the securities market, insider trading and deceiving the investors.

Let us understand below a series of events that culminated in the downfall of Satyam.


Maytas acquisition

A few days before the letter of confession on 16th December, 2008, Raju declared his plan of Maytas acquisition which involved two firms of Maytas for an amount of $300 million. These two firms were Maytas Infrastructure Limited, which was a leading infrastructure development, construction and project management company and Maytas Properties, which was a real-estate investment firm. These Maytas firms were under the ownership of Raju’s sons in which Raju himself also shared a significant stake. This decision called for opposition from the shareholders compelling the board to pull back the decision. This however affected the stock price of the company by almost 55 per cent.

Barred by the World Bank

The World Bank accused Satyam of being ineligible for contracts as it resorted to corrupt means like providing illegal incentives to bank employees and failing in maintaining documentation as regards the costs charged to its subcontractors. Owing to this, on 23rd December, 2008, the company was prohibited by the World Bank from conducting business with the bank’s direct contacts for eight years. After the World bank pronounced its decision, many independent directors of Satyam started resigning as they sensed corporate governance issues in the company.

07th January, 2009

The date marks the fateful day for Satyam when Ramalinga Raju confessed that the financial figures of the company were overstated in its balance sheet to a whopping ₹7000 crore. He resigned as the chairman of Satyam. He admitted that his plan of Maytas acquisitions was the last attempt to maintain the situation, through which he could replace fake assets with real ones. After such a massive financial fraud, class-action lawsuits started pouring in against Satyam by Indian and American law firms.

Criminal conspiracy by Ramalinga Raju

Mr Raju was the primary perpetrator of the crime and was booked under the Indian Penal Code 1860 with charges of cheating, criminal breach of trust, forgery and criminal conspiracy. His corrupt intentions prompted him to overvalue the assets of the company by falsely showing that the company held $1.04 billion in cash and bank loans to create a false picture in front of the investors. In reality, none of these assets existed. Further, to live up to the expectations of analysts, Mr Raju bloated quarterly incomes and bank statements. He also created fake bank accounts to fabricate funds and balance sheets. Satyam thus created a very ideal situation for itself in the market. This led to a sharp rise in the stock price. When the stocks were enjoying their peak, Raju sold a lot of his shares and earned humongous profits.

The CFO and head of the internal audit of the company also played a huge part in the scam. They aided in the creation of thousands of fake employees and customer identities so that a huge sum could be shown deposited towards pay accounts and against invoices. This money would then be withdrawn by Mr Raju and diverted to companies he had ownership and interests in.

Role of the Auditor

Satyam’s financial statements were audited by PwC (PriceWaterCoopers) since 2000. The auditor firm claimed that it cannot be held responsible as it only audited the financial statements that came from the company’s management. However, the auditor's role is not to audit statements blankly that are placed in front of them but to conduct independent verification with banks to verify the stated figures and also try to spot financial misreporting. The auditor here clearly failed to notice the deception of this scale over the years, raising a lot of suspicions. Later, it was also revealed that Satyam was paying PwC double its fees. The auditor was convicted guilty in the case and its licence was revoked for two years.

Insider Trading charges

SRSR Holdings Pvt Ltd

SEBI framed charges against certain individuals in the Satyam scandal under Regulation 3 of SEBI Prevention of Insider Trading (PIT) Regulations 1992. The first one is SRSR Holdings Pvt Ltd. The shareholding of SRSR Holdings accounted for nearly 8.6% of the total shares of Satyam. This figure equates to more than 99% of the total shareholding of the promoter group of Satyam. Raju and his sibling Rama Raju, who were the key heads of Satyam also held the position of directors and shareholders of SRSR Holdings. In addition to them, their wives were also shareholders of SRSR Holdings. SRSR Holdings had pledged the shares of Satyam on behalf of the loans taken by various promoter group entities of Satyam, amounting to a total valuation of ₹1,258 crore from financial institutions. The value at which the shares were pledged was ₹402.80. SEBI threw allegations of insider trading against SRSR. The foundation which formed SEBI’s allegations and its findings in this respect were the following-

1. Deliberate pledging of shares- Satyam and SRSR shared two common managerial individuals, i.e. Ramalinga Raju and Rama Raju. They were naturally aware of the existing asymmetry in the financial accounts of Satyam. Despite being aware of what was happening, they took a decision to pledge the shares of Satyam. This act was driven by a capitalist motive as the consideration for the pledge was acquiring large sums of money to benefit the promoters personally as well as the promoter entities.

2. Qualification as an insider- SRSR primarily denied the status of “insider” granted to it by stating that it does not fit under the definition of “insider”. To the contrary, SEBI held that SRSR would suitably fall under the head of “person deemed to be a “connected person” due to the mutual managerial connection that they shared. And thus it was held to be qualified as an insider.

3. Denial of the possession of “unpublished price-sensitive information”- The company defended its liability on one of the grounds that private knowledge in possession of certain directors cannot be extended to make the company liable. SEBI remarked that because the approval for pledging the securities required compulsory authorisation by the Raju brothers owing to their directorial position, and because they were well aware of the financial asymmetry prevalent in Satyam, SRSR possessed “price-sensitive information”.

4. Construing “pledging of securities” as “dealing in securities”- SEBI held that the explanation given to “dealing in securities” under Regulation 2(d) is vast enough to include within its ambit any commercially orientated transaction with reference to securities consisting “transfer of securities or any rights or interests therein or issuance of securities”. Thus pledging of shares is covered under the wide meaning.

After arriving at all the above conclusions, SEBI convicted SRSR liable for the insider trading offence and imposed a civil sanction by ordering a return of ₹1258 crore, which it gained in a wrongful manner along with simple interest at the rate of 12% per annum, beginning from 7th January when the Satyam fraud was officially exposed till the date of final repayment.

G Jayaraman

The SEBI PIT Amendment Regulations 2002 mandated the setting up of a trading window. An individual is forbidden from trading in the company’s securities when the trading window of that company is closed. The window is supposed to be kept shut at the time of significant announcements and events of the company which carry the potential to fluctuate its share price. It is the duty of a company’s compliance officer to ensure the closing of windows in relevant circumstances. G Jayaraman, the then compliance officer of Satyam in 2008 and 2009, failed to abide by his duty twice. He displayed negligence by not shutting down the trading window of Satyam at the time of two material events. The first failure was at the time of the Maytas’s announcement and the second failure was immediately prior to when the letter of confession was out. By virtue of being a compliance officer, he was cognizant of these two pieces of material information. Consequently, certain investors and a few employees benefited by engaging in non-permissible trading. SEBI recognised the deliberate negligence of Jayaraman and imposed a monetary penalty of ₹5 lakh on him.

T.A.N. Murti

Another individual who was convicted of the insider dealing offence was the Chief of Investor Relations in the impugned IT Company, namely T.A.N. Murti. As per expectations, the acquisition pronouncement on 16th December, 2008 considerably diminished the price value of Satyam stocks. In the case of Murti, he possessed a substantial aggregate of nearly 15000 of Satyam’s shares until a day before the declaration of the huge Maytas acquisition. However, one day prior to the announcement, he sold a sizable portion of around 11000 shares from his bundle of possessed shares. This transaction saved him from a massive monetary loss.

From the investigations initiated by SEBI, it was found that Murti had knowledge of the acquisition beforehand as his email inbox contained two suspicious emails. One mail pertained to a draft merger proposition in which the identity of the proposed company was missing but the second mail comprised the financial statement of Maytas. Also, the fact that the sender of both these emails was the Chief of ‘Mergers and Acquisitions’ department of Satyam, namely Srinivasu Satti, added to its authenticity. Then the phone records between Murti and Satti provided further circumstantial evidence as it disclosed that the two engaged in conversations on the day of the sale as well as on the day before the sale. Thirdly, Murti being an insider himself would quite probably be aware that the trading window of Satyam would soon be shut after the announcement for a considerable period of time. Also, SEBI’s findings reveal that a lot of trading happened during a stretch of twenty days immediately preceding the pronouncement. SEBI connected all these dots together and concluded the trading engaged by Murti in mid-December 2008 as insider trading. He was charged with a fine of ₹65 lakh.

Consequences of Satyam scandal

Ramlinga Raju’s guilty conviction for insider trading was upheld by the Securities Appellate Tribunal (SAT). As a result of SAT’s order, Raju was ordered to deposit illegally made profits of around ₹1849 crore together with an interest of 12% p.a. It harmed the company’s reputation on a global footing.


The gradual nefarious activities undertaken by the founders of Satyam trapped them in an inescapable web. The company’s name was struck off completely from the list of reputed companies and it lost its identity. The exposure of this huge corporate fraud is immensely responsible for the improved corporate governance structure in the country as a lot of required changes were made to the governance framework subsequent to the scam.

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