module_5_24_

CORPORATE
GOVERNANCE

CERTIFICATE COURSE

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DEVELOPED BY

MODULE - 5

CORPORATE GOVERNANCE POLICIES

5.1 BOARD COMPOSITION AND DIVERSITIES d. The board should fulfill certain key functions,
including maintenance, review and
Corporate governance best practices suggest that monitoring of corporate strategy,
companies disclose the composition of the board, effectiveness of corporate governance
specifically the balance between executive and non- practices, executive compensation and
executive directors. The disclosure on board succession planning, transparent board
composition should also detail whether any non- nomination and election process, potential
executive directors have a direct or indirect conflicts of interest, integrity of accounting
affiliation with the company. and financial systems, and process of
disclosure and communications.
5.1.1 Board Responsibilities
e. The board should be able to exercise
According to the OECD Principles on Corporate objective independent judgment on
Governance, responsibilities of the board include: corporate affairs.

a. Board members should act on a fully informed f. In order to fulfill their responsibilities, board
basis, in good faith, with due diligence and members should have access to accurate,
care, and in the best interest of the company relevant and timely information.
and the shareholders.
5.1.2 Board Committees
b. Where board decisions may affect different
shareholder groups differently, the board An important disclosure by organizations is that
should treat all shareholders fairly. detailing the structure of its board and management.
These structures include committees and groups
c. The board should apply high ethical which have been assigned duties by the board and
standards. It should take into account the
interests of stakeholders.

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management. For example, the board may decide to d. Composition and independence of audit,
form committees overseeing the following: nominating and compensation committees

a. Oversight of executive remuneration e. Executive remuneration
b. Audit matters f. Board meetings and operations
c. Appointments to the board g. Shareholder rights
d. Evaluation of management performance
5.2 CODE OF CONDUCT AND BUSINESS ETHICS
When disclosing details of these committees, the
board should ensure that following details are also Business ethics comprises the principles and
made available to stakeholders: standards that guide behavior in the conduct of
business. Businesses must balance their desire to
a. Committee charters maximize profits against the needs of the
b. Terms of reference stakeholders. Maintaining this balance often requires
tradeoffs. To address these unique aspects of
Company documents outlining the duties and power businesses, rules-articulated and implicit are
of the committee and its members developed to guide the businesses to earn profits
without harming individuals or society as a whole.
Written corporate governance policies ensure that
organizations are run in a transparent, ethical 5.2.1 Advantages of Business Ethics
manner, promoting good business practices. More and more companies recognize the link
Corporate governance policies, formulated by the between business ethics and financial performance.
board and management and made available to all Companies displaying a clear commitment to ethical
stakeholders, should ideally address the following: conduct consistently outperform companies that do
not display ethical conduct.
a. Election of directors to the board
b. The proportion of executive and non- 5.2.2 Attracting and Retaining Talent
People aspire to join organizations that have high
executive directors on the board ethical values. Companies are able to attract the best
c. Disclosure of information on finance and talent and an ethical company that is dedicated to
talking care of its employees being equally dedicated
operations

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in taking care of the organization. The ethical climate the values that should be adhered to in good
matters to the employees. Ethical organizations governance are the values of Transparency,
create an environment that is trustworthy, making accountability, responsibility and probability. These
employees willing to rely, take decisions and act on values should permeate all aspects of governance and
the decisions and actions of co-employees. be displayed in all actions and decisions of the board.

5.2.3 Investor Loyalty 5.3 WHISTLE BLOWER MECHANISM
Investors are concerned about ethics, social
responsibility and reputation of the company in Whistle blowing is when an employee, contractor or
which they invest. Investors are becoming more and supplier goes outside the normal management
more aware that an ethical climate provides a channels to report suspected wrongdoing at work, i.e.
foundation for efficiency, productivity and profits. speaking out in a confidential manner. This can be
done via internal processes set up by the organization
5.2.4 Customer Satisfaction (internal whistle blowing) or to an external body such
Customer satisfaction is a vital factor in successful as a regulator (external whistle blowing).
business strategy. Repeat purchases or orders and
enduring relationship of mutual respect are essential Whistle blowing and corporate governance do not
for the success of the company. The name of a always go hand in hand. But while it’s not mandatory
company should evoke trust and respect among for listed companies to have a whistle blowing policy,
customers for enduring success. This is achieved by a it’s advisable to have one in place.
company that adopts ethical practices. When a
company because of its beliefs in high ethics is Setting out your whistle blowing policy is a sign of
perceived as such, any crisis or mishaps along the way strong corporate governance and a company culture
is tolerated by the customers as a minor aberration. that takes such claims seriously. It may act as a
deterrent to those thinking of committing
5.2.4 Corporate Governance and Business ethics. wrongdoing within the company and may also reduce
The national codes all emphasize the ethical nature of the likelihood of false accusations, because
good corporate governance. Special emphasis is employees will understand more clearly the
placed on the fact that good governance is based on a consequences of their disclosure. It will also deter
number of cardinal ethical values. Topping the list of people from going straight to the media with their

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revelations instead of dealing with them through the organization who discloses any illegal,
correct channels. immoral or illegitimate practices to the
employer. He/she may be;
It’s a good idea to have a designated person who is
known to be responsible for your whistle blowing o Employee
policy. This individual will be charged with o Superior officer or
communicating the company stance on whistle o Any designated officer
blowing throughout the organization, training
employees on the subject, and following the b. External: A whistle blower may be outside the
procedure when an employee confides in them. organization who discloses any illegal,
immoral or illegitimate practices to the
Creating an open and transparent company culture company. He/she may be;
needs to come from the top down. At board level,
business leaders must lead by example; good o Lawyers
corporate governance and ethics should permeate o Media
down to management level and throughout the o Law enforcement
organization. o Watchdog agencies

We’ve seen how whistle blowing and corporate 5.3.2 Objectives:
governance are interlinked, and acting to implement
transparent policies and procedures could make a a. To encourage employees to report ethical and
vital difference to your company. With a legal violations they are aware of or have
knowledgeable and robust approach to whistle come across to an internal authority so that
blowing at board level, companies could potentially action can be taken immediately to resolve
avoid lawsuits, negative media coverage and damage the problem.
to their reputation.
b. To minimize the organization’s exposure to
5.3.1 Types of Whistle Blower: the risk and damage that can occur when
employees circumvent internal mechanisms.
a. Internal: A Whistle Blower may be within the
c. To let employees, know the organization is
serious about adherence to codes of conduct.

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5.3.3 Steps for Creating a Whistle-blowing This Act has few exclusions to be reported if it falls
Culture: under any of the categories of national importance
such as,
a. Frame a Policy.
b. Get an endorsement from top level a. Nation Security issues.
b. Economic/Scientific issue of Importance.
management. c. Cabinet Meetings/Proceedings.
c. Publicize the Organization’s Commitment.
d. Investigate and Follow Up. Any such public interest disclosure falling into the
e. Assess the Organization’s Internal Whistle- excluded categories, when received by the
competent authority shall be forwarded to an
blowing System authorized government office/body and the
competent authority will be taking a decision on such
5.3.4 Whistle blower Protection Act matter whereas that decision shall be binding.

As a bill passed by the Parliament in 2014 and On the other hand, this Act comes with a few control
consented by the President in May 2014 – Whistle mechanisms on complainants, such as
blower Protection Act, 2014 replaces the
government resolution of 2014 which empowered The penalty of up to two years’ imprisonment and a
Central Vigilance Commission to act on complaints monetary fine of up to 20,000 rupees for individuals
from whistle-blowers. found to be filing false complaints or the ones with a
wilful vendetta.
In this act, under section 3, any public servant or any
other person which may include any non- Along with this, the Act provides a time limit of seven
governmental organization may make a public (7) years to file a complaint dating from the time of
interest disclosure to a competent authority. In the occurrence of such corruption or wilful act.
context of this Act, any such disclosure to the
competent authority shall be treated as Public 5.3.5 Clause 49 of listing agreement
Interest Disclosure. The Act provides empowerment
to the competent authorities to give direction to the Securities and Exchange Board of India (“SEBI”) has
relevant bodies/authorities for the protection of overhauled the existing Clause 49 of the Listing
complainant or witness.

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Agreement and replaced it with a revised Clause 49 corporate governance. The Clause incorporates
(the “New Clause” or the “Clause”). The New Clause, methods to ensure professional, independent
which will be effective from 1 October 2014, serves and transparent approach for the selection and
the following objectives: align the provisions of appointment of independent directors. The
Listing Agreement with the provisions of the newly Clause retains the requirement of having at
enacted Companies Act, 2013 and also provide least one-third of directors as independent
additional requirements to strengthen the corporate directors if the chairman of the board of
governance framework for listed companies in India. directors is a non-executive director. If the
Most of the requirements under the New Clause are company does not have a regular non-executive
in line with the changes brought about in corporate Chairman, at least half of the board of directors
governance by the Companies Act 2013. However, a should comprise of independent directors.
certain requirement under the New Clause goes a Certain key changes in respect of the
step further and imposes more stringent independent directors are listed below:
requirements of corporate governance to listed
companies. o Tenure of Independent Directors: The
New Clause restricts the total tenure of
The New Clause is based on the principle of ensuring an Independent Director to two terms of
equitable treatment to all shareholders and 5 years each. However, if a person who
recognizing the rights of all stakeholders in the has already served as an Independent
company. The New Clause is attempting to achieve Director for 5 years or more in a listed
this object by setting up an effective corporate company as on the date on which the
governance framework within the company and amendment to Listing Agreement
providing for timely and accurate disclosures. becomes effective, he shall be eligible for
appointment for one more term of 5 years
The key aspects of the New Clause are discussed only. Further, if an independent director
below: has been completed his total tenure, he
shall be eligible for reappointment only
a. Independent Directors- The New Clause after a period of three years.
confers greater power and responsibility on the
independent directors to on matters relating to o Restriction on the number of Boards

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Independent Directors can serve: The New stock option in the company. One of the main
Clause restricts the maximum number of arguments against granting stock options to
boards an independent director can serve on independent directors is the conflicting
listed companies as seven. If such person is interest resulting out of such options. If they
serving as a whole time director in a listed are permitted to hold stock options in the
company, then he cannot serve more than company, they will have a financial interest in
three boards of listed companies. the company which will affect their
o A separate meeting of independent directors: independence. The New Clause also makes it
The New Clause provides that independent categorically clear that the independent
directors shall conduct a separate meeting at directors should not have any pecuniary
least once in a year. A separate meeting interest in the company apart from the
without the presence of the management/ director’s remuneration.
executive directors provides them an o Exclusion of nominee directors from the
opportunity to express their opinion freely definition of an independent director: The
and independently. New Clause excludes nominee directors from
o Performance evaluation of independent the definition of the independent directors.
directors: The New Clause makes it This is another step to avoid the inherent
mandatory to conduct the performance conflict of interest in allowing the nominee
evaluation of the independent directors. The directors to act as independent directors. The
evaluation shall be done by the whole board nominee directors have a clear cut mandate
except the directors being evaluated. The to safeguard the constituency they represent,
decision to extend/ continue the terms of the which are generally the leaders of the
independent directors are made on the basis company. Hence, including them in the pool
of such performance evaluation. of independent directors may not be
o Prohibition of a stock option to independent appropriate for the overall corporate
directors: In line with the Companies Act governance of the Company. Hence, the new
2013, the New Clause makes it clear that the Clause excludes them within the definition of
independent directors are not entitled to any Independent directors.

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b. Related Party Transactions (“RPT”) parties without any charge has been included in the
definition of RPT.
Abusive RPT is one of the main concerns of corporate
governance in India. Most of the abusive RPT are The Clause requires that all material RPTs have to be
carried out between group companies. The disclosed in the quarterly compliance report on
shareholding patterns of these companies are corporate governance.
concentrated among the controlling shareholders.
Hence, the requirement of obtaining shareholders’ c. Subsidiary Company
approval for such transaction does not serve any
purpose as the majority of voting rights are held by The New Clause extends a certain principle of
the controlling shareholders. corporate governance to material subsidiaries of
listed companies. A material subsidiary is defined as a
The New Clause provides that all material RPT subsidiary whose income or net worth exceeds 20%
requires prior approval of the shareholders through a of the consolidated income or net worth, as the case
special resolution and the related parties are may be, of the listed holding company. The Clause
prohibited from voting such resolutions. Mandating mandates that at least one Independent Director on
the approval of RPT by the majority of the the board of the holding company shall be a director
shareholders who are not interested in the on the board of the material non-listed Indian
transactions can curb abusive RPT. subsidiaries also.i The Audit Committee of the listed
holding company shall also review the financial
Audit Committee has been entrusted with the role of statements of the unlisted subsidiary company.
preventing the abusive RPT. Currently, the Audit
Committee reviews RPT on a periodical basis. The There have been instances where the where
periodical reviews do not serve many purposes as a ownership of major subsidiaries was transferred to
transaction already carried out cannot be undone. controlling shareholders, without taking the approval
Hence, the New Clause provides that all RPT requires of other shareholders. The New Clause states that no
prior approval of the Audit Committee. company shall dispose of shares in its material
subsidiary which would reduce its shareholding to
The New Clause also widens the definition of RPT less than 50% or cease the exercise of control over
significantly. Even a transaction between related the subsidiary without passing a special resolution in

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its general meeting. The Clause also provides that for adequate whistle blower mechanism is a move
selling, disposing and leasing of assets amounting to towards the right direction.
more than twenty percent of the assets of a material
subsidiary shall require prior approval of f. Nomination and Remuneration Committee
shareholders by way of special resolution.
The New Clause makes it mandatory for companies
d. The expanded role of the Audit Committee to set up a Nomination and Remuneration
Committee to formulate criteria for determining
To align with the requirement of the Companies Act qualifications, positive attributes, and independence
2013, the New Clause significantly enhances the of a director and recommend a policy relating to the
power of the Audit Committee entrusting it with remuneration of the directors, key managerial
various responsibility to ensure corporate personnel and other employees.ii The Committee will
governance standards. The Clause requires the Audit be formulating criterion to evaluate independent
Committee to have a minimum of three directors as directors and identifying people who are qualified to
members and two-thirds of members shall be be appointed as directors and at the senior
independent directors. The Audit Committee has management levels.
been given a significant role regarding the
appointment and monitoring of auditors, financial g. Other Requirements
reporting of the Company, monitoring inter-
corporate loans, RPTs, reviewing the functioning of The Clause requires the board of directors to form a
the whistle blower mechanism, etc. code of conduct and strict compliance with such code.
A declaration to this effect shall be incorporated in
e. The compulsory Whistle Blower mechanism the annual report.

The New Clause makes it mandatory for companies The board of directors shall be responsible for
to establish a vigil mechanism to enable directors and framing, implementing and monitoring the risk
employees to report unethical behaviour and frauds. management plan for the company. The Company
The mechanism should also provide adequate shall also constitute a risk management committee.
safeguards to prevent victimization of the whistle
blower. In the light of the growing corporate scams The Clause also provides for detailed disclosure
and scandals, development of a legislative framework requirements in respect of RPT, accounting,

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treatments, information about the directors, their necessarily be the director of the same. [Section
appointment letters, reasons for resignation, etc. 134(1)].

In the line of the Companies Act 2013, the Clause The report by the Board of Directors to be laid before
mandates representation of at least one-woman in a company general meeting shall include the web
director in the board. address (instead of its extracts), if any, where annual
return referred to in sub-section (3) of section 92 has
5.3.6 Provisions of Companies Amendment Act been placed. [Section 134(3)(a)].
Enforced
The report by the Board of Directors to be laid before
The Government enforced the Companies Act, 2013 in a company general meeting shall include, in case of
(hereinafter referred to as "Companies Act") for the a listed company and every other public company
purpose of regulation of the affairs of the company in having such paid-up share capital as may be
a smooth and efficient manner. However, the prescribed, a statement indicating the manner in
Companies (Amendment) Act, 2017, (hereinafter which formal annual evaluation of the performance
referred to as "Amendment Act") was passed on of the Board, its Committees and of individual
January 3, 2018, to further amend the provisions of directors has been made. Section 134(3)(p)].
the Companies Act.
The report by the Board of Directors to be laid before
A recent notification by the Ministry of Corporate in a company general meeting shall include such other
Affairs dated July 31, 2018, has effectuated the matters as may be prescribed. "Provided that where
provisions of Section 36 of the Amendment Act disclosures referred to in this sub-section have been
whereby amendment has been brought to Section included in the financial statements, such disclosures
134 of the Companies Act dealing with Financial shall be referred to instead of being repeated in the
statement, Board's Report, etc. The amendments to Board's report:
this section are as follows:
Provided further that where the policy referred to in
Where one of the persons authorizing the clause Section 134(3)(e) (company is covered under
chairperson of the company to sign the financial defects in the appointment of directors) or clause
statement is the Chief Executive Officer, he may not Section 134(3)(o) (the details about corporate social

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responsibility) is made available on company's prescribed [excluding the qualified
website, if any, it shall be sufficient compliance of the institutional buyers and employees of the
requirements under such clauses if the salient company being offered securities under a
features of the policy and any change therein are scheme of employees stock option in terms of
specified in brief in the Board's report and the web- provisions of clause (b) of subsection (1) of
address is indicated therein at which the complete section 62], in a financial year subject to such
policy is available. conditions as may be prescribed.iii
c. A company making private placement shall
A new provision, Section 134(3A) has been issue private placement offer and application
introduced which states that the Central in such form and manner as may be prescribed
Government may prescribe an abridged Board's to identified persons, whose names and
report, for the purpose of compliance with this addresses are recorded by the company in
section by One Person Company or small company. such manner as may be prescribed: Provided
that the private placement offer and
Another notification dated August 7, 2018, issued by application shall not carry any right of
the Ministry of Corporate Affairs allowed the renunciation. Explanation I. —"private
provisions of Section 10 of the Amendment Act to placement" means any offer or invitation to
come into force. The said section has substituted subscribe or issue of securities to a select
Section 42 of the Act which deals with offer or group of persons by a company (other than by
invitation for subscription of securities on private way of public offer) through private
placement in the below stated manner- placement offer cum application, which
satisfies the conditions specified in this
a. A company may, subject to the provisions of section. Explanation II. —"qualified
this section, make a private placement of institutional buyer" means the qualified
securities. institutional buyer as defined in the Securities
and Exchange Board of India (Issue of Capital
b. A private placement shall be made only to a and Disclosure Requirements) Regulations,
select group of persons who have been 2009, as amended from time to time, made
identified by the Board (herein referred to as under the Securities and Exchange Board of
"identified persons"), whose number shall not
exceed fifty or such higher number as may be

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India Act, 1992. Explanation III.—If a maximum number of identified persons under
company, listed or unlisted, makes an offer to sub-section (2), a company may, at any time,
allot or invites subscription, or allots, or make more than one issue of securities to
enters into an agreement to allot, securities to such class of identified persons as may be
more than the prescribed number of persons, prescribed.
whether the payment for the securities has f. A company making an offer or invitation
been received or not or whether the company under this section shall allot its securities
intends to list its securities or not on any within sixty days from the date of receipt of
recognized stock exchange in or outside India, the application money for such securities and
the same shall be deemed to be an offer to the if the company is not able to allot the
public and shall accordingly be governed by securities within that period, it shall repay the
the provisions of Part I of this Chapter. application money to the subscribers within
d. Every identified person willing to subscribe to fifteen days from the expiry of sixty days and
the private placement issue shall apply in the if the company fails to repay the application
private placement and application issued to money within the aforesaid period, it shall be
such person along with subscription money liable to repay that money with interest at the
paid either by cheque or demand draft or rate of twelve percent. per annum from the
other banking channel and not by cash: expiry of the sixtieth day: Provided that
Provided that a company shall not utilize monies received on application under this
monies raised through private placement section shall be kept in a separate bank
unless allotment is made and the return of account in a scheduled bank and shall not be
allotment is filed with the Registrar in utilized for any purpose other than— (a) for
accordance with sub-section (8). adjustment against allotment of securities; or
e. No fresh offer or invitation under this section (b) for the repayment of monies where the
shall be made unless the allotments with company is unable to allot securities.
respect to any offer or invitation made earlier g. No company issuing securities under this
have been completed or that offer or section shall release any public
invitation has been withdrawn or abandoned advertisements or utilize any media,
by the company: Provided that, subject to the marketing or distribution channels or agents

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to inform the public at large about such an k. Notwithstanding anything contained in sub-
issue. section (9) and sub-section (10), any private
h. A company making any allotment of securities placement issue not made in compliance of
under this section, shall file with the Registrar the provisions of sub-section (2) shall be
a return of allotment within fifteen days from deemed to be a public offer and all the
the date of the allotment in such manner as provisions of this Act and the Securities
may be prescribed, including a complete list of Contracts (Regulation) Act, 1956 and the
all allottees, with their full names, addresses, Securities and Exchange Board of India Act,
number of securities allotted and such other 1992 shall be applicable.'
relevant information as may be prescribed.
i. If a company defaults in filing the return of 5.4 CORPORATE SOCIAL RESPONSIBILITY
allotment within the period prescribed under
sub-section (8), the company, its promoters Corporate Social Responsibility (CSR) is corporate
and directors shall be liable to a penalty for form of self-regulation integrated into the business
each default of one thousand rupees for each model to create a social responsibility of the
day during which such default continues but stakeholders towards the environment. CSR is a
not exceeding twenty-five lakh rupees. concept whereby companies integrate social and
j. Subject to sub-section (11), if a company environmental concerns in their business operations
makes an offer or accepts monies in and in their interactions with their stakeholders
contravention of this section, the company, voluntarily.
its promoters and directors shall be liable for
a penalty which may extend to the amount A traditional view suggested a contradiction between
raised through the private placement or two CSR and Corporate Governance. Corporate
crore rupees, whichever is lower, and the Governance was related to profit maximization and
company shall also refund all monies with provided protection to shareholders who have
interest as specified in sub-section (6) to provided capital to firm, while CSR apparently was
subscribers within a period of thirty days of against profit maximization because it suggested a
the order imposing the penalty. set of actions beneficial for external stakeholders
that may not be good for a shareholder.iv However,

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now, Corporate Governance is an vast term and CSR to prevent environmental incidents and,
is gradually getting fused into the company’s when required, to remediate or mitigate
corporate governance practices. Their relationship adverse environmental impacts.
can be interpreted by abandoning the standard view d. Contribute to a sustainable energy model and
of the firm as a shareholder value maximizer and focus on innovation and the pursuant of
embracing the view of a firm as a stakeholder value efficiencies to ensure that environmental
maximizer. This convergence paves the way for protection is compatible with meeting energy
Corporate Governance to be driven by ethical norms needs and sustainable growth.
and the need for accountability, and it enables CSR to e. Use natural resources (i.e., land, energy
adapt prevailing business practices. Today both sources, water and raw materials) responsibly
Corporate Governance and CSR focus on ethical and efficiently. When possible use renewable
practices in business and the responsiveness of an resources. Actively promote and encourage
organization to its stakeholders and the environment efficient and responsible use of natural
in which it operates. resources by stakeholders.
f. Manage hazardous and non-hazardous waste
5.5 ENVIRONMENT POLICY responsibly.
g. Consider potential environmental impacts as
To achieve goals on environmental protection- part of the investment decision making
processes and planning and execution
a. Comply with applicable environmental laws, activities. Promote the incorporation of
regulations and standards, attempt to environmental considerations in cost-benefit
anticipate compliance with new analyses.
environmental requirements and implement h. Establish and maintain an environmental
industry best practices on environmental management system that focuses on the
protection. reduction of environmental risks,
improvements in the management of
b. Assess, on an ongoing basis, environmental resources, and optimization of investments.
conditions. i. Identify and work to incorporate into the
activities best available techniques and
c. Review and update, as needed, the
mechanisms used by the corporate to reduce
environmental risks and the environmental
impacts of the activities. Take actions aimed

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practices for energy generation and delivery n. Report transparently on environmental risks,

from an environmental standpoint. environmental performance and

j. Foster, participate and undertake research, environmental protection-related actions

development and innovation (RD&I) activities 5.6 A DETAILED STUDY INTO THE SATYAM
SCAM THAT IN A WAY PROVOKED THE
that address environmental challenges. FORMULATION OF CORPORATE
GOVERNANCE NORMS IN INDIA
k. Establish mechanisms and indicators to

measure environmental performance that

produce meaningful information that can be

used effectively in business decision-making The SATYAM SCAM was the biggest accounting
fraud that shook the entire investment market in our
processes. country and brought out all the loopholes in our
country related to proper corporate governance and
l. Encourage suppliers, contractors and others other statutory norms related to the protection of
interest of the investors. It also made the whole
doing business with the corporate Group to country and the rest of the world wonder what sort of
cunning master mind was Mr. Raju (Chairman of the
adopt policies consistent with those adopted SATYAM Computers) who manipulated the complete
accounts of his company to show a value that never
by the company. Consider environmental really existed. Various investing agencies like
Forensic accounting, SEBI, SFIO and CID started
performance when selecting suppliers, their investigation to bring out every minute details
that became the greatest accounting fraud in the
contractors and other service providers. history of India.

m. Establish a constructive dialogue with

governmental agencies, non-profit

organizations, local communities and other

stakeholders on environmental protection

matters to:

o understand each parties concerns and The most shocking fact of the case was that SATYAM
environmental objectives Computers was a very fast growing Industry that
established and expanded globally to 65 countries
o work jointly to address environmental around the world.
challenges, and

o contribute to the development of
effective environmental public policies
that are also economically efficient.

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Mr Raju had reported a cash holding of $1.04 billion d. To earn a very huge amount of profit to
that simply did not exist at all. The company which increase personal wealth.
was started in Hyderabad with only 20 employees
reached immense success by being the first Indian In the letter that was issued by the SEBI and Bombay
company to be registered in three stock exchanges Stock Exchange which was the apology letter by Mr.
internationally (NYSE, DOW, EURONEXT). It was a Raju, he revealed all his fraudulent activities and the
company that won various awards for its last paragraph read “Under the circumstances, I am
commendable growth statistics. tendering my resignation as the chairman of
SATYAM and shall continue in this position only till
SATYAM’s financial statements were all made up by such time the current board is expanded. My
exaggerating its incomes and profits continuously for continuance is just to ensure enhancement of the
a period of five years from 2003 to 2008.The balance board over the next several days or as early as
sheet was overstated by $1.47 billion and with bank possible. I am now prepared to subject myself to the
loans of $ 1.04 billion which was non-existent. laws of the land and faces consequences thereof.”v

Raju used the creative accounting technique to A big network of 356 investment companies was used
create this false statement. Through his personal to divert the funds from SATYAM. Also, the Satyam
accounts he managed to create 6000 fake salary Company had claimed on investing on 7 projects
accounts and several false bank interest income which in reality was non-existent.
statements stating that he received those. The
master mind also created false customer ids and Raju had maintained all the miniscule details
invoices in their name to show accounts for the false regarding these false statements and records in a
revenue. computer server called “My Home Hub”. Raju also
created imaginary clients with whom the company
5.6.1 The main aims of the fraud: had entered into business contracts.
a. To accumulate funds for the real estate
investments. The Price Waterhouse was the financial auditors of
b. To increase the value of the share. Satyam and they were blamed profusely for being one
c. To earn more executive remuneration of the reasons for the scam because they did not
detect the fraudulent activities for many years.

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SEBI ended up banning this auditing company for swipe of Rs.9376 from all the investors of the
three years. The criminal charges that were brought company.
against Mr. Raju are as follows
Tech Mahindra as a part of their diversifying strategy
Criminal conspiracy, breach of trust and forgery bought this company in the year 2013 after all the
legal proceedings ended.
After this jittering incident the stocks of the company
fell down very drastically in a single day with a clean

iKanika Goel, CLAUSE 49: CORPORATE GOVERANCE, iv Pushkala Muralidharan, What is the relationship between
Clause 49 Ppt (Jan.1, 2019, 12:00AM), Corporate social responsibility and corporate governance?,
https://www.scribd.com/document/258615007/Clause-49-Ppt Social Responsibility (June 14, 2017, 12:00AM),
https://www.quora.com/What-is-the-relationship-between-
ii Kanika Goel, CLAUSE 49: CORPORATE GOVERANCE, Corporate-social-responsibility-and-corporate-governance
Clause 49 Ppt (Jan.1, 2019, 12:00AM), v Arun Prabhudesai, Satyam letter from Mr. Ramalinga Raju
https://www.scribd.com/document/258615007/Clause-49-Ppt to its board directors admitting fraud !, Acquisition (Jan 6,
2009, 12:00AM),
iii THE COMPANIES (AMENDMENT) ACT, 2017, NO. 1 https://trak.in/tags/business/2009/01/06/satyam-head-raju-
OF 2018, 3rd January, 2018 admits-fraud-letter-board-directors/

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