The given article is the part of my project which I had submitted in NLSIU in investment laws â€œinvestor protection a critical analysis with satyam fraudâ€. It is basically compilation of various views against the fraud and in order to research the cause and suggest the proper action needed.
Here I just want to share that one of my faculty has told commented of satyam fiasco in a philosophical way that â€œuntil the greed and thirst for money is there, such kind of frauds will always be thereâ€. Very true, we can not change the human nature but what we can do is to provide enough knowledge to the investors and professional so that such greedy plans to get success in future.
SATYAM FIASCO : UNCERTAINTIES
Few months ago, Satyam Computer Services Ltd. ('Satyam') is one of the top four software service providers in
But the real uncertainty is that the â€œwhistle blowerâ€ is not a person or body which is expected to be or established for such purpose. Surprisingly, he is the Project consultant of
Last year the Andhra Pradesh government awarded 12000 crore HyderabadMetro project to a consortium headed by Maytas Metro Ltd, a sister company of maytas infrastructure. Many say Raju's fall began the day Maytas won the
How can banks, or at least bankers not be involved?
Is it possible for a company to show its auditors that money exists in bank accounts without bankers giving them at least a fig leaf certificate? If the certificates were genuine my charge that bankers were involved stands proven. If they were forged, banks should find out how their names were misused.
Audit committee - what would its silence imply?
Under the corporate governance, requirements, among other things, the functions of the audit committee include the appointment, reappointment and if required the replacement or removal of the statutory auditor and the fixation of audit fees, Satyamâ€™s auditor fee jumped from Rs 92 lakhs in 2004-05 fiscal to 1.69 crore the next year. But it was the financial year 2006-07 when PWCâ€™s auditing fee shot phenomenally to Rs 4.31 crore.
The chairman of the audit committee in the relevant years should have interrogated by the police as to what justification did the audit committee have for recommending such hike?
Company secretary - His seeming inertia, pregnant with meaning
The company secretary is the secretary of the audit committee. The role of the company secretary has to play the role of H conscious keeper. He is not just a ministerial official. As a principal officer it was his duty to guide the audit committee. If for any reason company secretary keeps quiet without ringing the warning bell he is only an officer in principle and not a principal officer. He has certainly failed and neglected to use his closer contacts with Board members.
Can the company's Board of directors escape their responsibility for acquiescence in the spree?
After the audit committee makes recommendations, the full Board had the duty to apply their independent mind. But no one seems to have expressed his or her reservation on such unjustified increases.
Shareholders' ignorance and apathy
Although the shareholders have to decide the auditors' remuneration, it is seen that no shareholder raises pertinent questions. Even the large sharehold ers like mutual funds who have equity research staff, do not raise such important issues. It is always said by the experts on capital markets that instead of retail shareholders mutual funds should be preferred since they can reign the managements. In the case of Satyam, such expectation is belied.
Registrar of Companies: failure.
Fraud office gets mandate, but not people.
All these facts thus indicate that in spite of all the rules and regulations, systems and machineries the â€œgameâ€ was played and none all the above discussed have not taken any initiative to smell it while performing the legal or moral duties.
Let us further discuss those facts showing the loopholes in the present system : -
- What are the assets and liabilities claimed to belong to or standing in the name of the Ramalinga Raju and Rama Raju clans - their spouses, their children (whether sons-in-law or their trusted employees), the numerous companies that they are alleged to have incorporated, the partnerships they have formed, and so on? We should have details of all gifts they have made during the last ten years, the major family or social functions they have performed, the expenditure they have incurred and so on.
- The banks have always been the worst conspirators and at the same time, the most effective whistle-blowers, voluntarily or under compulsion of circumstances, in all scams of this nature. The scope for making more use of information in their possession should be examined. The fact so found should be taken to be evidence of their close connection or of their being among the group's name lenders. Where the same bearer/durbans/peons/servants carry cheques/ drafts, cash, etc., to or/and from banks, etc., that fact can also serve as evidence of the investment business in question belonging to the persons controlling the group under investigation.
- There should be charts revealing how each company is owned /managed by the group. Satyam should be compelled to furnish details of all its shares which are charged/hypothecated/pledged for any debt, whether in the names of the members or in the names of others.
- A panel of suitable accountants/auditors for deployment on deputation 'Foreign service' to private sector undertakings which need their services should be maintained by the Comptroller and Auditor general. AuditÂ· rotation should not be confined to any single firm: no firm should be allowed to deal with the same large company or group of companies for more than three years. There should be an audit manual setting out what the auditor should check and how the checking or verification should be done.
- If a case or group of cases involved in a scam is entrusted for investiga tion by a commission or a group of officers, it will always be desirable for it to have a chairman from outside the State, in view of the political of developments during the last decade, preferably a retired judge of the Supreme Court or a retired chief justice of the High Court who will have no axe to grind in the State to which the person under enquiry belongs or in which he has 'his head office.
All the questions of law which have a bearing on the case, particularly those issues which point to the need for new legislation or an amendment of the existing law should be spelt out for the recommendations on, the commission/group, Where criminal or civil action is called for the recommendation should not merely be re quired to be specific with reference to the contraventions noticed under the different laws but also to be accompanied/supported by draft amend ments of the law or draft for the fresh legislation where one is found to be essential.
The three important issues for consideration in the Sat yam cases include the following:
1. What is the role/responsibility of independent directors? Are they rubber stamps to affirm the decisions already reached by the promoters or to examine the proposal before approval?
2. Have the auditors exercised due diligence in performing audit?
3. How do we check and prevent corporate frauds in future?
Latita iyer, Abhinav Singh, â€œ
Jagannathan R, â€œPromoter,banker,crookâ€, DNA news line, January 15th, 2009 at p 9 .
Prof. Suresh Thakurdesai, â€œsatyam episode - auditorsâ€™ remuneration is not fee for turning blind eye to management fraudâ€ 88/3, Corporate law advisor, 186, February (1), 2009.
Ibid at page 188
Prof. Suresh Thakurdesai, â€œsatyam episode - auditorsâ€™ remuneration is not fee for turning blind eye to management fraudâ€ 88/3, Corporate law advisor, 188, February (1), 2009.
Surabhi, Fraud office gets mandate, but not people, the financial express, January 9th 2009, at p 3
Srinivasan K, â€œSatyam episode - Concerns stemming from a corporate fraudâ€, 88/3, Corporate law advisor, 169, February (1), 2009.
Ibid at 170
Srinivasan K, â€œSatyam episode - Concerns stemming from a corporate fraudâ€, 88/3, Corporate law advisor, 170, February (1), 2009.
Kumar Naresh, â€œSatyam episode â€“ Role of directors and auditorsâ€, 88/3,Corporate law advisor, 184, February (1), 2009.