Satyam Scam

Hello everyone, today I am going to tell you a very interesting story. It is a story which remembers us of one black day in the Indian economy. The story is about the Satyam scam. Satyam was a software company which provided software development and consultancy services to the customers.

Who was B Ramalinga Raju ?

The owner and the chairman of Satyam company, B Ramalinga Raju was born in a prosperous family. His father was a trader of grapes. B Ramalinga Raju went to America to complete his Masters in Business Administration. He came back to India and started his business. 

The first business he started was a Cotton Spinning Mill. This was his first failure. Then he went on to start another infrastructure company which failed badly. 

Foundation of Satyam Company

After these two failures he laid down the foundation of Satyam company in 1987. Company got itself registered in the share market in the year 1992. It was registered in the NSE ( National Stock Exchange ), BSE ( Bombay Stock Exchange ) and NYSE ( New York stock exchange ).

 After this period Satyam never look back and became the company with one of the highest growth rate in India.

What was the scam ?

B Ramalinga Raju presented fake receipt and invoices before everyone including the investors, the board and the government. These fake bills were presented to increase the prices of shares of Satyam Company in share market. He showed in his invoices that the company was in huge profit to attract more and more investors and get a hike in the share prices.

The difference created by B Ramaling Raju in the actual amount and the fake amount was 7136 crore rupees which made it one of the biggest IT scams of all time. The money company was about to receive from the market was shown with the very great increased value and the money he had to pay to the market was shown with a very decreased value.

Number Game by B Ramalinga Raju 

The bank balance which was actually 321 crore rupees was shown as 5161 crore rupees , the difference being 5040 crore rupees. The interest he was about to receive from the bank was shown as 376.5 crore rupee is which was actually 0 rupees. The total amount he had to pay to the market was 1230 crore rupees but he showed in the receipt that he had nothing to pay to the market. The money he had to receive from the debtors was 2161 crore rupees which he showed in the invoices as 2651 crore rupees. All this difference of rupees sums up 7136 crore rupees. 

Basically the Satyam scam fraud he did was that the assets were shown with great increase and the liability was shown with the great decreased values.

Also Check :- Harshad Mehta Scam

Fake Employees

He also showed that he had 53000 employees working in the company. But the actual number of the employees was 40000. This means that the salary of 13000 employees which was in total around 20 crore rupees was taken by B Ramalinga Raju but shown as the salary of those 13000 fake employees.

Steps taken to decrease this widening gap of difference

B Ramalinga Raju started another company named as Maytas infrastructure and made his brother the owner of company. Maytas is just opposite of Satyam. He proposed in front of his board to use this fake profit amount of 7136 crore rupees in purchasing the Maytas Infrastructure company.

But the board refused to do so. They had a valid reason in not purchasing the Maytas company. Satyam was a software company and it had no reason to invest in a infrastructure company.

This gap of 7136 crore rupees was made in 9 years between 2000 and 2009. Now B Ramalinga Raju had no way to sort this out. So he finally decided to confess.

Confession

B Ramalinga Raju released a confession letter saying that he had done a blunder mistake by creating fake invoices and receipts to show his company in huge profit. He used the statement in his letter 

saying that, "I was riding a tiger but didn't know how to get off without being eaten".

The price of each share of Satyam dropeed from around 600 rupees to 6 rupees. Investors suffered a huge loss.

Punishment

9 people including B Ramalinga Raju and his brother were found guilty. They were sent for 7 years of rigorous imprisonment. B Ramalinga Raju and his brother were imposed a penalty of 5.5 crore each and the rest 7 people were imposed a penalty of 50 lacs each.

Satyam was sold to Tech Mahindra and now it is known as Mahindra Satyam.

The Final Verdict

This was one of the biggest scam ever in the IT sector. This scam made a very bad reputation of India in the foreign market. Also the money of many investors of India was in loss. The punishment given to all of them was very small because whole country had to suffer due to this  scam.

The reason for this is cam was that the regulatory authorities like Securities and Exchange Board of India were not able to figure out that such a fraud was going on. Also the auditing was not properly done. 

So this was all about the Satyam scam. I will be back soon with another interesting post . Till then goodbye.