Raju’s Satyam: A trail of fraudulent sales, inflated invoices, accrued interest and understated liabilities

According to CBI, the Rajus made Rs2743 crore from share sale alone besides buying 935 properties adding up to 5,757 acres valued at Rs3,455 crore

Fraudulent sales, inflated invoices, accrued interest and understated liabilities were some of the major methods that Ramalinga Raju and his henchmen used in order to make Satyam Computers Services Ltd appear highly profitable and keep the share price high, so that he could take away a whopping Rs2,743 crore out of the company. The Central Bureau of Investigation (CBI) explained this and other intricacies of its investigation into Satyam at a media workshop in Mumbai.
According to the CBI, Satyam's promoters held a mere 2.18% stake in the company at the time of its collapse in December 2008, as compared to the 18.78% share holding in 1991. The Rajus realized Rs767.73 crore through sale of shares and another Rs1,951.46 crore by pledging their holding. Lenders sold large chunks of these shares when the market turned turbulent and Mr Raju could not meet margin calls. Yet, the biggest beneficiaries of keeping the share price at an abnormal high. CBI estimates that the Rajus made Rs2,743 crore from Satyam shares alone -  Rs767 crore from selling their shares, Rs1,951 crore raised by pledging shares and Rs25.80 crore earned as dividend income. As the CBI pointed out, the company announced hefty dividends when it was aware that the revenues were fake and the company had no business declaring a dividend at all. This gave the Rajus an illegal dividend income.
The money earned was used to purchase 6,000 acres of land through 327 companies, floated to circumvent the Land Ceiling Act. Some land was also purchased in the names of close relatives. CBI estimates that the Rajus acquired 935 properties adding up to 5,757 acres and valued at Rs3,455 crore. 
JL Negi, general manager, Reserve Bank of India (RBI), on deputation to the CBI explained how Ramalinga Raju falsified facts and puffed up results. He said, the company benchmarked its performance to that of Infosys. The financial numbers were massaged through fraudulent sales- invoices generated through "Excel porting", which allowed the founder of Satyam and his co-conspirators to raise invoices bypassing the regular system and obfuscating an audit trail. In the period from April 2003 to December 2008, 7,561 fake invoices were created by a set of people close to Raju, who had access to the system. The fake invoices generated without purchase orders were shown as "hidden" and could only be accessed by a chosen core group. The CBI alleges that Mr Raju even asked his software team to develop certain products for seven non-existent customers.

These were Mobitel, Cellnet, E-care, Synony, Northsea, Autotech and Hargreaves. Fake revenue was recognized for these products by generating fictitious email as if they originated from these customers.  A domain was created in rediffmail to send these emails and 63 invoices were generated to raise Rs430.66 crore. The company even booked Rs31.18 crore as forex profit on account of fictitious sales.
In addition, it claimed accrued interest of Rs376 crore, understated liability of Rs1,230 crore and overstated the debtors position by Rs490 crore to show high operating margin of 24% against the actual margin of 3%. As is now well known, the aborted Maytas acquisition deal was a last ditch attempt to paper over the fictitious assets with real ones in the merger process. The company also took short-term loans and advances from banks and Institutions such as HDFC, HSBC, Citi Bank, BNP Paribas, ICICI Bank, Fincity/Higrace and Elem Investments Pvt Ltd during the period between 2000 and 2008 on the basis of false and fabricated board resolutions and majority of the loans were not shown in the books. The CBI also claims that Satyam paid interest of Rs37.62 crore and availed of a Rs1,493.84 crore loan from banks which is not accounted in the books. However, an equivalent amount was shown as amount being transferred from the accounts maintained at BoB, New York. The fictitious sales were reported as realized and shown as deposited in the account of the company maintained with BoB, New York.

The company had accounts with 36 banks in India and seven banks overseas. The cash and bank balances shown in various banks in the form of current account and fixed deposit was Rs5,160.34 crore for the period 2002 to 2008, while actual balances were only Rs139.78 crore. Thus, there was a difference of Rs5,020.55 crore.
Satyam also diverted Rs154.40 crore to global networking solutions, Infotech solutions, Alpha software and Tech Consultant Ltd during 1999 to 2002 without account for it.



Shantilal Hajeri

7 years ago

"Asatyam Eva Jayate". The audit fees paid to auditors, the slary paid o CFO/CEO etc are just disguised bribes to cover up the fraus committed by Sayam. All the connivers should be held equally guilty.

Mahender Kumar

7 years ago

This seems so surreal but this sure makes us realize that facts can be stranger than fiction. Hope our financial crime laws are stringent enough to ensure that this person remains behind bars for the rest of his life and is forbidden from undertaking any commercial transaction ever in his life. Equally importantly, now CBI needs to spend their time trying to establish linkage to to those people who were in cahoots with him including employees, partners, friends, relatives, auditors etc and bring them 'to book' (quite literarily). The courts should treat this entire case as a class-action case and the guilty should be given exemplary punishment to ensure that anyone thinking of doing such a crime or collabarating in such a crime should know what his/her fate can be when (and not if) s/he were caught.

Raghavaiah K

7 years ago

There are so many fradus like this in India, and will be happening in future too. Is there any institution/authority to recover the losses from these fraudsters to the credit of exchequer?
Or, may be let off saying it is not worth probing for years like Telgi's Stamps or Bofors cases. If a common steals a vessel at water tap in rural india beacause of poverty and hunder, he will be punished by beating to death by every one including police. This is our India.

CBI plans special court for bank, securities fraud cases

BS&F Cell of the CBI plans to have two-three of the proposed 71 additional special exclusive courts to deal with cases related to bank frauds and securities frauds

Keeping in mind the growing increase in the number of securities and bank frauds, the Bank Security and Frauds Cell (BS&FC) of the Central Bureau of Investigation (CBI) is keen to have two to three special, exclusive courts to deal with such cases.

Last week, CBI director Ashwani Kumar announced setting up of 71 additional exclusive courts for CBI across the country. The premier investigation agency currently has 49 courts. Out of these 71 courts, authorities from BS&FC have requested around two to three special, exclusive courts to solve cases related with financial matters.

During 2008-2009, cases related with bank fraud increased 128% to 23,917 to Rs1,883 crore from 10,450 cases amounting to Rs779 crore recorded in 2004-2005, according to a data released by the CBI.

In a presentation made on bank fraud cases, Mahipal Yadav, superintendent of police (SP), BS&FC, CBI, said, "We have requested to be given two to three of these exclusive courts for redressing BSFC related cases."

BSFC is a zone that exclusively deals with cases of securities and bank frauds. These courts may be set up in three cities - Mumbai, Ahmedabad and Bangalore.

The CBI official in his presentation also stated, "CBI has registered 60 cases of bank frauds in the past 18 months since 1 January 2009 involving Rs9.11 billion, while investigation is pending in 39 cases involving Rs7 billion.

Out of the additional 71 courts proposed - six would be set up in Maharashtra comprising three in Mumbai and one each at Amravati, Pune and Nagpur. These exclusive courts are expected to hold day-to-day trial and avoid unnecessary adjournments.

"CBI sent a proposal for creation of additional courts of special judges to the government of India. The Indian government has accepted the proposal. The prime minister has taken up the matter with the concerned chief ministers for creation of additional courts in their respective states and also with the concerned chief secretaries of states. It will be our endeavour to make these CBI courts functional by the end of this year- 2010," said the CBI director.




7 years ago

good articals


7 years ago

It is nice to hear about special courts to handle fraud cases. However it is not clear why nothing is being done to recover the hard earned money swallowed by so called finance companies like GNS Nidhi though this hapened in 1997. Can we expect action in such cases also?

TP Viswanathan

7 years ago

What if the powers that be do not allow the matter to escalate upto CBI? In 2004 a leading Urban Co-op Bank was plundered by ambitious directors and their stooges. In one case a whopping Rs.40+ crore was granted against a security of just Rs.5 crore. The bank wet fut and at the behest of RBI, EOW filed criminal case against the accused. The scam was worth over Rs.130 crore. The matter is still in cold storage. The affected depositors have not been paid back their full deposits so far. The bank which took over the failed bank is enjoying at the sweat and blood of the hapless depositors.

Bankers confident of clocking 20% credit growth

The government has set a growth target of 20% for the banks, both in credit and deposit segments, in the current fiscal. Last fiscal, banks had overshot the 16% target and had ended the year with 16.5% growth

Bankers today informed the Reserve Bank of India (RBI) that they are confident of achieving 20% credit growth this fiscal, on the back of a strong revival in credit demand due to the economic recovery, reports PTI.

"With all the available parameters there, it (credit growth) will be definitely better than last year," State Bank of India (SBI) chairman OP Bhatt told reporters in Mumbai adding a 20% growth looks attainable as of now.

The government has set a growth target of 20% for the banks both in credit and deposit segments in the current fiscal. Last fiscal, banks had overshot the 16% target set by RBI and had ended the year with 16.5% growth.

Mr Bhatt said credit growth has already started picking up and once the demand escalates further, there would be pressure on banks to garner more deposits by hiking deposit rates.

"Once credit demand escalates, there will be a pressure on deposit rates to go up," Mr Bhatt said, adding SBI, however, would wait for policy cues from RBI on 27th July prior to effecting any changes on its interest rates.

Stating that the current liquidity crunch is likely to ease by the end of the month, Mr Bhatt said, "Liquidity is already improving. By the end of July and going forward to August, liquidity is expected to be comfortable."

Mr Bhatt was talking to reporters after the bankers' customary meeting with the apex bank top brass prior to the monetary policy review scheduled later this month. The central bank is widely expected to hike its overnight lending and borrowing rates -repo and reverse repo - by another 0.25% to check double-digit inflation. It had surprised the markets by hiking the repo and reverse repo rates by 25 basis points (bps) late last month.

RBI deputy governor Subir Gokarn met senior bankers, including Canara Bank chairman and managing director AC Mahajan, Axis Bank managing director and chief executive officer Shikha Sharma, Bank of Baroda chairman MD and managing director Mallya and Bank of India chairman and managing director Alok Misra, amongst others.

According to Mr Bhatt, the Reserve Bank is likely to soon announce a sunset clause with a deadline of 30 June, 2011, for all loans in the erstwhile benchmark prime lending rate (BPLR) system to migrate to the new base-rate model.

Banks had approached the RBI for such a clause for all BPLR-linked loans, which, otherwise, would force them to administer two types of benchmarks - base rate and BPLR - for many years in case a borrower refuses to switch to the new benchmark rate.

"Yes, they are going to announce (the decision on sunset clause)...the RBI is currently examining the clause (with a deadline of) one year...that is by 30th June next," Mr Bhatt said.


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