case study corporate frauds in india

Corporate Fraud in India – Case Studies of Sahara and Saradha

Part i of spi’s india series.

By: Aparajita Pande

First there was Ketan Parekh. Then there was 2G. And then there were Satyam, Tatra, Saradha, Sahara and countless others. Corruption has come to be viewed as an inevitable, if unfortunate, cost of getting things done in India, and corporate and political panjandrums resolutely adhere to this school of thought. This kind of large-scale fraud is aided by the strong political-corporate nexus that exists in India. Market regulators like the Securities and Exchange Board of India (SEBI) are ultimately powerless in exercising strict control over financial institutions due to severe political pressure. This paper looks into the specific cases of the Sahara India investor fraud case and the Saradha Group chit fund scam to reveal the nature of corporate scams in India, their ethical implications and possible solutions.

On February 26, 2014, shock waves were felt through the country as the Supreme Court of India sanctioned a non-bailable warrant for the arrest of Sahara India Pariwar Chairman Subrata Roy. [ 1 ] This decision attracted attention for one major, unexpected reason. One would consider investor fraud worth more than US $3 billion as incredulous under any circumstance, but corporate scandals of this nature in India have lost their propensity to amaze. Indeed, what was most surprising about this case was real consequences for the perpetrator, a rarity for corporate crimes in India. Despite immense political pressure and the regulatory body’s own restrained powers, the Securities and Exchange Board of India managed to secure a landmark victory after an arduous, five-year battle against Sahara.

The Saradha Group scam of 2013 also saw as many as 1.7 million investors of a Ponzi scheme lose approximately US $5 billion when it collapsed. [ 2 ] Unarguably, networks with high-ranking politicians in the state government of West Bengal allowed the Ponzi scheme to stay afloat undetected for as long as it did. Here, too, regulatory bodies like SEBI were blatantly disregarded until the scheme went bust in April 2013. Complete with ineffectual regulatory bodies struggling to have a voice and coercive political interests, the Sahara and Saradha scandals are the classic examples of everything that makes corporate fraud in India possible.

Case Study 1: Sahara Group

Since 2009, when the Sahara Group’s activities first came under the radar of SEBI leading up to the arrest of Sahara India Pariwar founder Subrata Roy in 2014, both parties have been engaged in an aggressive regulatory conflict. SEBI alleged that Sahara India Real Estate Corp Ltd (SIRECL) and Sahara Housing Investment Corp Ltd (SHICL), which issued Optional Fully Convertible Debentures (OFCD), illegally collected investor money. [ 3 ] Meanwhile, Sahara denied SEBI had any jurisdiction in the matter. [ 4 ]

SEBI went on to order Sahara to issue a full refund to its investors, which was challenged by Sahara before the Securities Appellate Tribunal (SAT). [ 5 ] When the SAT upheld SEBI’s order, Sahara moved to the Supreme Court in August 2012, which ordered Sahara to refund investors’ money by depositing it with SEBI. [ 6 ] Sahara then declared that most of the US $3.9 billion had already been repaid to investors, save for a paltry US $840 million, which it handed over to SEBI. [ 7 ] This was disputed by SEBI, which claimed that the details of the investors who were refunded had not been provided. When Sahara failed to deposit the remaining money with SEBI and Subrata Roy skipped his hearing, the Supreme Court of India issued an arrest warrant for the Sahara chief in February 2014. [ 8 ]

Amid rumors of black money laundering and the misuse of political connections, Sahara vehemently denied all charges and continued to defy SEBI. The regulator persevered through what the Supreme Court referred to as the “ridiculous game of cat and mouse” and finally managed to pin down Sahara chief Subrata Roy in 2014. [ 9 ] In this rare victory, SEBI not only brought Sahara to justice, but also made an excellent case for why the regulator, and others like it, require greater autonomy and penalizing powers.

Case Study 2: Saradha ‘Chit Fund’ Ponzi Scheme

India has been flooded with various Ponzi schemes that take advantage of unsuspecting investors looking for alternate banking options . Lacking access to formal banks, low-income Indians often rely on informal banking. These informal banks invariably consist of money lenders who charge interest at inflated rates and were soon replaced by more sophisticated methods of conning people through disguised Ponzi schemes. Fundraising is done through legal activities such as collective investment schemes, non-convertible debentures and preference shares, as well as illegally through hoax financial instruments such as fictitious ventures in construction and tourism. The rapid spread of Ponzi schemes, especially in North India, has various causes, not the least of which include the lack of awareness about banking norms, steadily falling interest rates, lack of legal action against such activities, and the security of political patronage. [ 10 ]

The Ponzi scheme run by Saradha Group collected money from investors by issuing redeemable bonds and secured debentures and promising incredulously high profits from reasonable investments. [ 11 ] Local agents were hired throughout the state of West Bengal and given huge cash payouts from investor deposits to expand quickly, eventually forming a conglomerate of more than 200 companies. This syndicate was used to launder money and confuse regulators like SEBI. In April 2013, the scheme collapsed completely causing a loss of approximately US $5 billion and bankrupting many of its low-income investors. [ 12 ]

SEBI first detected something suspicious in the group’s activities in 2009. It challenged Saradha because the company had not complied with the Indian Companies Act, which requires any company raising money from more than 50 investors to have a formal prospectus, and categorical permission from SEBI, the market regulator. [ 13 ] The Saradha Group sought to evade prosecution by expanding the number of companies, thus creating a convoluted web of interconnected players. This created innumerable complications for SEBI, which labored to investigate Saradha in spite of them. In 2012, Saradha decided to switch it up by resorting to different fundraising activities, such as collective investment schemes (CIS) that were disguised as tourism packages, real estate projects, and the like. [ 14 ] Many investors were duped into investing in what they thought was a chit fund. This, too, was an attempt to get SEBI off its back, as chit funds fall under the jurisdiction of the state government, not SEBI. [ 15 ] However, SEBI managed to identify the group was not, in fact, raising capital through a chit fund scheme and ordered Saradha to immediately stop its activities until cleared by SEBI. [ 16 ] SEBI had previously warned the state government of West Bengal about Saradha Group’s hoax chit fund activities in 2011 but to no avail. Both the government as well as Saradha generally ignored SEBI until the company finally went bust in 2013.

After the scandal broke, an inquiry commission investigated the group, and a relief fund of approximately US $90 million protected low-income investors. [ 17 ] In 2014, the Supreme Court transferred all investigations in the Saradha case to the Central Bureau of Investigation (CBI) amid allegations of political interference in the state-ordered investigation. [ 18 ]

What is SEBI: Powers and Limitations

In accordance with Section 11(1) of the Securities and Exchange Board of India Act 1992, SEBI is required to protect the interests of investors in securities and regulate and promote the development of the securities market. [] Established in 1988, the Securities and Exchange Board of India (SEBI) was instituted as the official regulator of Indian markets but was only given statutory powers through the SEBI Act in 1992 by Indian Parliament.

SEBI’s primary goal is to cater to the needs of the market, which include investors, issuers of securities and any third parties involved. Its functions include, but are not limited to, regulating the stock market, preventing insider trading , managing company takeovers and acquisition of shares, and investigating fraudulent activities in the securities market. [ 20 ] To an extent, SEBI has successfully made tangible changes in the market. It did away with inefficiencies and delays by passing the Depositories Act, which eliminated the need for physical documents and certificates and played a major role in moving markets toward an electronic and paperless platform. [ 21 ] Administrative achievements aside, SEBI also made strict changes that demanded corporate promoters disclose more information. [ 22 ]

That being said, SEBI has its fair share of problems as well. Many perceive, and perhaps rightly so, the regulatory body is all bark, no bite. One of the major criticisms against the SEBI Act was it did not provide SEBI with sufficient powers. The government, particularly the Finance Ministry, has an unnecessarily constrictive hold on SEBI, which makes the regulator extremely susceptible to political interference for three main reasons. Firstly, although SEBI has the right to create rules and regulations by which capital markets abide, it does not have the right to implement them without the approval of the federal government. Arguably, the Finance Ministry may have a say in the framework of market regulations, and it can have the power to make recommendations. The process of obtaining the government’s authorization invariably causes needless delays and results in watered-down versions of the rules being implemented.

Secondly, SEBI still does not have the power to prosecute without the consent of the government. Its powers are restricted to recommending action to the government, rendering it unable to take direct action against any errant company. This is a major reason why the Sahara-SEBI war dragged on for as long as it did. Were SEBI allowed to prosecute without having to constantly answer to the government, the Sahara investor fraud would have been an open-and-shut case. SEBI must have the independent power to prosecute government interference, like the Securities Exchange Commission (SEC) in the United States.

Finally, and perhaps most importantly, the appointment process of the members of SEBI is flawed. The board has eight members: the chairman, who is nominated by the Central Government; one member from the Reserve Bank of India; two officials from the Finance Ministry; and five remaining members who are recommended by the Union Government. [ 23 ] The fact the Finance Ministry is directly or indirectly responsible for almost all of these key appointments greatly compromises the legitimacy of SEBI as an independent, unbiased watchdog. A Public Interest Litigation (PIL) challenging the legitimacy of this appointment process has been filed in the Supreme Court. [ 24 ]

Political players in Corporate Fraud

Politicians are no strangers to financial scandals in India. Whether it is the Commonwealth Games scandal, which involved the misappropriation of millions of dollars by then-chairman and Congress member Suresh Kalmadi, or the 2G scam, which involved telecom companies being undercharged by government officials for licenses, most prominent cases of fraud usually have a trace of political meddling.

Sahara is not unique in this sense. Many commentators proclaim that Subrata Roy would not have had the nerve to ignore Supreme Court orders so blatantly if there were no political reassurances given to him. [ 25 ] In June 2011, former SEBI member KM Abraham wrote a whistle-blowing letter to Dr. Manmohan Singh, Prime Minister of India, blaming the Finance Ministry for interference. [ 26 ] He claimed that then-Finance Minister Pranab Mukherjee and his advisor, Omita Paul, were trying to force SEBI Chairman UK Sinha to “manage” high profile cases, including Sahara, though this account was denied by the Finance Ministry as well as Sinha.

The political interference in the Saradha Group case is more apparent. Several members of the West Bengal ruling party, the Trinamool Congress (TMC), personally benefitted from the scheme. For instance, there are many reports that suggest Sudipto Sen, Chairman of the Saradha Group, bought paintings by Mamata Banerjee, the Chief Minister of West Bengal, whose government later issued circulars to public libraries to display newspapers published by Saradha. [ 27 ] Several Members of Parliament, such as Srinjoy Bose and Kunal Ghosh, were connected to Saradha. Kunal Ghosh reportedly received a salary of over 1.5 million rupees (US$24,000) per month from the Saradha Group. [ 28 ] In an 18-page confessional to the Central Bureau of Investigation, Sudipto Sen admitted to illicitly paying huge sums of investor money to many politicians. Among the few he named were Manoranjana Singh, wife of former Congress member of Parliament Matang Singh, and Kunal Ghosh, whom he accused of blackmail. [ 29 ] Many high profile personalities, including Transport Minister Madan Mitra and actor and TMC member Satabdi Roy, publicly endorsed the Saradha Group. [ 30 ]

The Ethics of Corporate Fraud: Should We Care?

When we think of corporate fraud, there is a tendency to imagine it as an isolated event with no real repercussions in our lives. We often look at the lofty numbers and associate the loss with an abstract, theoretical entity. In reality, the financial costs of corporate scams have deep ethical considerations and significant implications in our lives. The 2012 Global Fraud Study conducted by the Association of Certified Fraud Examiners (ACFE) reviewed 1,388 incidents of fraud worldwide and found that the average organization loses 5 percent of its annual revenue to fraud. [ 31 ] This might not seem pertinent when set against the backdrop of each individual company. However, looking at it in global context, it amounts to a projected annual fraud loss of US $3.5 trillion.

In perspective, this is US $3.5 trillion that would have otherwise been used to provide other services and products. Many of these scams include taxpayer money that would ideally go toward improving amenities for citizens. Clearly, corporate fraud has deep financial ramifications for all of us, even if we don’t see them immediately. So yes, we should care. However, should financial aspects be the only reason we care? Ethics no longer remain a matter of personal opinion and strict guidelines need to be enforced in order to clearly differentiate between right and wrong. Companies that commit fraud cross ethical lines that have far reaching consequences.

With a population of over 1.2 billion, more than 250 million people in India live in abject poverty. [ 32 ] Corruption at the top and grassroots level is at an all-time high, and GDP growth has slowed to 4.7 percent in 2014. [ 33 ] The Indian economy relies significantly on the corporate sector, and the rising number of financial scams has pertinent ethical implications now more than ever. The Sahara and Saradha Group scandals represent the antithesis of all business ethics. Sahara, for one, has been convicted of wrongfully acquiring investor money without proper authorization. Of course, there is the obvious issue of misrepresenting funding activities to investors as well as SEBI, but that is simply the tip of the iceberg. There is widespread speculation that the 40 million investors of the Sahara schemes were a front made up to hide black money from influential donors. [ 34 ] It is hardly any secret that Sahara made it extremely difficult for SEBI to track down investors, not only by sending a plethora of paperwork in 127 trucks for them to sift through, but also by refusing to refund the money to SEBI in the first place. Indeed, SEBI has found that the documents Sahara provided do not provide sufficient, verifiable information, and SEBI has heard back from less than 1 percent of the 20,000 investors it contacted, with many addresses turning out to be invalid. [ 35 ]

If there is any truth to the accusations of Sahara laundering black money, this is a clear breach of ethics on their part. By definition, black money includes money siphoned off by illegal means that was ideally meant to provide other services. Not only is this a blatant misuse of other people’s money, it also raises serious questions about government resources that were wasted on this unnecessarily long investigation.

On the other hand, the ethical violations committed by the Saradha Group were more obvious and possibly more damaging. The schemes run by Saradha were primarily aimed at low-income people who did not have access to formal banking. Unsurprisingly, these low income investors were hit hardest by the scam. When the Ponzi scheme collapsed, it caused severe financial loss to its 1.7 million investors, but the poorer population of West Bengal bore the worst brunt. Many were bankrupted, and a great number resorted to suicide. [ 36 ]

The Saradha case undoubtedly represents the worst kind of damage unethical practices in business can beget. The ramifications of the actions of a few conniving businessmen and politicians can still be felt throughout rural West Bengal. There is no doubt that conning poor people into investing in a hoax scheme, only to abandon them when it collapses, falls in the far dark end of the ethical spectrum. Therefore, corporate scams of this nature not only symbolize the ethical and moral standards of a company but on a larger scale represent those of the country and her people. This sort of generalization can cause foreign companies to lose interest in investing in a country and could cost India (or any country, for that matter) dearly.

The Purge: Potential Solutions

A recent survey by Grant Thornton and Assocham finds that cases of financial fraud have risen in India over the last few years and become one of the main factors deterring foreign companies from investing in India. [ 37 ] As the economy grows to keep pace with the steadily growing needs of the population, corporate fraud is disastrous for India. To bring about a visible decline in the culture of corporate scams in India, three major systematic changes can and need to take place.

Firstly, laws protecting whistleblowers are imperative. The likelihood of people coming forth to willingly provide information will be a lot higher if they are provided with basic assurances. Safety from political threats and job security can ensure more people will be willing to volunteer information and increase transparency in the Indian corporate sector. Secondly, federal and market regulators need a greater level of autonomy than they presently enjoy. The Reserve Bank of India, SEBI and other regulators can only be efficient provided their work is not directed by political influences. Thirdly, and perhaps most importantly, there is a crucial need for judicial reform in India. The judicial system’s slow-moving course causes needless delays and allows corporate violators to find underhanded methods to evade justice. Corporate cases, especially cases of such magnitude, need to be fast-tracked to reach resolution quickly so violators can be dealt severe and immediate consequences.

Editor: Angela Lutz

• Insider Trading
• Name First Last
• Your Message

Satyam Scam Case Study: India’s Biggest Corporate Fraud

Supti Nandi

Updated on: July 18, 2023

Fourteen years back, four IT companies were the top stars of India namely- TCS, Infosys, Wipro, and Satyam Computer Services. The first three are still prevalent today. But the last one became highly infamous for India’s most catastrophic scams. Yes, it is true!

Today, people remember Satyam Computers Services as the biggest corporate scammer rather than a famous IT company. With scams, you may assume that Satyam’s owners might have taken away the money as loans like Nirav Modi or Vijay Mallya. 

Well, it is somewhat true. But that’s not all! There’re more entangled stories to this infamous scam that thrashed the reputation of our IT industry in the global market.

So, in this write-up, we will delve into the Satyam Scam Case Study . Also, we will look at the significant changes made in Indian laws to prevent such scams.

Stay tuned!

A Brief Overview of the Scam

Satyam Scam is a corporate fraud of 2009 committed by Ramalinga Raju. He was the chairman of the Satyam Computer Services. He founded the company in the year 1987. Within two decades, its worth rose to $2 billion. Although he stepped the stones for the scam back in the 2000s. But it came to the limelight in the year 2009. Ramalinga Raju, infamously known as Satyam Raju was the prime individual behind this scam. 

What did he do? You may ask.

He exaggerated the financials of the company that included-

• Cash Balances
• Personal Numbers (money)

Not just that but also used the company’s money unfairly for its benefits. He used most of the shareholder’s money to buy real estate properties. And when the value of real estate properties fell during “The Great Recession (2008-09),” the tables turned. All of his plans failed and he was left with no choice but to confess the crimes.

Can you guess the worth of this largest accounting fraud in India?

Rs.7800 crore!

Satyam Scam shook the nation to its core. It highlighted how much we lacked in the following segments-

• Corporate governance
• Auditing standards
• Regulatory monitoring
• Ethical behavior

Every individual associated with Satyam Computers, including its auditors, stockholders, board of directors, etc. faced severe consequences of the scam.

How the Indian Government reacted to this scam? Well, it established the following legal acts-

• The Companies Act of 2013

The accounting organization must report the fictional assets and contingent liability of their client company in the audit report.

• SEBI Regulations 2015
• Establishment of SFIO (Serious Fraud Investigation Office)

In the upcoming sections, you will get full coverage of the Satyam Scam Case Study.

(A) Satyam Computers-Service Limited: Rise & Downfall

(A.1) 1987-1991: The Foundation

It was the time of the 80s. The brother duo- Rama Raju and Ramalinga Raju founded an IT company in Hyderabad in 1987. They named it “Satyam Computers-Service Limited.” Why such a unique name? You may ask. The term “Satyam” is a Sanskrit word meaning “Truth” or “Honesty.” Quite contrary to what it did afterward! It began its IT journey with 20 employees. 

(A.2) 1991-2003: Publicly Listed

Four years later, in 1991, it held an IPO and was listed on BSE (Bombay Stock Exchange). Soon, it became the fourth-largest IT software exporting company in India after TCS, Wipro, and Infosys. Not only was it listed on NSE and BSE but also on NASDAQ. 

(A.3) 2003-2008: Exponential Growth Phase

In 2003, the worth of Satyam increased to $1 billion. It didn’t stop there. Its employment count exceeded 50,000 and was operating in over 60 countries all around the world. The success of the company continued with the following highlights-

• Satyam’s worth rose to $2 billion in 2008
• Operating profits: 21%
• Increase in stock price: 300%
• Satyam acquired Maytas (a real estate company owned by Mr.Raju).
• The company was awarded with “Golden Peacock Award for Corporate Accountability.
• Mr. Ramalinga Raju won the “Ernst and Young Entrepreneur of the Year” award in 2008.

(A.4) The year 2009: Satyam’s Scam Exposed

As soon as the great recession hit the global market, the tables turned for everyone. Satyam’s chairman “Ramalinga Raju” confessed to the manipulation of the company’s financials. 

Wait… All of a sudden? 

Didn’t the company was going through a purple patch worth $2 billion? 

Yes, it represented itself as a successful company and it was making profits too! But apart from those scammers, nobody knew what was happening behind the screens.

Look at the fabricated balance sheet & income statement of Satyam –

Can you see how Mr. Raju manipulated the account books to represent Satyam as a far bigger enterprise than it was? This fraud shattered the dreams of investors, the public, regulators, as well as the government.

(B) Satyam Scam: India’s Biggest Account Fraud

Now, it is time to decode the behind-the-screen events of the scam. Ever since the company went public through IPO in 1991, its performance was outstanding. It was earning good fortunes along with winning the trust of investors. Afterward, the following series of events occurred-

(B.1) Ramalinga Raju’s greed for real estate properties

“ Greed hits people when they crave for more despite having surplus! ” It is an old saying which proved to be true for Satyam. Ramalinga Raju saw an exclusive opportunity in real estate properties. 

Because these are evergreen assets. 

That’s why he established a property development company named “Maytas” (backward spelling of Satyam). Through this company, he bought real estate properties all over India!

So what’s the problem with that?

The problem was the source of funds! Initially, he bought the properties with his own money. But as soon as his funds became a limiting factor, he switched to the funds of the Satyam Company. What a scenario! His funds ended but not his greed… 

(B.2) Internal Trading: He bought the lands with high ROI

In the late 90s era, the Hyderabad metro was under construction. Through internal trading, he managed to procure information about the metro route. So, he bought the land near the metro rail projects, hoping to get higher returns in the future. He became an aggressive property buyer.

Didn’t anybody notice the humongous purchase of lands by Satyam Raju?

No! Not really. Why? You may ask. Because he purchased the real estate properties in the name of his relatives and servants. In some of the companies associated with “Maytas,” he named some of his servants as directors and continued to expand his portfolio.

(B.3) Illegal Procurement of Funds

Here comes the crucial part of the scam. How did Satyam Raju obtain money for real estate investments? By manipulating the finances of Satyam Company! That’s all? Yes. This approach was enough to offer multiple benefits to Mr. Raju.

In the following ways-

• The exaggerated financials of the company made the investors believe that Satyam was performing outstandingly. Thus, it attracted more investments.
• He procured loans from the banks by showing fabricated bank statements and fictional assets.
• He faked the sales invoices as well as the cash reserves.

In the table described above, you can see the extent of the fabrication of Satyam’s account statements. The total difference between actual and exaggerated financial value touched Rs.7136 crore!

What exactly was he planning to do? You may wonder. 

He was working on the principle of “ Fake it until you make it! ” Since he knew that one day, the value of his real estate properties will reach sky-high. Therefore, he planned to match the actual financials of the company to the manipulated ones. But the reality didn’t go as planned!

(B.4) The Great Recession of 2008

Satyam Raju’s plans went in vain as soon as the great recession hit the world including India in 2008. The real estate properties drowned rapidly resulting in a great loss for Mr. Raju. He tried to manage the situation by introducing the Maytas Company. This strategy backfired him strategically. But this drew more attention to his fraudulent activity.

He failed to sell the Maytas’ infrastructure and properties. The Satyam shareholders and board members have a large conflict of interest. Eventually, Satyam’s stock price dropped by 55%.

(B.5) Confession of Satyam’s Raju

In the aftermath scenario, Mr. Ramalinga Raju was left with no choice but to confess the crimes. In January 2009, he acknowledged the inflation of Satyam’s assets by Rs.7,800 crores which accounted for 94% of the company’s assets. Also, he admitted to overstating the company’s finances by Rs.5040 crore.

This news spread like a forest fire. Once trading at Rs.544 per share in 2008, its share prices fell to just Rs.11.50 in 2009.

(C) Aftermath Tragedy

Mr. Raju’s confession was no less than a catastrophic event in the country’s financial ecosystem. But why did Raju confess about Satyam? He could have run away like Vijay Mallya or Nirav Modi. You may say. Thankfully, he couldn’t leave the country due to a sharp drop in real estate properties as well as his personal funds! Soon he was arrested and charged with criminal conspiracy, breach of trust, and forgery.

India learned a lot through the Satyam Scam. The Indian government responded to this scam by introducing the following acts-

Thus, our government introduced all the necessary actions to prevent such scams in the future.

(C.1) Companies Act 2013

Our government abolished the Companies Act of 1956 and introduced a new Companies Act in 2013. It included the following-

• Replacement of auditors every five years.
• Replacement of audit firms every ten years.
• The Board of Directors’ Report must include the Director’s responsibility statement.

(C.2) SEBI Regulations 2015

It involved listing obligations and disclosure requirements (LODR). In this act, SEBI established the criteria for reporting actual and suspected fraud. Also, it made it mandatory to disclose the crucial events of the company. Mainly the events that can influence the decision-making ability of the investors. 

(C.3) SFIO: Serious Fraud Investigation Office

It is the regulatory authority that was constituted under the administration of the Ministry of Corporate Affairs. It became a statutory organization under the Companies Act of 2013. Thus, it looks into business and accounting fraud in India.

Conclusion: The Finale

The term “Satyam Scam” fits the best when it comes to contradictory phrases in an Indian context. How? You may ask. The Sanskrit word “Satyam” means truth or honesty. And the English word “Scam” means fraud with a lie. 

Satyam Computers Services Limited was acquired by Tech Mahindra. The latter bought the 51% stake in Satyam and renamed it “Mahindra Satyam.”

Later, in June 2013, Mahindra Satyam merged into Tech Mahindra. Thus, the existence of the Satyam Company was buried forever! 

Also, IL & FS acquired 80% of the equity in Maytas Properties (MPL) in 2011. IL&FS is Infrastructure Leasing & Financial Services, an NBFC (Non-Banking Financial Company).

What can we learn from the Satyam Scam Case Study?

Satyam scam teaches the significance of moral, ethical, and social principles in the corporate world. Also, the board members must realize the gravity of trust and responsibility placed on them. The information about the company must be transparent and accurate. Only then a company can win the trust of the shareholders.

Related Posts:

That’s a shocking case. Feeling so sad for the investors and those who were harmed with Satyam’s collapse. The culprits should be punished severely. Please suggest some guidelines for less-risky investments.

This article is presented in a well-structured and informative manner. I heard about it previously but lack of data and clarity.

Well Explained Supti and their team !!

Contact Info: Axponent Media Pvt Ltd, 706-707 , 7th Floor Tower A , Iris Tech Park, Sector 48, Sohna Road, Gurugram, India, Pin - 122018

© The Business Rule 2024

To read this content please select one of the options below:

Please note you do not have access to teaching notes, corporate frauds in india – perceptions and emerging issues.

Journal of Financial Crime

ISSN : 1359-0790

Article publication date: 5 January 2015

The purpose of this paper is to examine the nature and perception of corporate frauds in India and their consequences in the business and economic systems, and it highlights the emerging issues so that existing legal and regulatory obligations can be redefined and structured.

Design/methodology/approach

An exploratory research was conducted through a combined mode of literature review; case studies; structured questionnaires from 346 sample companies; and 43 interviews with the corporate professionals, management, investors, government offices and authorities having wide experience.

It was found that the regulatory system is weak, and there is dire need to redefine the role of auditors. Coordination among different regulatory authorities is poor, and after every scam, there is a blame game. Reporting of fraud and publication of fraud prevention policy are missing. Banks and financial institutions are ineffective on due diligence, and there is a lack of professionalism on the board and other executive levels in companies.

Research limitations/implications

This study assumes that fraud could be mitigated by proactive and conscious action by auditors, and corporate executives are willing to avoid perpetrating financial fraud despite pressures from investors, government securities regulators and exogenous market fluctuations. The authors relied on the honesty of the respondents during the sample collection and recorded semi-structured interviews. A minimum level of five years’ work experience relative to preventing, detecting or investigating fraud has been considered a valid determinant in selecting the purposive sample.

Practical implications

The study suggests mandatory publication of fraud prevention policy; constitution of special purpose corporate offence wing; recognition to companies for improved corporate governance; true adoption of International Financial Reporting Standards; due diligence by banks and financial institutions; compulsory appointment of professionals by shareholders and fixation of responsibility on independent professionals; intellectualisation of audit committee; and more powers to the regulators, especially Securities and Exchange Board of India.

Social implications

Prevention of corporate frauds reduces anxiety, improves corporate image and builds up confidence of the investors, which is essential for resource channelling in financial markets.

Originality/value

The research work is based on a thorough analysis of regulatory framework and fraud case studies and primary data collected from companies, banks and other government and developmental institutions.

• Fraud prevention
• Corporate fraud
• Due diligence
• Fraud propensity
• Fraud inducements
• K4, G17, G28, G38, P48

Gupta, P.K. and Gupta, S. (2015), "Corporate frauds in India – perceptions and emerging issues", Journal of Financial Crime , Vol. 22 No. 1, pp. 79-103. https://doi.org/10.1108/JFC-07-2013-0045

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

Related articles

All feedback is valuable.

Please share your general feedback

Report an issue or find answers to frequently asked questions

Contact Customer Support

• Law of torts – Complete Reading Material
• Weekly Competition – Week 4 – September 2019
• Weekly Competition – Week 1 October 2019
• Weekly Competition – Week 2 – October 2019
• Weekly Competition – Week 3 – October 2019
• Weekly Competition – Week 4 – October 2019
• Weekly Competition – Week 5 October 2019
• Weekly Competition – Week 1 – November 2019
• Weekly Competition – Week 2 – November 2019
• Weekly Competition – Week 3 – November 2019
• Weekly Competition – Week 4 – November 2019
• Weekly Competition – Week 1 – December 2019
• Sign in / Join

• Weekly Competition - October 2019
• Weekly Competition - Week 2 - October 2019

A Case Study on Corporate Crimes in India

This article has been written by Ritika Saxena, LLB 2 nd year, Shri Ramswaroop Memorial University, Lucknow.

White Collar Crimes are committed by various Individuals in greed of self-enrichment. But when this crime is conducted collectively by group of people or association in any business, then such crime becomes Corporate Crime. The loss being suffered from other Conventional Crimes such as theft, trespass, burglary, arson, etc. is far less than the loss being suffered from White Collar Crimes. It causes an adverse impact on the commerce and economy of our country. And it also leads to loss of trust of the investors in the market. This study deals with the cases of white collar crimes and corporate crime in India and its types. The statistical data of the past years relating to white collar crime is also shown. This study also enlightens the provision and laws which provides protection against this matter.

Introduction

White Collar Crimes are the crimes which are committed by the men of high class society during the course of their business or occupation. White Collar Crime is an illegal act done in order to achieve illegal objective known as Wrongful Gain [1] or in order to avoid payment of legal or formal dues, or to retain money or property etc. All of this encompasses criminal and civil violations.

Meaning of White Collar Crimes 

According to Professor Sutherland, “when a person of respectability and high social status in course of his legitimate occupation commits an act which is approximately a crime, it is a White Collar Crime” [2] . But afterwards he modified his own definition and gave a new definition as “A person of upper Socio-economic class who violates the criminal law in course of occupational or professional activities.” [3]

Classification of White Collar Crimes

• Ad hoc crimes: In this category a person or the offender pursues his own individual objective having no face-to-face interaction with the Victim. E.g. Credit Card frauds, hacking, etc.
• Bribery: When money, goods, services or any type of information is offered with intent to influence the action, opinion and decisions of the taker, constitutes Bribery. [4]
• Embezzlement: When a person, who has been entrusted with the money or property, appropriates it for his or her own use.
• Counterfeiting: Copies or imitates an item without having been authorized to do so. [5]
• Forgery: When a person passes false instruments such as cheque. [6]
• Tax-evasion: frequently used by middle class to have extra-unaccounted income.
• Professional Crime: Crimes committed by Medical practitioners, Lawyers in course of their occupation.
• Fraud: In a broadest sense, fraud means, an intentional deception made for personal gain or to damage another person or entity. Fraud is defined in both criminal as well as civil code. 

“FRAUS OMNIA VITIATE”

“Fraud violates everything”

Under Indian Contract Act, 1872

Fraud’ defined.—‘Fraud’ means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent1, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:

• the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
• the active concealment of a fact by one having knowledge or belief of the fact;
• a promise made without any intention of performing it;
• any other act fitted to deceive;
• Any such act or omission as the law specially declares to be fraudulent. [7]

Under Indian Penal Code, 1860

‘Fraudulently’ means, a person is said to do a thing fraudulently if he does that thing with intent to defraud but not otherwise. [8]

Corporate Crimes

A corporate crime or fraud occurs when a company or an entity deliberately changes and conceals sensitive information which then apparently makes it look healthier. Companies adopts various Modus-operandi to commit such corporate frauds, which may include misrepresentation in prospectus, manipulation of accounting records, debt hiding, etc.

Types of Corporate Fraud 

• Fraudulent Financial Statements
• Employee Fraud
• Vendor Fraud
• Customer Fraud
• Investment Scams
• Bankruptcy Fraud
• Misappropriation of Assets

(Common element is Deceit and Trickery).

Financial Fraud includes, 

• Manipulation, falsification, alteration of accounting records.
• Misrepresentation or intentional omission of amounts.
• Misapplication of accounting principles.
• Intentionally false, misleading or omitted disclosures.

Misappropriation of Assets includes,

• Theft of tangible assets by internal or external parties.
• Sales of proprietary information.
• Causing improper payments.

Corruption includes,

• Making or receiving improper payments.
• Offering bribes to public or private officials.
• Receiving bribes, kickbacks or other payments.
• Aiding and abetting fraud by others.

Famous cases on Corporate Frauds

East indian company.

The East India Company was a Crown chartered trading company. It was owned privately but had a mandate to benefit the British State commercially and politically. First and foremost, the EIC was an agent of the Crown. 

It was first Multinational Corporation in the world that pursued investment opportunities as well as territorial power. EIC employees based in India sought commercial profits for themselves, the Crown, and East India House; while they acquired Indian Territory aggressively on behalf of the Empire. In late 1700s Edmund Burke had Robert Clive, (the founder of the empire) and Warren Hastings, (India’s Governor General), brought up on impeachment charges laden with corruption issues. Though the trail failed to convict anybody.

To achieve all of these ends, the EIC’s corporate conduct was inconsistent. Sometimes, the Company complied with ethical practice in safety and financial matters. At other times it readily engaged in economic theft and bribes, or breached civil liberties and human rights. The concept of corporate social responsibility was secondary to its interests. The company was subsequently wound up under East India Company Stock Redemption Act. [9]

Mundhra Scam- First Scam of Independent India

Haridas Mundhra , an industrialist and stock speculator sold fictitious shares to Life Insurance Corporation (LIC) and thereby defrauding LIC by 125 crores. Mr. Jawahar Lal Nehru, (the then Prime Minister), set up a one-man commission headed by Justice Chagla to Investigate. Justice Chagla concluded the matter and Haridas was found guilty and was sentenced to imprisonment of 22 years and T.T. Krishnamachari, the then Finance Minister, resigned from his position.

Enron Scam 

Enron scandal, publicized in October 2001, eventually lead to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas and De-Facto dissolution of Arthur Andersen.  

• In February 2000 , Fortune Magazine Chooses Enron as its “Best Managed and Most Innovative Company”.
• August 2000 : Stock at $73 Billion.
• March 2001 : Financial Year 2000 revenues at $100 Billion.
• September 16, 2001: Enron buys more shares.
• October 2001 : Enron pays its regular Dividend.
• October 16, 2001 : 3 rd quarter loss was shown as $618 million and further made deduction of $1.2 billion in equity shares.
• October 31, 2001 : SEC upgrades inquiry into a formal investigation.
• December 2, 2001 : Enron files for Bankruptcy.

Result of this was 4,000 employees were fired, 20,000 workers loses their jobs and $73 billion was lost in the stock value.

Reason behind Enron Fiasco: Enron Senior Management used complex and murky accounting schemes,

• To reduce Enron’s tax payments.
• To Inflate Enron’s income and profits.
• To inflate Enron’s stock Price and credit rating.
• To hide losses in off-balance-sheet subsidiaries.
• To engineer off-balance-sheet scheme to funnel money to themselves, friends and family.
• To fraudulently misrepresent Enron’s financial condition in public report.

Satyam – Enron of India

Satyam Scam, 2009: Satyam was the biggest scam in the history of India. The Satyam scam of 2009 has shatter the peace and tranquility of investors in the share market. The chairman Ramalinga Raju has manipulated the financial statement and the books of accounts. Satyam’s books of account shows:

• Over stated Assets of Rs. 490 crores.
• Fake cash balance over Rs. 5000 crores in the balance sheet.
• Interest component of Rs. 376 crores which never flowed into the company’s coffers.
• Understated Liabilities of Rs. 1,230 crores.

He has also inflated with revenues and net profit figures of the company, with which he was charged with heavy penalty.

Aftermath Effect

• Investors panicked as Stock Plummeted.
• Employees were stranded in many ways, like; morally, financially, legally and socially.
• The incident resulted in immeasurable and unjustifiable damage to Brand India and Brand IT in particular.
• Chairman, Managing Director, Chief Executive Officer and Chief Finance Officer and the Key Managerial Personal were arrested.
• Partners of audit firm were also arrested.
• People lost staggering Rs. 100 billion in Satyam in market capitalization as investors reacted sharply and dumped shares, pushing down the scrip by 78 percent to Rs. 39.98 on Bombay Stock Exchange (BSE).

Harshad Mehta Scam Case [10]  

The Harshad Mehta Scam shocked the entire economy of India. He fooled many investors by taking advantage of the loopholes of the system.

Scandal details

• Harshad Mehta obtained fake Bank receipts from small Banks.
• The said Bank Receipts were further passed on to other banks as security to obtain cash.
• This money was used to drive up the prices of stocks in the stock market.
• Bubble of stock market manipulation and fake bank receipts busted.
• Drastically impacted the stock market, economy and progress of the country.
• Banking system was swindled was swindled of a whopping of Rs. 5000 crores.
• Even, the chairman of one of the bank committed suicide.

This scam can be called as one of the biggest white collar crime as the case was mainly regarding the manipulation of accounts and providing misleading information. 

Sahara vs. SEBI [11] : It was a case of issuing misleading information and clause in prospectus of company. 

• Here the question raised that whether the private placement of shares can be treated as offer? 
• In this cases, Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) floated an issue of option of fully convertible debenture (OFCD’s) to more than million investors and termed their issued debenture as private placement, with a defense that the company did not intend to get their OFCD’s listed because the security which have been issued is a Hybrid Security. 
• During this period, the company had total collection of over Rs. 17,656 crore. This amount was collected from 30 million of investors.
• The Hon’ble Supreme Court on 31 st august, 2012 in one of the most anticipated judgment of recent times has directed the Sahara Group and its two group companies SIRECL and SHICL to refund around Rs. 17,400 crore to their investors within 3 months.
• Supreme Court also ruled that SEBI has myriad powers to invest listed and unlisted companies functioning regarding the issue of securities in order to secure the interest of investors. This was the landmark judgment in the field of Indian corporate Law.

2G Spectrum Scan Cases

2G scam was basically a telecommunication and a political scandal. In this scandal many Politicians and government were involved. The scam was about the allocation of unified access service license. The former telecom minister A Raja has evaded norms at every level and carried out the dubious 2G scam in the year 2008.

There are many corporate scams which has taken our economy to a greater loss, Coal Scam, Bofors scandal etc. were also famous in this regards.

Corporate Crime in India

Corporate Crime is being increasing with the change in the decade, the reason behind this enormous increase behind this is found in the fast developing countries and industrial growth in the developing countries. The fast growth of industries and the technologies is the reason behind this crime. 

One of the major havoc that has been found in recent times is disappearing of companies. Out of 5651 companies listed in BOMBAY STOCK EXCHANGE, 2750 has been vanished. It means that one out of two companies that comes to the stock exchange to raise crores from the investors and then run away [12] . We have SEBI, RBI and Department of Companies Affairs to monitor the stock exchange but none has documented the whereabouts of these 2750 odd companies suspended.

Regulatory Legislations

Some Anti-Fraud regulations or legislations or guidance regarding corporate fraud are as follows:

• Indian Contract Act [13] (Section-17)
• Indian Penal Code [14] (section-25)
• Prevention of Corruption Act [15]
• Prevention of Money Laundering Act [16]
• The Companies Act [17]
• Clause 49 of Listing Agreement
• Securities and Exchange Board of India Act [18]
• CARO Act [19]
• Essential Commodities Act [20] (Section-6)
• Information Technologies Act [21] (Section 43-44)

Prevention of Corruption Act, 1988: The issue of corruption is very dangerous to nation. The Sanathan Committee Report [22] , 1964 defines the problem of corruption as a complex problem having its roots and ramification in the society itself as a whole. This Act consolidated the provision of IPC, CrPC and Criminal Act, 1952. This act has provided the definition of ‘Public Duty’, ‘Public Authority’ and ‘Public Servant’. These definition are sufficient to determine the criminal liability of Public Officer.

Prevention of Money Laundering Act, 2002: In India, money laundering is being practiced in large scale from past few decades. Due to which the socio-economic crimes have been increased rapidly. The process of conversion of black money into white money or the process of conversion of tainted money into untainted money is called money Laundering. Thus the main purpose and the objective of this act is to prevent Money Laundering.

The concept of Money Laundering is an International concept and menace and for the same reason, United Nations adopted a political declaration in June 1998 and asked its members to enact the national legislations for the prevention of Money Laundering [23] .

Companies Act, 2013: The Companies Act, 2013 is the legislation which Focusses on issues related to Corporate Fraud. Fraud in relation to company or corporate body is defined under section 447 of this Act.

• Section 212- investigation into the affairs of the Company by Serious Fraud Investigation Office [24] .
• Section 447- Punishment for Fraud [25] .
• Section 448- Punishment for False Statement [26] .
• Section 449- Punishment for False Evidence [27] .
• Section 450- Punishment where no specific Penalty or Punishment is provided [28] .
• Section 451- Punishment in case of Repeated Defaults [29] .

The advancement of science and technologies in last few decades has created a new form of crime which is known as ‘White Collar Crime’. And due to personal greed on section of this crime has shown a tremendous growth, i.e. Corporate Fraud. Corporate fraud is responsible for most of the economic loss in the society. The people of nation also lose their trust in the investment in private sector. Where private sector can help in huge economic growth, nowadays it is more indulged in the field of Fraud.

Government of India has taken many steps to prevent this type of Crime in India. There are certain mechanisms that have been cited by the Government of India by which the frauds can be prevented under the Companies Act, 2013.

Section 211 empowers the Central Government to establish an office called Serious Fraud Investigation Office (SFIO) to investigate fraud relating to Companies (section 212). Further, Central Government can also order investigation into the affairs of a company and on the receipt of the report of the registrar or the inspector. 

Suggestions

To prevent Corporate Crimes there are certain steps to be taken by the government and the organization. 

What an Organization can do?

• Tone at the top: create an ethical environment.
• It should be lead by example.
• Corporate code of Conduct should followed.
• There should be strict rules regarding the Call in Service for Unethical Practices.
• There should be reliable Internal Control.
• Training courses should be organized, such as:
• Ethics Training
• Internal Controls
• Fraud Prevention
• Technological and Business changes
• Special trainings for Monitors.
• Reference check on New Employees should be done.
• Anti-Corruption & Anti-Bribery practices should be adopted. 
• New Code of Governance should be developed.

[1] Section 23 of Indian Penal Code (45 of 1860)

[2] Dr. S.S Srivastava, Criminology, Criminal Administration (3 rd Edition, Central Law Agency, 2007) pg. no. 40.

[3] Ahmad Siddique’s’ criminology and penology (16 th Edition, Eastern Book Company, 2011) pg. no. 438.

[4] Section-171-B of Indian Penal Code (45 of 1860)

[5] Section 489A, 489B, 489C, 489D, 489E of Indian Penal Code (45 of 1860).

[6] Section 463 of Indian Penal Code (45 of 1860).

[7] Section 17 of Indian Contract Act of 1872.

[8] Section 25 of Indian penal Code (45 of 1860).

[10] Harshad Shantilal Mehta vs. Custodian & Ors 1998 ECR 1 SC, JT 1998 (4) SC 323.

[11] (2012) 10 SCC 603

[12] Survey on Fraud in India,2012

[22]  https://abhimanuias.com/state/Searchdetail.aspx?type=BL&id=8412

[23] Sangeet Kedia’s Economic and Commercial Law (June 2018, Pooja Law Publishing Co.)

[24] The Companies Act (12 of 2013)

[25] The Companies Act (12 of 2013)

[26] The Companies Act (12 of 2013)

[27] The Companies Act (12 of 2013)

[28] The Companies Act (12 of 2013)

[29] The Companies Act (12 of 2013)

Students of  Lawsikho courses  regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on  Instagram  and subscribe to our  YouTube  channel for more amazing legal content.

RELATED ARTICLES MORE FROM AUTHOR

Daniel latifi vs. union of india (2001), custom as source of hindu law, jagmohan singh vs. state of up (1972), leave a reply cancel reply.

Save my name, email, and website in this browser for the next time I comment.

How to kickstart your career as a corporate lawyer

Participants from more than 85 countries have attended our bootcamps so far

Register now

Thank you for registering with us, you made the right choice.

Congratulations! You have successfully registered for the webinar. See you there.

Corporate Accounting Fraud: A Case Study of Satyam Computers Limited

Open Journal of Accounting, 2013, 2, 26-38

13 Pages Posted: 20 Oct 2015

Madan Lal Bhasin

Universiti Utara Malaysia

Date Written: October 20, 2015

From Enron, WorldCom and Satyam, it appears that corporate accounting fraud is a major problem that is increasing both in its frequency and severity. Research evidence has shown that growing number of frauds have undermined the integrity of financial reports, contributed to substantial economic losses, and eroded investors’ confidence regarding the usefulness and reliability of financial statements. The increasing rate of white-collar crimes demands stiff penalties, exemplary punishments, and effective enforcement of law with the right spirit. An attempt is made to examine and analyze in-depth the Satyam Computer’s “creative-accounting” scandal, which brought to limelight the importance of “ethics and corporate governance” (CG). The fraud committed by the founders of Satyam in 2009, is a testament to the fact that “the science of conduct is swayed in large by human greed, ambition, and hunger for power, money, fame and glory”. Unlike Enron, which sank due to “agency” problem, Satyam was brought to its knee due to ‘tunneling’ effect. The Satyam scandal highlights the importance of securities laws and CG in ‘emerging’ markets. Indeed, Satyam fraud “spurred the government of India to tighten the CG norms to prevent recurrence of similar frauds in future”. Thus, major financial reporting frauds need to be studied for “lessons-learned” and “strategies-to-follow” to reduce the incidents of such frauds in the future.

Keywords: Corporate Accounting Frauds; Satyam Computers; Case Study; India; Corporate Governance; Accounting and Auditing Standards

Suggested Citation: Suggested Citation

Madan Lal Bhasin (Contact Author)

Universiti utara malaysia ( email ).

Sintok, Kedah Darul Aman 06010 Malaysia 01114567247 (Phone)

HOME PAGE: http://www.uum.edu.my

Do you have a job opening that you would like to promote on SSRN?

Paper statistics, related ejournals, social sciences education ejournal.

Subscribe to this fee journal for more curated articles on this topic

Finance Education eJournal

Information systems legislation & regulations ejournal, corporate governance & management ejournal, corporate governance: social responsibility & social impact ejournal, forensic accounting ejournal.

File Your Income Tax Return Before 31 st July 2024. Charges Only ₹999 ₹499.

• Startup Registration
• Private Limited Company Registration
• Public Limited Company Registration
• One Person Company Registration
• Limited Liability Partnership Registration
• Nidhi Company Registration
• Producer Company Registration
• NBFC Company Registration
• Micro Finance Company Registration
• Partnership Firm Registration
• Proprietorship Firm Registration
• Indian Subsidiary Registration
• Branch Office Registration in India
• Import Export Code Registration
• GST Registration
• FSSAI Registation
• PF / ESI Registration
• MSME Registration
• Shop Act Registration
• RERA Registration
• ISO Certification
• Drug Licence
• NGO Registration
• Section-8 Company
• Society Registrations
• Trust Registration
• FCRA Registration
• 80G-12A Registration
• Corporate Social Responsibility
• Trademark Registration
• Trademark Renewal
• Trademark Objection Reply
• Trademark Opposition
• Copyright Registration
• Design Registration
• Provisional Patent
• Patent Registration
• ITR Filing for NRIs
• ITR Filing for Individuals
• ITR Filing for Company
• ITR Filing for Society / Trust
• ITR Filing for Partnership Firms
• TDS Returns Filing
• Income Tax Notice Reply
• Scrutiny Notice
• GST Returns Filing
• GST Annual Returns
• GST Cancellation
• E-Way Bills
• ROC Filing for Pvt Ltd Company
• ROC Filing for LLP Business
• XBRL Filing
• PF / ESI Returns
• RBI Compliance
• Accounting & Book Keeping
• Change Company Name
• Change Office Address
• Increase Authorized Capital
• Company Share Transfer
• Revival of Strike Off Company
• Closure of Pvt Ltd Company
• Closure of LLP Business
• Strike Off Secion-8 Company
• Director KYC DIR-3
• Appointment of Director
• Removal of Director
• Removal of Director Disqualification
• Add / Remove LLP Partners
• LLP to Pvt Ltd Company
• Pvt Ltd to Public Company
• Propreitorship to Pvt Ltd Company
• Partnership to LLP
• Consult with Chartered Accountant
• Consult with Company Secretary
• Consult with Corporate Lawyer
• Consult with Tax Consultant
• Shareholder’s Agreement
• Share Purchase Agreement
• Employment Contracts
• Legal Notice
• Power of Attorney
• Memorandum of Understanding (MOU)
• Partnership Deed
• Business Transfer Agreement
• Dispute Settlement Agreement
• Website Development
• SEO Services
• Social Media Management
• Product Listing Services
• Content Writing Services

Corporate Fraud in India & Outside India under Companies Act, 2013

• January 5, 2023
• Company Law

Corporate fraud-related provisions are covered under the Companies Act, 2013 (“Act”). Section 447 of the Companies Act, 2013 states that anyone found guilty of fraud faces a sentence of imprisonment for a term that must not be less than six months but may reach ten years, as well as a fine that must not be less than the amount involved in the fraud but may go as high as three times that amount.

Corporate fraud refers to unethical actions committed by a company or an individual in order to significantly increase their profits and gain an advantage over rivals. Corporate fraud causes significant losses to public monies that were given to the corporation for improved operation.

Corporate Fraud in India under the Companies Act, 2013

Corporate fraud is the term used to describe any unlawful or unethical behavior by a company , an individual, or both that is typically done to obtain a competitive edge over other companies in the same industry. This might also be done to present a stronger market identity for the business and draw in more qualified investors.

White-collar crimes are criminal actions carried out by wealthy men in society in an effort to make money the wrong way. This can take many different forms, including professional crime, fraud, tax evasion, bribery, counterfeiting, forging, and ad hoc crimes.

This seeks to expand beyond the purview of a worker, extending to complicated and economic effects on the company, as well as on workers and other outside parties. These dishonest practices result in revenue losses due to asset theft, fictitious expenses, corruption, information theft, fraudulent applications, asset abuse, dishonest business partners, and fraudulent billings.

Different Types of Corporate Frauds in India

Corporate fraud comes in a variety of forms:

• Misappropriation of Funds: Payment fraud, accounting fraud, and deceiving investors into investing by sharply boosting the share price.
• Assets taken without Authorization: Theft of physical goods, intellectual property rights, and Dummy payments that exploit an entity’s assets for one’s own benefit.
• Corruption: Making or accepting fraudulent payments, giving bribes to public or private authorities, aiding and abetting, and obtaining political backing to conduct fraud are all prohibited.

However, among these, Financial Fraud, Asset Misappropriation, Employee Fraud, Vendor Fraud, Customer Fraud, and Investment Scams are the most prevalent forms.

Theft of money, tangible assets, or sensitive information, account misuse, procurement fraud, payroll fraud, financial accounting misstatements, inappropriate journal vouchers, suspense accounting fraud, fraudulent expense claims, false expense claims, false employment credentials, and bribery and corruption are some other types of fraud.

The Biggest Corporate Frauds in India

The following are the biggest corporate frauds in India:

• The Mundhra Scam was the first corporate scam that occurred in independent India. An entrepreneur named Haridas Mundhra invested Rs. 1.24 crores in government-owned LIC insurance from six different businesses in 1957. He committed this crime as a result of undue government pressure, and the LIC suffered significant financial loss. When Feroze Gandhi launched an anti-corruption drive and the Parliament approved the Life Insurance of India Act, nationalizing and consolidating businesses, the controversy took a bizarre turn. After the Parliament raised the Mundhra issue, Feroze Gandhi confronted Pt. Jawaharlal Nehru, who was India’s then-prime minister. He questioned if the LIC had utilized policyholder premiums to purchase shares of these Mundhra-controlled enterprises beyond their market value. A former Bombay High Court judge named M.C. Chagla J. was asked to investigate the claims in order to corroborate them. Several stockbrokers testified during a public investigation that Mundhra’s falsification would have been taken into account if the LIC investing committee had been contacted. The investigation of the finance secretary and two other officials were then decided to be necessary. However, despite his best efforts to avoid the situation, the previous financial minister was ultimately forced to retire from his position. This event resulted in significant losses for the Nehru government. As a result, Haridas Mundhra, who was also charged with additional offenses like failing to pay income tax on time, was taken into custody.
• In March 2019, the PMC Crisis occurred after the HDIL company missed a payment of 25 crore rupees or 30% of the total debt borrowed. The bank disregarded RBI instructions to designate these loans of the HDIL group as non-performing assets in 2017–18. The bank provided HDIL with a new loan of 96.5 crore rupees in August 2019 as a result of the Bank of India taking HDIL to NCLT for repayment. An executive director who served on the HDIL board from 2009 to 2015 held a 1.91% share in the company but then sold it all and resigned, committing fraud. After then, HDIL received a loan from PMC and delivered it to the Reserve Bank of India . Since the RBI’s rules were disregarded, collaterals were used to cover the entire 258 crore loan. Since it involved public funds, the RBI retained 1,000 rupees that might be withdrawn after six months. However, a withdrawal of 10,000 rupees was permitted after more persuasion.
• The most significant of them is the PNB Crisis, in which Neerav Modi obtained a loan from a foreign bank using a forged letter of understanding from PNB and promised to pay it back if he missed the payment. There were 8 separate fraudulent and deceptive Letters of Understanding used. There were 11 crores of rupees worth of loans obtained between 2011 and 2017. These foreign banks were in fact branches of Indian banks that had expanded abroad. These banks then turned to PNB for reimbursement, but PNB informed them that all of the Letters of Understanding were bogus. Fraud was perpetrated, and CBI was notified of the situation. In this fraud, counterfeit letters of the agreement also included bank employees. In this instance, two officials and their families were involved. Neerav Modi, therefore, traveled abroad when the scandal occurred.

Vijay Mallya fled the country as well after being charged with fraud and money laundering. In order to prevent the collapse of his Kingfisher airlines, he accepted loans totaling Rs. 9,000 crores. The Fugitive Economic Offenders Act also applies to him.

Opinion of the Judiciary upon Corporate Frauds in India

The following are the Opinion of the Judiciary over Corporate Fraud in India:

• The Supreme Court stated in Vimla v. State of NCT, Delhi that the concept of deception is a crucial component of fraud, although it did not go into great detail. Deception and harm to the individual who was duped are two components of the term “defraud.” Injury includes any harm committed to a person’s health, intellect, reputation, or any aspects of their personhood other than economic loss, which is the deprivation of property, whether it be mobile or immovable, or of money. A gain or advantage for the deceiver nearly always results in a loss or disadvantage for the victim. The second requirement is met even in uncommon situations where the misled receives a profit or advantage without also suffering a comparable loss.
• The petitioner in Vikas Agarwal v. Serious Fraud Investigation Office was called to court on charges of criminal conspiracy and violating Section 447 of the Companies Act, 2013. It was claimed that the company’s mining operations were unlawful. It was also given an unsecured loan through trust. In this case, the Supreme Court said that the definition of fraud given in the explanation section 447 of the Companies Act, 2013 makes it apparent that the instance and also to other people who have in any way participated in the conduct of the offense to obtain an unfair advantage.

Most recent developments regarding Corporate Fraud in India

With effect from October 8, 2020, SEBI has revised the SEBI (LODR) Regulations, 2015 to stipulate that in the event that a forensic audit is initiated, listed businesses must make the following disclosures to stock exchanges:

• The fact that a forensic audit was initiated, the identity of the originating organization, and any available justifications;
• Final forensic audit report (apart from those that were requested by regulatory or enforcement authorities), upon receipt by the listed business, together with any management comments.

The Audit Committee and Boards may experience considerable concern as a result of this new reporting requirement’s lack of any materiality standards because any such disclosure might have a significant impact on the company’s stock price. Additionally, speculative media coverage might incite fear within the financial community.

Concluding Remark

Lawmakers and regulators appear to be concerned about a number of recent business scams. The Audit Committees and the Corporate Boards are concerned about the tightening of Sections 447 and 212 of the Act as well as the addition of fraud to the list of crimes covered by the PMLA. Independent directors’ already frazzled nerves have been exacerbated by strict bail terms, asset forfeiture clauses, provisions for compensation, and limitless personal culpability for directors. The attention of regulators and law enforcement authorities is shifting more and more toward criminal prosecution. Every time the Audit Committee receives a whistle-blower complaint, SEBI’s new reporting to stock exchange requirement, even the start of a forensic audit, may cause further issues. Before accepting new board posts, independent directors now want to do an extensive due diligence investigation into the compliance and governance requirements of a company. India Inc. is gradually becoming accustomed to the new standard.

Legal Window has highly qualified Company Secretaries and Chartered Accountants , you can also connect with them in case you want assistance and want to know more about Corporate Fraud in India.

• CS Urvashi Jain (M.COM, LLB, ACS)

CS Urvashi Jain is an associate member of the Institute of Company Secretaries of India. Her expertise, inter-alia, is in regulatory approvals, licenses, registrations for any organization set up in India. She posse’s good exposure to compliance management system, legal due diligence, drafting and vetting of various legal agreements. She has good command in drafting manuals, blogs, guides, interpretations and providing opinions on the different core areas of companies act, intellectual properties and taxation.

• Agreement Drafting (23)
• Annual Compliance (12)
• Change in Business (37)
• Company Law (149)
• Compliance (90)
• Digital Banking (3)
• Drug License (3)
• Finance Company (42)
• Foreign Taxation (9)
• FSSAI License/Registration (14)
• Hallmark Registration (1)
• Income Tax (207)
• Latest News (34)
• Miscellaneous (169)
• NBFC Registration (8)
• SEBI Registration (6)
• Section 8 Company (10)
• Start and manage a business (26)
• Startup/ Registration (133)
• Trademark Registration/IPR (48)

Recent Posts

• NGO Registration in West Bengal July 29, 2024
• Trademark Registration In Jodhpur July 22, 2024
• Trademark Registration in Agra July 15, 2024

LegalWindow.in is a professional technology driven platform of multidisciplined experts like CA/CS/Lawyers spanning with an aim to provide concrete solution to individuals, start-ups and other business organisation by maximising their growth at an affordable cost.

Ask an Expert

Academia.edu no longer supports Internet Explorer.

To browse Academia.edu and the wider internet faster and more securely, please take a few seconds to  upgrade your browser .

Enter the email address you signed up with and we'll email you a reset link.

• We're Hiring!
• Help Center

Corporate Accounting Fraud: A Case Study of Satyam Computers Limited

Related Papers

Chief Editor

syed zubair ahmed

The high profile fraud incidents have captured the attention of people around the world about the real cost of accounting fraud. The business world is undeniably brimmed with scams and frauds that removed illegitimately billions of dollars. With the increasing number of high-profile scandals, the topic of fraud has attracted unprecedented attention in recent history. The direct losses from fraud and the impact of fraud have grown significantly and simply too costly which conveniently cannot be overlooked. Accordingly, the implications for the global determination of fraud loss has gained ground and has risen to prominence during recent years. The present study aims to examine why it is crucial to measure economic crimes or fraud and how the figure of global fraud loss can be quantifiable. Assessing and identifying the scale of loss from fraud is an important first step toward building a strategy for combating fraud. Equally important to developing a methodology for the accurate meas...

Accounting Forum

Mark Lokanan

Thomaz Wood Jr.

Mudzamir Mohamed

Occupational fraud and abuse are an enormous problem, imposing adverse effects and practically affecting every organization and all sectors of the economy.The estimated global cost of fraud according to ACFE accounted for $2.9, $3.5 and $3.7 trillion in 2010, 2012 and 2014 respectively. Three types of schemes have been identified by the Association of Certified Fraud Examiners (ACFE) in their various reports to the nation.The aim of this review is to depict the type, cost, and fraud control mechanisms. Occupational fraud schemes are very hard to detected. However, they are more likely to be detected by a tip than internal audits, internal controls or external audits. Thus, prevention of occupation fraud is better achieved through the use of hotlines, whistle blowing, effective internal control system and the use of forensic accounting in fraud detection is recommended for further studies.

Nicholas Adzor , clement ajekwe

The business community requires transparent corporate reports to ensure that investment decisions are not based on materially misstated financial statements. This implies that corporate managers, auditors, board of directors, investors and regulatory agencies urgently need to be able to detect and prevent potential earnings frauds. The literature review seeks to improve understanding of the fraudulent financial statement anatomy, its factors, motivations and antecedents-the knowledge of which can improve our detection and prevention ability. The " fraud triangle " is portrayed as an efficient model for understanding antecedents to fraud. Concurring with Zahra, Priem and Rasheed (2005), the paper calls for further research to understand the motivational factors of fraud behaviour as well as adopting forensic accounting techniques to enhance the probability of detecting fraud in a timely, cost effective manner.

International Review of Economics and Management

Süleyman YÜKÇÜ

Critical Perspectives on Accounting

tosin otegbola

Australian Accounting Review

Niamh M. Brennan

Loading Preview

Sorry, preview is currently unavailable. You can download the paper by clicking the button above.

Law Audience Journal (e-ISSN: 2581-6705)

Corporate Frauds in India and Its Effects on Indian Economy

• Post author: Varun Kumar
• Post published: January 9, 2022
• Post category: Volume 3 & Issue 3
• Post comments: 0 Comments

Click here to download the full pa per (PDF)

Authored By: Ms. Arifa Zahra (Ph.D.), Presidency University,

Click here for Copyright Policy.

Click here for Disclaimer .

“FRAUS OMNIA VITIATE”

In the present research paper, researcher aims to highlight the corporate scams and the toll which Indian economy has to pay due to the malfunctioning and the intentional frauds in the Indian market. Since the Enron scam and the House loan Bubble in USA, all the countries were at high alert and various schemes and committees were formed to check the internal management of the corporate structure in the State’s territories. Researcher aims to answer the following questions:

• Irrespective of regulatory authorities and the procedural laws, how do the companies and its employees manage to commit frauds costing billions of dollars to the economy in the country?
• Should India approach the harsher policies while checking the audit and accounts of the companies?

Also, researcher frames the following hypothesis to carry on the research on the aforesaid topic:

• Corruption in the government authorities responsible for the financial management of the country is liable for the constant frauds in the Indian
• Privatization and the nationalization approaches should be strictly adhered to which unfortunately in India remained in a dormant.

“In a way, fraud in business is no different than the infidelity in marriage or plagiarism in a scholarly work. Even people committed to high moral standards succumbed.” ~ By Miroslav Volf.  

I. INTRODUCTION:

Scams like 2G Spectrum, Satyam Scandal and Kingfisher Airlines are well known in India and it has led to the violation of the rights of the investors. Even such scams have led to the fall in the growth of the FDI in India for several years as it did pose a threat to the foreign investors. The financial market in India is at a very high risk where the principle of corporate veil is strictly followed. The practices like Insider Trading became very common and as a result, SEBI had to bring an amendment to the SEBI, 1992 to penalize the offender with higher monetary penalty [1] .

II. CASE STUDIES:

II.I CASE STUDY OF 2G SPECTRUM:

It is not a hidden fact that the corruption in the financial market leads to the unfair competition. On this point, the case study of the 2G Spectrum is vital which shook the Indian economy to an extent that it was considered to be the 2 nd biggest scam in the journal of Wall Street after Water Gate Scam and the boldly corrupted scam in the independent India wherein the executives of the Indian government were involved. For the sale of the 2G spectrum as any other natural resource, India has two ways either to sale by auction or by fixed price on first come first serve basis. At that time, the Communication and the IT Minister A. Raja alleged to have issued 122 licenses for the spectrum by favoring a few companies and by preponing the date for the submission of the cheques (on first come first serve basis) from 5 th of October, 2008 to 5 th of September, 2008 which led to the chaos in the market and only those companies could gain the benefit who were prepared with the cheques.

After A.Raja, Kappil Sibal was appointed as the Communication and the IT Minister who revealed that there is no loss occurred to the Indian economy due to the procedure followed by A. Raja. However, Subramanian Swami made an official criminal complaint against A. Raja in the year 2010 before SC, wherein it was said that A. Raja was given 3000 Crores bribe to prepone the date and the prices of the 2G Spectrum were exactly same as in 2001. Companies like Unitech Wireless, Swan Telecom, TATA Teleservices were penalized with 5 Crores each. However, on 5 th of December, 2017, Supreme Court discharged all the accused including A. Raja and considered the alleged claims baseless [2] .

II.II CASE STUDY OF SATYAM SCANDAL:

On 7 th of Jan, 2009, Ramalinga Raju confessed in a letter to the Bombay Stock Exchange, that he along with his relatives and employees has been committing a fraud of 710036 Crores since 2001. The letter was a bombshell on the investors and the employees which resulted in the crash of the market price of the Satyam Stock from 178 Rs before the scam to 41 Rs after the scam on the same day leading to the loss to 53000 investors.

In his confession letter, Ramalinga Raju said that “It was like riding a tiger without knowing how to get off without being eaten”. The scam occurred due to the fabrication of 7561 Invoices for 4782.75 Crores, between April 2003 and September 2008. The act was the desperate desire to match up with the leading market leaders like Infosys and WIPRO. The company was handed over to the committee headed by Deepak Parikh along with Karin Carnae and was subsumed by Mahindra in less than three months of its rescue process. The class action suit in US was filed which was adjusted by paying huge amount [3] .

The case was more of connivance rather than the negligence by the auditors in the company and hence the market regulator SEBI amended the Corporate Governance Code and Companies Act, 2013. In India, rotation of the auditors and the mandatory declaration of shares pledged by the promoters of the company were introduced [4] . Ramalinga Raju was penalized with 7 years of the imprisonment and 5 Crores each. This seems a lot less when we see the Enron offender Jeff Skilling imprisonment for the period of 24 years and Berniee Madoff for the period of 150 years imprisonment for Ponzi Scheme in USA.

II.III CASE STUDY OF VIJAY MALIYA:

The most important case study in the present research paper is the life and the scam by Vijay Maliya. In 1983, he was appointed as the CEO of the United Breweries after the demise of his father. He was just 28 years old and it is said that he became addicted to the royal lifestyle and he never compromised on his whims. He was known as the “king of the good times”. In 2005, Kingfisher Airlines were opened by UB group. It was considered to be the royal airline providing royal treatment to the passengers of all classes without any class system. In 2007, Air Deccan was bought by Maliya which ultimately led to the loss to the Kingfisher Airlines as there was no vivid profit in the routes where the airlines travelled. There was constant loss to the Airlines which led to the non- payment of the salaries to the employees.

The debt which Kingfisher’s Vijay Maliya owes to the total 17 banks in India is 9000 Crores. He fled the country when this brought to the public knowledge. His assets, accounts and house in Goa have been seized by the government of India [5] . What he said was “the loss occurred due to the changing economic schemes in India and he does not owe any amount to any bank. Blaming Media for his condition, Maliya said that he suffered the loss of 4000 Crores and no one is accountable for that. It was the epic case of Non-Performing Asset and a huge loss to the banks like SBI and IDBI.

III. CORPORATE SCAMS AND EFFECTS ON INDIAN ECONOMY:

India has been ranked 80 th in the Corruption Perception Index by Transparency International in the year 2020. It includes all the corporate, political and social spams and scams in India. Corporate frauds are considered as the inevitable byproduct of the growth in the Indian economy. The desperation has led the fraudster to ditch thousands of genuine investors and the government.

One of the reasons for the constant growing number of frauds is the illiteracy amongst the investors and the genuine citizens who are not interested in knowing the business complexities happening behind the corporate veil. For example in 2008, the financial ideal Credit Default Swap was such a foreign and complex product which ultimately led to the financial crises. Indian people are mostly interested in making money out of money without going into the detail how the technicalities would make money out of money and hence most of them fall for the ponzi schemes and insurance scandals.

Also, with the advancement of the technology, the global barriers have been broken and it has become very easy to defraud via spams. It considerably has an inevitable adverse impact on the Indian economy as the frauds posed a serious threat to the foreign investors.

Also, the vivid effect of the corporate scams can be bulk of amendments to the laws in India retrospectively. From the Companies Amendment Act of 2013 to the introduction of the Insolvency Code 2016 and from time to time, the enactment of Rules and policies by the market regulator, SEBI and RBI, the frauds have been tried to be stopped but again it is the human attribute of greed which leads to the corruption in the corporate world [6] .

IV. CONCLUSION:

In the research, researcher already answered the research questions as to the scams irrespective of the mandatory laws in India and India should develop harsher approach to penalize the culprits involved in the scams in order to protect the genuine investors and common man’s hard-earned money.

After highlighting the case study of major scams in India, researcher comes to the crux that the hypothesis as to the “Corruption in the government authorities responsible for the financial management of the country is liable for the constant frauds in the Indian economy” stands correct and affirmative . As it was seen in the 2G Spectrum, the executives were involved in the scam. Thus, saying that government itself is responsible for conniving with the culprit isn’t wrong.

As far as the second hypothesis is concerned, “Privatization and the nationalization approaches should be strictly adhered to which unfortunately in India remained in a dormant stage” – Researcher says that strict adherence to the economic policies of the government does not allow the private sectors to maintain the confidentiality to their corporate affairs and there is always the shadow of the transparency to the transactions. If, inventive-preneurship and entrepreneurship is to be promoted than strict distinction is to be made in between privatization and nationalization of the entity. Hence, second hypothesis stands correct and affirmative.

Cite this article as:

Arifa Zahra, Corporate Frauds in India and Its Effects on Indian Economy, Vol.3 & Issue 3, Law Audience Journal (e-ISSN: 2581-6705), Pages 46 to 51 (9 th January 2022), available at https://www.lawaudience.com/corporate-frauds-in-india-and-its-effects-on-indian-economy/ .

Footnotes & References:

[1] SEBI Act, 1992, Article 15G- If any insider who,— (i) either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price-sensitive information; or (ii) communicates any unpublished price-sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or (iii) counsels, or procures for any other person to deal in any securities of anybody corporate on the basis of unpublished price-sensitive information, shall be liable to a penalty 81[which shall not be less than ten lakh rupees but which may extend to twenty- five crore rupees or three times the amount of profits made out of insider trading, whichever is higher].

[2] Robin Banerjee, Who Cheats and How? Scams, Fraud and the Dark Side of the Corporate World 69 (SAGE Publications, 2015).

[3] Jayant Umranikar, Prevention, Detection & Investigation Of Corporate Frauds 59 (Wolters kluwer india Pvt Ltd, 2019).

[4] Companies (Audit and Auditors) Rules 2014, Section 139(2) and Rule 5- Maximum term for appointment of auditors 1- In case of every listed company; 2. All Unlisted companies having paid up share capital of Rs 10 Crore or more;’ 3. All Private companies having paid up share capital of Rs 50 crore of more; 4 All companies having borrowings from financial institutions, banks or public deposit of Rs 50 Crore or more shall appoint or reappoint- a. an Individual more than one term of 5 Consecutive years; b. An Audit firm as auditor for more than 2 terms of 5 consecutive years;

[5] Maryam Hussain, Corporate Fraud The Human Factor 46 (Bloomsbury USA, 2014).

[6] Robin Banerjee, Who Cheats and How? Scams, Fraud and the Dark Side of the Corporate World 28 (SAGE Publications, 2015).

You Might Also Like

Big Data Privacy and Data Protection: A Case Study Analysis Under GDPR

The Online Contracts, The Pseudo Contracts, And The Law: How And What Is Happening?

Can Artificial Intelligence Be Punished for Committing Offences? A Critical Analysis of The Applicability of Criminal Law Principles on Artificial Intelligence

Leave a reply cancel reply.

You must be logged in to post a comment.

• EDITORIAL BOARD MEMBERS
• PUBLICATION ETHICS AND PUBLICATION MALPRACTICE STATEMENT
• PUBLICATION POLICY
• Article Processing Charges (APC)
• WITHDRAWAL POLICY
• PUBLICATION TIME TABLE
• ADVISORY BOARD MEMBERS
• SUBMIT YOUR PAPER
• PUBLISHER DETAILS
• Volume 5 & Issue 5
• ONLINE INTERVIEW SERIES
• Law Audience Blog
• POLICY/LEGISLATION ANALYSIS
• CASE ANALYSIS

WhatsApp us

Northeast India News, Assam News, Breaking News of Northeast | Latest News Live | EastMojo

Three recent corporate frauds that shook the Indian banking system

So what exactly ails the Indian banking system? There is no one definitive answer to that question but be it the ₹22,842-crore ABG Shipyard bank loan fraud, the implosion of the Kingfisher Airlines and of the Nirav Modi empire or the massive IL&FS Group fiasco that involved a scam of over 9900 crore rupees, the system continues to bleed money as Non-Performing Assets (NPA)  pile up. According to an RBI estimate, the total credit of the Indian banking system was at ₹120 lakh crore as on May 6, 2022. 

Trending Stories

Latest Stories

Join the Conversation

How can I follow you for new blog? Thanks for giving such full information about Ketan Parekh | The Scam of Ketan Parekh

Leave a comment Cancel reply

Leave a comment.

Disclaimer: Stories/articles published under EM Buzz (eastmojo.com/em-buzz) are provided by third parties and EastMojo.com has no direct relation with these articles.

• Business Today
• India Today
• India Today Gaming
• Cosmopolitan
• Harper's Bazaar
• Brides Today
• Aajtak Campus

• Budget 2024
• Magazine Cover Story Editor's Note Deep Dive Interview The Buzz
• BT TV Market Today Easynomics Drive Today BT Explainer
• Market Today Trending Stocks Indices Stocks List Stocks News Share Market News IPO Corner
• Tech Today Unbox Today Authen Tech Tech Deck Tech Shorts
• Money Today Tax Investment Insurance Tools & Calculator
• Mutual Funds
• Industry Banking IT Auto Energy Commodities Pharma Real Estate Telecom
• Visual Stories

INDICES ANALYSIS

Mutual funds.

• Cover Story
• Editor's Note
• Market Today
• Drive Today
• BT Explainer
• Trending Stocks
• Stocks List
• Stocks News
• Share Market News
• Unbox Today
• Authen Tech
• Tech Shorts
• Tools & Calculator
• Commodities
• Real Estate
• Economic Indicators
• BT-TR GCC Listing

Investment firm accused of massive Rs 12,000 cr bank fraud: Report

As per the report, a whistleblower has accused the bothras of engaging in illegal activities, including criminal breach of trust, cheating, forgery, and conspiracy. they are also alleged to have violated the prevention of money laundering act (pmla), 2002..

• Updated Aug 12, 2024, 8:10 PM IST

• Advertise with us
• Privacy Policy
• Terms and Conditions
• Press Releases

Copyright©2024 Living Media India Limited. For reprint rights: Syndications Today

Add Business Today to Home Screen

• India Today
• Business Today
• Harper's Bazaar
• Brides Today
• Cosmopolitan
• India Today Hindi
• Reader’s Digest
• Aaj Tak Campus

Download App

Hyderabad man loses Rs 5.9 crore after falling for fake IPO scam, here is what happened

A hyderabad businessman fell victim to an elaborate fake ipo scam, losing rs 5.9 crore. the fraudsters used the name of goldman sachs to deceive the victim into making large investments..

Listen to Story

• Hyderabad businessman loses Rs 5.9 crore in fake IPO scam
• Fraudsters posed as Goldman Sachs representatives to lure the victim
• The scammers distributed victim's money across 11 bank accounts

Seems like Hyderabad is one of the new emerging hotspots for online scams in India, with frequent reports of cyber fraud where citizens lose substantial amounts of money to sophisticated scammers. In the latest case, a businessman from the city became the victim of an elaborate fake Initial Public Offering (IPO) scam, resulting in a loss of Rs 5.9 crore. This incident underscores the growing threat of online fraud in the city, as scammers continue to lure unsuspecting victims with enticing yet fraudulent offers.

In this scam, the fraudsters capitalised on the growing interest in stock market investments, and designed a lucrative scheme to deceive the unsuspecting. In this particular case as reported by TOI, the scam began when the victim, a resident of Kukatpally, received a WhatsApp message promoting a supposed "Goldman Sachs Business School" for block trading and preferential IPO access. The message caught the attention of the victim as it included the name of a well-known financial institution. However, shortly after the message, the victim was also contacted by a woman who introduced herself as the assistant to the managing director of Goldman Sachs. She further presented a seemingly lucrative investment opportunity in the Indian stock market through institutional accounts, to build the credibility of the offer.

When the victim asked for more details, the scammers persuaded him to register for the scheme via a Google form and download a trading app called 'GSIN.' The app was purportedly associated with Goldman Sachs and offered exclusive access to IPOs and block trading opportunities. Convinced of the legitimacy of the offer, the victim began transferring money from his personal savings accounts to various bank accounts provided by the scammers. Between January 30 and February 22, he invested a total of Rs 5.9 crore across multiple transactions.

However, it was when the victim tried to withdraw his funds that his suspicion started to grow. On February 22, the woman, who claimed to be the personal assistant (PA) of the managing director, instructed the victim to sell all his holdings. When the victim inquired about the withdrawal process, he was informed that he would need to pay 20 percent of the profits-amounting to Rs 2.8 crore-to access his money. This made the victim suspicious, and he requested that the 20 per cent be withheld and the remaining balance released. The scammers, however, insisted on a minimum payment of 10 per cent of the profits (Rs 1.4 crore) to proceed with the withdrawal.

Realising that he had been duped, Reddy refused to pay the additional amount and immediately lodged a complaint with the police. Investigations revealed that the money he had invested had been funnelled into 11 different bank accounts, making it difficult to trace and recover the funds.