The head of one of India's biggest outsourcing firms, Satyam Computer, resigned on Jan. 7 amid a scandal over a billion dollar fraud. Company founder and chairman B. Ramalinga Raju admitted the Hyderabad-based software services firm had falsified accounts and assets and inflated its profits over several years.
The company overstated its cash and bank balances to the tune of more than 50 billion rupees (more than a billion dollars) in its September-end balance sheet, "purely on account of inflated profit over a period of several years," Raju said.
Satyam had announced a $1.6 billion of Maytas infrastructure firm earlier this month, but abruptly reversed its decision after investors rejected the plan. Raju admitted in the statement that the Maytas acquisition plan was "the last attempt to fill fictitious assets with real ones."
Analysts and the stock market regulator have reacted with shock at the fraud and major brokerages have suspended ratings for the stock. "This is an event of horrifying magnitude and it's first of its kind," C B Bhave, chairman of market regulator Sebi, told the Press Trust of India.
"It is one of the worst days for Indian investors as a truly shocking and mind-numbing development," said Hitesh Agrawal, head of research with Angel Broking, in a report titled "India's Enron".
"Indian corporate governance standards have been put at stake here, the role of the auditors have also come under serious question," Hitesh added. A company's books of accounts, signed by the board, is approved by auditors before being sent to financial regulators and tax authorities.
The Satyam chief apologized "to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation."
"I am now prepared to subject myself to the laws of the land and face consequences thereof," Raju added.
"This incident is particularly unfortunate. It is however a stand-alone case of failure of corporate governance," said a statement from an IT lobby group, the National Association of Software and Services Companies (NASSCOM).
Late last year the World Bank barred Satyam from doing business with it for eight years over "improper benefits" paid to staff.
Satyam Computer Services is a leading software consultancy, system integration and outsourcing firm with clients across 65 countries.
Copyright Agence France-Presse, 2009