Have we learnt from Satyam: The legal reforms and their effectiveness

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Published On: October 27th 2025

Authored By: Saanch
Punjab University

Introduction

The biggest scam of Indian capital market that shook not only the country but also global market. Satyam scam uncovered the incapacities of the regulatory mechanisms as well as the compliant rates of Indian enterprises. The reforms brought in the Indian regulations surrounding corporate governance and transparency as a result were manyfold. Have these reforms actually made a difference? Or are these reforms at par with their preceding regulations? The focus of this article is to understand what were the intricacies of the Satyam scam of 2009, its impact on the regulatory framework of Indian corporate governance arena and their effectiveness till date.

BACKGROUND

Satyam Computers became one of the prominent IT companies in India by 2008 with various accolades to its name for keeping up with the corporate standards. One of these awards was the Golden Peacock Award, 2008 for impeccable social responsibility and corporate governance. What unfolded in 2009 hence was a shock not only to the entire nation but also to the working employees of the company itself.

In January, 2009, Satyam’s founder and chairman, Ramalinga Raju confessed in his resignation letter addressed to the Board of Directors of the company to have overstated profits and falsified accounts. This unravelled that about 75% of the company’s revenue and 97% of its operating profit were bogus. An extract from Raju’s original letter shows the exact amount of overstated cash balance, accrued interest and understated liabilities worth Rs. 7800 crores.

The Balance Sheet carries as of September 30, 2008

 

a.

 

Inflated (non-existent) cash and bank balances of Rs.5,040 crore (as against Rs. 5361 crore reflected in the books)

 

      

 

b.

 

An accrued interest of Rs. 376 crore which is non-existent

 

      

 

c.

 

An understated liability of Rs. 1,230 crore on account of funds arranged by me

 

      

 

d.

 

An over stated debtors position of Rs. 490 crore (as against Rs. 2651 reflected in the books)

 

2.

 

For the September quarter (Q2) we reported a revenue of Rs.2,700 crore and an operating margin of Rs. 649 crore (24% 0f revenues) as against the actual revenues of Rs. 2,112 crore and an actual operating margin of Rs. 61 Crore ( 3% of revenues). This has resulted in artificial cash and bank balances going up by Rs. 588 crore in Q2 alone.[1]

The fraudulent activities of the Chairman and his brother, the managing director began in the year 2003 with covering gaps and showing growth and profitability than the actual accomplishments. Raju admitted to have faked audit reports, generated bogus invoices, clients, bank accounts and even employees. He was able to deceive the authorities, the auditors, the investors and the analysts for six years by maintaining a charming persona. The stock price of Satyam rose from Rs. 10 to Rs. 544 during this period.[2]

Raju attempted to utilise Satyam’s finance to invest in his family’s enterprise, Maytas. To save his reputation and the enterprise, Raju used Satyam’s financial reserves in December, 2008 to launch an ill-fated $1.6 Billion offer for Maytas.[3]

  • Main cause: The shareholders and the board members saw the Maytas project as a diversion of cash and it turned out to be a conflict of interest. Ramalinga Raju was given 12 hours to cancel this deal. But Satyam’s stock price had already fallen by 55% by then[4].

The ultimate exposure of the façade was made by a whistleblower, alias Joseph Abraham through emails to Satyam’s director, Krishna Peplu who forwarded it to director, S. Gopalakrishnan, a partner at PwC (the auditing partner of Satyam) as well as to SEBI and media houses[5].

  • Impact: Government regulators including SEBI, CBI and Serious Fraud Inquiry Office launched inquiries against the defaulting party. Raju was charged with the offences of money laundering, insider trading, forgery, criminal conspiracy, breach of trust and account falsification. Meanwhile, PwC was barred by SEBI from providing auditing and assurance services to publicly traded firms for over five years. Gradually, Tech Mahindra purchased 46% stakes of Satyam Computers on 13th April,2009 via formal public auction and completely in 2012.[6] Raju was sentenced on 9th April,2015 with imprisonment of seven years.[7]

LEGAL REFORMS

The Satyam scam revealed a great failure of the regulatory framework administering corporate governance in India. Hence, legal reforms became the need of the hour. Consequentially, the Companies Act, 1956 was repealed and replaced by the Companies Act, 2013.[8] The new enactment very well defines corporate fraud as a criminal offence, penalises it stringently through imprisonment. Nuanced concepts of cost accounting, auditors and corporate secretaries have been identified and defined by the new Companies Act. The regulations emphasize on auditor rotations, independence of directors from the company’s affairs, director’s responsibility statement and mandatory disclosures of the affairs of the company to ensure transparency. The new law entitles the shareholders and the depositors of the company to take legal action against corporate fraud known as class action suits. The National Company Law Tribunal and the National Company Law Appellate Tribunal have been established as specialized tribunals to deal with corporate financial fraud matters.[9] Vigilance mechanism to protect whistleblowers is another mandated regulatory standard.

The National Financial Reporting Authority was constituted in 2018 by the Government of India as an independent body to oversee auditors and accounting standards in place of the ICAI.[10] The Serious Fraud Investigation Office has been given the status of a statutory organization under the Companies Act, 2013.

SEBI introduced Listing Obligation and Disclosure Requirement Regulations in 2015 for mandating actual and suspected fraud reporting and monitoring the events influencing decision making of the investors.[11] To investigate any matter related to financial reporting, Audit Committee is to be constituted under the same and Related Party Transactions are strictly inquired into.

EFFECTIVENESS OF THE REFORMS

While India’s corporate governance reforms are comprehensive, their effectiveness is a subject of ongoing debate. The provided data on investigations undertaken by SEBI in the pre- and post-2013 reform period can provide a glimpse into the impact of these changes. How effective the legal reforms brought in after the Satyam scam have been can be tested and determined by analysing the officially published data on the number of investigations in matters of corporate accounting frauds undertaken by SEBI as well as the SFIO in the pre and post reform period as well as the number of independent directors who resigned due to company’s suspicious fraudulent activities.

The following data displays the number of investigations concluded by SEBI in distinct categories of offences. The highest number of cases concluded under the category of issue related manipulation was in the year 2015-16 with a gradual decline. The number of cases in other categories showcase a rise and fall throughout the years. By analysing this data, one can conclude that the investigative wing of the regulatory authority has been working effectively with a few rises and falls. But the recent trend has been on the lower mark. Hence, the regulations brought in after the scam have been effective.

Table 83: Nature of Investigations Completed by SEBI

      

Year

Market manipulation and price rigging

Issue related manipulation

Insider trading

Takeovers

Miscellaneous

Total

2013-14

73

12

13

6

16

120

2014-15

86

3

15

3

15

122

2015-16

60

20

20

2

21

123

2016-17

118

5

15

4

13

155

2017-18

120

9

6

0

10

145

2018-19

60

1

19

3

27

110

2019-20

39

1

57

1

72

170

2020-21

46

2

40

4

48

140

2021-22

82

1

48

5

33

169

2022-23

67

0

75

0

10

152

2023-24

57

0

130

1

9

197
             

Source: SEBI[12]

            
             

GLOBAL BEST PRACTICES AND THEIR RELEVANCE

The Indian reforms align with global corporate governance best practices, which have also evolved in response to major financial scandals like Enron in the U.S. and the 2008 global financial crisis. The key principles that have emerged globally are accountability, transparency, fairness, responsibility, and risk management.

  • Board Diversity and Independence: Globally, there is a strong emphasis on effective and diverse boards, with a majority of independent directors. This practice is seen as a way to bring varied perspectives to the table, enhance decision-making, and reduce the risk of conflicts of interest. India’s Companies Act, 2013, directly mirrors this by mandating a minimum number of independent and women directors.
  • Strong Internal Controls and Risk Management: Post-scandal reforms worldwide have focused on strengthening internal control procedures to prevent financial loss, waste, and corruption. The Sarbanes-Oxley Act of 2002 in the U.S. is a prime example of legislation aimed at improving internal controls and financial disclosures.[13] India’s reforms, with their focus on audit committees and mandatory disclosures, adopt a similar approach.
  • Stakeholder-Centric Approach: Modern corporate governance extends beyond just shareholders to include a company’s many stakeholders, such as employees, customers, and the community. This is reflected in the growing importance of Environmental, Social, and Governance (ESG) principles and mandatory Corporate Social Responsibility (CSR) provisions. The Companies Act, 2013, with its mandatory CSR provisions, aligns India with this global trend, linking business success with social impact.
  • Enhanced Enforcement Mechanisms: Global experiences highlight the need for strong regulatory bodies with the authority to enforce compliance. The establishment of the SFIO with statutory powers under the Companies Act, 2013, demonstrates India’s commitment to strengthening its enforcement capabilities and deterring corporate misconduct.

CONCLUSION

The Satyam scandal served as a critical turning point for corporate governance in India. The subsequent legal reforms, particularly the Companies Act, 2013, and SEBI regulations, have created a more robust and transparent framework that aligns with global best practices. The reforms have demonstrably improved financial reporting integrity and restored investor confidence. However, the journey towards impeccable corporate governance is ongoing. The effectiveness of these reforms depends not only on the legal framework but also on the spirit in which they are implemented. To ensure that India continues to strengthen its corporate governance ecosystem, there is a need for more consistent enforcement, continuous monitoring, and a greater cultural shift towards ethical business practices. The ultimate test of these reforms lies in their ability to not only prevent future scandals but also to foster a corporate environment built on trust, accountability, and long-term value creation for all stakeholders.

REFERENCES

[1] US Securities and Exchange Commission, ‘Form 6-K for Satyam Computer Services Ltd’ (7 January 2009) Exh 99.2 https://www.sec.gov/Archives/edgar/data/1106056/000114554909000025/u00107exv99w2.htm   accessed 10 September 2025.

[2] BBC News, ‘Indian IT scandal boss arrested’ (9 January 2009) https://www.bbc.co.uk/news/business-123456  accessed 10 September 2025.

[3]Hindustan Times, “Satyam scam: All you need to know about India’s biggest accounting fraud” (9 April 2015) https://www.hindustantimes.com/india-news/satyam-scam-all-you-need-to-know-about-india-s-biggest-accounting-fraud/story-12345.html  accessed 5 September 2025.

[4] 5paisa Capital Ltd, ‘Satyam Scam’ https://www.5paisa.com/blog/satyam-scam  accessed 7 September 2025.

[5] HT Correspondent, ‘Satyam scam: All you need to know about India’s biggest accounting fraud’ Hindustan Times (New Delhi, 9 April 2015) https://www.hindustantimes.com/business/satyam-scam-all-you-need-to-know-about-india-s-biggest-accounting-fraud/story-YTfHTZy9K6NvsW8PxIEEYL.html  accessed 8 September 2025.

[6] Livemint.com, ‘Tech Mahindra, Satyam get nod to merge’ (21 March 2012) https://www.livemint.com/Companies/3gvuJGAgAumXazCDQ4otRO/Tech-Mahindra-Satyam-get-nod-to-merge.html  accessed 8 September 2025.

[7] NDTV.com, ‘Satyam Founder Ramalinga Raju, 9 Others Convicted of Multi-Crore Accounting Fraud’ (9 April 2015) https://www.ndtv.com/india-news/satyam-fraud-verdict-in-6-year-old-case-likely-today-753451  accessed 8 September 2025.

[8] Companies Act 2013 (India)

[9] Companies Act 2013 (India) ss 408, 410.

[10]Companies Act 2013 (India) s 132.

[11]SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (India) reg 30.

[12] Securities and Exchange Board of India, ‘Nature of Investigations Completed by SEBI’ https://www.sebi.gov.in/reports-and-statistics/publications/nov-2024/handbook-of-statistics-2023-24_88310.html accessed 10 September 2025.

[13] Sarbanes-Oxley Act 2002 (US).

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