Bailing out Satyam

Promoter of Satyam has committed a major fraud and swindled a huge sum of Rs 7800 crore according to his own submission. All stake holders in Satyam have been taken by surprise and for a ride when the promoter confessed in writing that he has inflated balance sheet to the tune of Rs 7800 crores and he has been fudging the balance sheet for the past seven years. It is a matter of shame for everyone directly and indirectly associated with Satyam that an individual could perpetrate such a major fraud without being noticed by anyone all these years despite the system and procedure supposed to be in place for concurrent auditing, regular auditing, bank auditing, periodical submission of returns to regulatory authorities, provision for valuation of sensitive assets and liabilities on a realistic basis at least at the time of finalization of books of accounts if not on random basis at periodical intervals, overseeing of operations by executives at different levels , overall supervision by committees appointed by board and by the entire board itself consisting of veterans drawn from different fields. The promoter could do this with perfection is really something one has to be proud of although it has brought shame and damage to the reputation of the country’s image beyond anybody’s imagination.

Now the issue is how to bail out the company as the stake is very high for IT sector, the economy, the investors, the clients, and the employees. The amount required to rescue the company cannot be easily arrived at as the actual amount involved in the fraud and the modus operandi adopted to swindle cash without giving room for suspicion all these years have not yet been assessed. Right from cash to the last item on the asset side and capital to the last item on the liability side of the balance sheet seem to have been fudged and well certified by all concerned making the assessment of the damage extremely difficult. The liabilities appear to be real and the assets


seem to be unreal. The task to arrive at the reality is very high and complicated.

What appears from press reports is that the fraudster has siphoned off funds for purchase of real estate through subsidiary set ups. Transactions done by subsidiaries, real estate deals recorded in various registrars offices and outflow and inflows of cash indicated in Satyam’s books both through creative accounting and otherwise need to be correlated. Such an exercise will help to track the real estate purchases and cash outflows. This has to be done retrospectively. The booming of real estate prices in Andhra region and the real purchasers need to be taken up as a case study by some management institution quickly and the findings there on to be related to Satyam fraud for further analysis on the magnitude of fraud , the callousness of the authorities in freely allowing the transactions and the deficiencies in the system and procedure in accounting and auditing of the transactions.

The question of bailing out Satyam by the Government is ridiculous and will be a moral hazard besides creating a very bad precedence. At best what the Government can do is to issue Government Guarantee for a prescribed fee for the company to raise resources from market. This can be in the form of private or public issue of shares or bonds, long term loans from banks and financial institutions. The money particularly rose through bonds or loans should carry a charge against the recovery of funds from the sale of real estate to be identified as purchased from the resources of Satyam. The entire accounting should be kept separate and identifiable as such from the books of accounts.


Dr.T.V.G.Krishnan