Satyam Computer Services: India's best-known accounting fraud

The failed deal. In December 2008, Satyam's board approved a plan to buy two real estate companies owned by the family of its chairman, B. Ramalinga Raju: Maytas Properties and Maytas Infra. Investors objected strongly, the share price fell, and the deal was withdrawn within hours. Several independent directors resigned in the following weeks.

The confession. On 7 January 2009, Raju wrote to the board admitting that the accounts had been manipulated for years. His letter said that:

• ₹5,040 crore of the ₹5,361 crore of cash and bank balances in the books did not exist
• ₹376 crore of interest income shown in the books did not exist
• Liabilities were understated by ₹1,230 crore
• Debtors were overstated by ₹490 crore, against ₹2,651 crore in the books
• For the September 2008 quarter, the company had reported revenue of ₹2,700 crore and an operating margin of 24%, against actual revenue of ₹2,112 crore and a margin of 3%

He described the Maytas deal as "the last attempt to fill the fictitious assets with real ones." The total fraud was later estimated at ₹7,136 crore.

The aftermath

• The government replaced the board with its own nominees and ran a sale process. Tech Mahindra acquired control in April 2009 and merged Satyam into itself in 2013.
• In April 2015, a special court sentenced Raju and others to seven years in prison.
• PwC, Satyam's auditor from 2000 to 2008, had relied on bank statements supplied by the company instead of checking directly with the banks. In January 2018, SEBI barred the PwC network from issuing audit certificates for listed companies for two years and ordered disgorgement of fees with interest. The US SEC had fined PwC's Indian affiliates $6 million in 2011.

• A cash pile that was never used. The company reported thousands of crores of cash and bank balances while its business and payouts did not reflect that wealth. Cash that sits idle for years, earning little, deserves questions.
• Audit evidence from the company itself. The auditor accepted bank statements provided by management rather than confirming balances directly with the banks.
• A related-party deal with no business logic. An IT company proposed to spend its cash buying real estate firms owned by the promoter's family.
• A board that approved it. The board, including its independent directors, approved the Maytas deal before investors forced it to be withdrawn.
• A sharp market reaction. Investors saw the Maytas proposal as a governance failure at once. When the market rejects a related-party deal that strongly, it is worth asking what else the board has approved.

• Verify cash directly. For analysts, cash that cannot be tied to interest income or to a clear use is a classic warning sign. For auditors, direct confirmation with banks is basic practice.
• Independent directors carry real responsibility. Satyam's board met the rules on paper. After the case, the Companies Act 2013 set out clearer duties and liabilities for independent directors.
• Related-party deals with the promoter's family need the hardest scrutiny. The Maytas proposal was the clearest public signal before the confession.
• Rules change after scandals. Satyam fed directly into auditor rotation, stronger audit committees, and a statutory role for the SFIO under the Companies Act 2013.