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Satyam share price in January 2008 was Rs 541. n January 2009, it was around Rs 188.

Since the share was available cheap many


small investors bought Satyam even on January 7. The price of the share on January 9 had fallen to Rs 11.50 on the BSE and Rs 6.50
of te NSE in early trade.
1987: Ramalinga Raju, a businessman, establishes Satyam Computer Services.

1991: Satyam gets listed on the Bombay Stock Exchange, PO oversubscribed 17 times.

2006: Revenues cross $1 billion. Raju becomes Nasscom chairman.

2007: Raju named Ernst & Young Entrepreneur of the year.
September 23: Satyam gets Golden Peacock Award for Corporate Governance and Compliance (later withdrawn)

December 16: Satyam chairman Ramalinga Raju announces plan to buy Maytas nfra and Maytas Properties owned by his sons for
$1.6 billion. nvestors cry foul. Why should an T company invest in real estate?

December 17: Raju does a U-turn following widespread investor protests. Acquisition plan of Maytas shelved. nquiry ordered by SEB.

December 23: Satyam barred from business with the World Bank for 8 years for alleged malpractices in securing contracts. Shares fall
to lowest in 4 years.

December 26: Board member Mangalam Srinivasan resigns. ntel co-founder Vinod Dham, Harvard Prof. Krishna Palepu also resign
from the board.

December 30: One of Satyam's largest investors says it could sell its stake. More suitors join the fray to acquire Satyam.
January 2: Satyam says its founder's stake fell by a third to 5.13%

January 6: Satyam's i-bank DSP Merril Lynch meets SEB, says there are 'material irregularities' in balance sheets.

January 7: Chairman Ramalinga Raju resigns, confesses over Rs 7,000 crore fraud. Claims cash never existed in the company and
that the aborted Maytas transaction was a last ditch effort to cover the fraud.

January 8: Satyam's bank Citibank freezes its 30 accounts. nterim CEO Ram Mynampati says company is in severe cash crunch.
Satyam's auditor PwC faces government ire.
January 9: Ramalinga Raju and his younger brother B Rama Raju arrested. Central govt disbands Satyam board, appoints own
directors- Kiran Karnik, ex-Nasscom president, HDFC chairman Deepak S. Parekh and former member of SEB, and ex-Chairman of
Securities Appellate Tribunal C Achuthan.

Januaary 14: KPMG and Deloitte appointed to restate accounts. PwC says audited financial statements of Satyam unreliable.

January 19: State Farm Automobile nsurance Co cancels its outsourcing deal with Satyam.

January 24: Top auditors of PwC arrested.

January 27: Satyam board appoints Goldman Sachs and Avendus to identify strategic buyers and obtain bids.

February 5: Satyam names A.S. Murthy, a company veteran, as CEO.
February 6: Kiran Karnik assumes the role of Satyam chairman.

March 6: Satyam wins SEB approval to sell 51% stake. L&T, Tech Mahindra, Spice Group, Hindujas, iGate say they are interested in
buying Satyam.

March 20: iGate Corp says it will not proceed with a bid.

March 24: Spice Group pulls out citing lack of transparency in the bidding process.

ApriI 1: Reports about US private equity firm Wilbur Ross' interest in Satyam start circulating.

ApriI 2: Satyam changes the bidding process to introduce a second round open auction to find a new owner if necessary.
ApriI 4: Deadline for bid submission extended from April 9 to April 13.

ApriI 5: Satyam Chairman Kiran Karnik says that the board will open the final bids on April 13, the new deadline for submitting the bids.

ApriI 6: Three more Satyam officials arrested. CB charges the Raju brothers with accounting fraud.

ApriI 9: Court rejects bail plea of the top PwC auditors arrested due to the Satyam scam.

ApriI 13: Tech Mahindra wins bid for Satyam offering Rs 58 per share for the co.

On 18 December last year, two days after the Satyam board met and decided to acquire two group firms-Maytas
Infra Ltd and Maytas Properties Ltd-independent director Krishna Palepu received an anonymous email.
The writer went by an alias, Joseph Abraham, and has been declared the whistle blower in the case. This email laid
bare the fraud.
Palepu forwarded the email to another independent director, M. Rammohan Rao, who chaired the Satyam audit
committee. Rao forwarded this email to S. Gopalakrishnan, partner at Price Waterhouse, the companys auditors.
Gopalakrishnan told Rao over phone that there was no truth to the allegations and assured him of a detailed reply in a
proposed presentation before the audit committee on 29 December.
That meeting never took place. A new date-10 January-was fixed.
Raju knew the clock was ticking for that audit meeting could have seen the committee members pose tough questions.
Raju had not taken Raos calls seeking an answer to the allegations in the whistle blowers email.
Three days before the meeting, Raju confessed to Indias biggest corporate fraud.

In the Indian context, it is often said that a company's relationship with its auditor is like
an Indian marriage. It is a bond made once and forever. As a result, the chances of an
understanding between the two parties are significantly higher.
Post the Satyam saga and the role of the auditors coming under scrutiny, many analysts
and industry bodies like Nasscom have come together in order to suggest a rotation
period for auditors. The argument against this is that, with time, auditors develop a level
of familiarity with the company and its nitty-grittys. That, in a way, is a favorable thing
for a company in most circumstances. Getting new auditors-a new set of people-every
two to three years enhances the risk for a company as the new auditor will take its time
to get acquainted with the company's compliance framework, risk factors and set up. By
the time some level of familiarity is achieved, it will be time to bring in another auditor



In September 2008 the World Councll for Corporute Governunce honored the now-beleuguered Indlun outsourcer Sutyum wlth u Golden
Peucock Awurd" for globul excellence ln corporute governunce. Wlth lts honoree now engulfed ln scundul, the Councll rushed to dlstunce ltself
from the troubled compuny by resclndlng the uwurd, lssulng u press releuse through the Indlu-bused Instltute of Dlrectors stutlng the uwurd
wus obtulned us u result of non-dlsclosure of muterlul fucts."

The greut set buck ln Indlun corporute world
Corporute Indlu wlll never be the sume uguln. Whut trunsplred ln Sutyum computers ln Junuury culmlnutlng lnto the hlstorlc confesslon letter
of former chulrmun B. Rumullngu Ru|u, udmlttlng u fruud of Rs 78 bllllon hus cuused the regulutors und the lnvestors everywhere to re-
exumlne the corporute governunce stundurds. The multlbllllon dollur scum ls unprecedented und ldlosyncrutlc for more thun one reuson. The
fuct thut compuny whlch wus uudlted by one of the most prestlglous uudlt flrms und udopted most udvunced uccountlng und trunspurent IFRS
uccountlng systems much uheud of tlme cun penetrute such u colossul und u globul fruud ls cleurly eye openlng for corporute counsel
worldwlde. It wus trlggered wlth Sutyums bld to ucqulre Muytus compunles for USS 1.6 bllllon.[8] Thls reveuled the self uggrundlzlng pollcles
of the promoters, whlch cuused severe lnvestor bucklush.


In the ureu of securltles regulutlon, SEBI hus mude numerous chunges ln recent yeurs lncludlng: revlslng und
strengthenlng Cluuse 49 ln relutlon to lndependent dlrectors und uudlt commlttees; revlslng Cluuse 41 of the Llstlng
Agreement on lnterlm und unnuul flnunclul results; und umendlng other llstlng rules to protect the lnterests of mlnorlty
shureholders, for exumple ln mergers und ucqulsltlons. SEBI brought out new rules ln Februury 2009 requlrlng greuter
dlsclosure by promoters (l.e., controlllng shureholders) of thelr shureholdlngs und uny pledglng of shures to thlrd
purtles. And ln November 2009 lt unnounced lt would be muklng some further chunges to the Llstlng Agreement,
lncludlng requlrlng llsted compunles to produce hulf yeurly bulunce sheets. More recently, ln December 2009, the
Mlnlstry of Corporute Affulrs (MCA) publlshed u new set of Corporute Governunce Voluntury Guldellnes 2009",
deslgned to encouruge compunles to udopt better pructlces ln the runnlng of bourds und bourd commlttees, the
uppolntment und rotutlon of externul uudltors, und creutlng u whlstle blowlng mechunlsm

In the current corporute governunce pructlces lt ls requlred to focus on purtlculur corporute governunce mechunlsms. There ure two types of
mechunlsm thut resolve the confllcts umong dlfferent corporute clulm-holders, especlully, the confllcts between owners und munugers, und
those between controlllng shureholders und mlnorlty shureholders. The flrst type conslsts of vurlous lnternul vurlubles, e.g. (1) the ownershlp
structure, (2) bourd of dlrectors (3) executlve compensutlon und (4) flnunclul dlsclosure.[11] The second lncludes externul mechunlsm wlth
vurlubles, e.g. (1) effectlve tukeover murket, (2) legul lnfrustructure und (3) product murket competltlon. Good corporute governunce
pructlces ure u slne quu non for sustulnuble buslness thut ulms ut generutlng long term vulue to ull lts shureholders und other
stukeholders".[12]
A more comprehenslve revlew of corporute governunce regulutlon und pructlces ls requlred ln Indlu. Whlle the new Voluntury Guldellnes
2009" provlde helpful und detulled guldunce to compunles lnterested ln developlng u more effectlve bourd of dlrectors yet lot of lssues remuln
unuttulned ud ununswered. Nor wlll the new Compunles Blll resolve these chullenges.






osL SaLyam CorporLae Covernance SLrucLure ln lndla
by ClSPWA8?A 8PA11ACPA8?A on MA? 12 2010
8epuLaLlon ls an ldle and mosL false lmposlLlon ofL goL wlLhouL merlL and losL wlLhouL
deservlng1" lalled lnsLlLuLlons lncludlng Lehman 8roLhers Lnron and SaLyam would sLand a
LesLlmony Lo Lhls fracas ln a posLmorLem analysls

CorporaLe governance ls perhaps Lhe LoughesL parL of corporaLe handllng lL requlres an ldeal
conLrol sysLem whlch can regulaLe boLh moLlvaLlon and ablllLy AL one end of Lhe specLrum are Lhe
shareholders as owners of Lhe buslness enLlLy slnce Lhey provlde Lhe ulLlmaLe rlsk caplLal AL Lhe
oLher end are Lhe managers" or Lhe execuLlve dlrecLors" of Lhe company who are ln conLrol of lLs
dayLoday affalrs As Lhe elecLed represenLaLlves of Lhe shareholders lL ls Lhe collecLlve
responslblllLy of Lhe board of dlrecLors Lo dlrecL operaLlons of Lhe company ln a manner LhaL ls besL
sulLed Lo Lhe lnLeresLs of Lhe company As Lhe owners of buslness Lhe shareholders are expecLed Lo
monlLor and evaluaLe operaLlons of Lhe company as well as Lhe performance of Lhe enLlre board of
dlrecLors and ln parLlcular Lhe effecLlveness of Lhe full Llme or execuLlve dlrecLors2

CorporaLe governance mechanlsms dlffer beLween dlfferenL counLrles 1he governance mechanlsm
ln each counLry ls shaped by lLs pollLlcal economlc and soclal hlsLory 1he governance pracLlces
adopLed ln any counLry reflecL Lhe naLlonal eLhos and value sysLems adopLed ln LhaL counLry over a
long perlod of Llme3 ln mosL of Lhe counLrles Lhe corporaLe form of organlzaLlon dld noL evolve
and emerge Lhrough a naLural buslness process Pence dlfferenL counLrles have asslmllaLed lL Lhelr
own way 1he predomlnanL form of corporaLe governance ln lndla ls much closer Lo Lhe LasL Aslan
lnslder" model where Lhe promoLers domlnaLe governance ln every posslble way A dlsLlngulshlng
feaLure of Lhe lndlan dlaspora ls Lhe lmpllclL accepLance LhaL corporaLe enLlLles belong Lo Lhe
foundlng famllles" Lhough Lhey are necessarlly consldered Lo be Lhelr prlvaLe properLles4

uesplLe all Lhe dlfferences among shareholders phllosophy across dlfferenL counLrles ln regard Lo
corporaLe governance mechanlsms Lhere ls no denylng of Lhe facL LhaL good governance ls Lhe Llme
need of changlng world Whlle mulLllaLeral organlzaLlons llke World 8ank and Au83 have shown
keen lnLeresL ln Lhe sub[ecL of corporaLe governance Lhe lnLellecLual lead has been glven by Lhe
CLCu (CrganlzaLlon for Lconomlc CooperaLlon and uevelopmenL) ln evolvlng a seL of cogenL
prlnclples of corporaLe governance CLCu has come ouL wlLh a seL of clearly deflned prlnclples
whlch lL hopes wlll be useful Lo all counLrles lrrespecLlve of Lhelr sLages of developmenL legal
sysLems lnsLlLuLlonal frameworks and LradlLlons 8uL roughly Lhere ls Lhe requlremenL of some
corporaLe governance conLrol lL requlres Lwo Lypes of corporaLe governance le lnLernal corporaLe
governance and exLernal corporaLe governance

ln SepLember 2008 Lhe World Councll for CorporaLe Covernance honored Lhe nowbeleaguered
lndlan ouLsourcer SaLyam wlLh a Colden eacock Award" for global excellence ln corporaLe
governance WlLh lLs honoree now engulfed ln scandal Lhe Councll rushed Lo dlsLance lLself from Lhe
Lroubled company by resclndlng Lhe award lssulng a press release Lhrough Lhe lndlabased lnsLlLuLe
of ulrecLors sLaLlng Lhe award was obLalned as a resulL of nondlsclosure of maLerlal facLs"

8uL a closer look aL some of Lhe maLerlal facLs" whlch Colden eacock [udges should have known
abouL aL Lhe Llme of Lhe award would have broughL Lo Lhe forefronL a company whose governance
sLandards were far from Lhose of a global leader6 ln facL ln publlc flllngs made several weeks prlor
Lo Lhe award show SaLyam demonsLraLed woeful boardroom lnadequacles and slgnlflcanL
deparLures from commonly accepLed besL pracLlces" ln governance 8uL SaLyam won and palnLed
lLself ln a selfcongraLulaLory llghL by uslng Colden eacock logos and references Some of Lhe mosL
modesL publlcly Lraded companles are followlng governance pracLlces far more laudable Lhan Lhose
of Lhls global honoree"7

1he greaL seL back ln lndlan corporaLe world

CorporaLe lndla wlll never be Lhe same agaln WhaL Lransplred ln SaLyam compuLers ln !anuary
culmlnaLlng lnLo Lhe hlsLorlc confesslon leLLer of former chalrman 8 8amallnga 8a[u admlLLlng a
fraud of 8s 78 bllllon has caused Lhe regulaLors and Lhe lnvesLors everywhere Lo reexamlne Lhe
corporaLe governance sLandards 1he mulLlbllllon dollar scam ls unprecedenLed and ldlosyncraLlc for
more Lhan one reason 1he facL LhaL company whlch was audlLed by one of Lhe mosL presLlglous
audlL flrms and adopLed mosL advanced accounLlng and LransparenL ll8S accounLlng sysLems much
ahead of Llme can peneLraLe such a colossal and a global fraud ls clearly eye openlng for corporaLe
counsel worldwlde lL was Lrlggered wlLh SaLyam's bld Lo acqulre MayLas companles for uS$ 16
bllllon8 1hls revealed Lhe self aggrandlzlng pollcles of Lhe promoLers whlch caused severe lnvesLor
backlash

Whlle Lhere are adequaLe levels of checks and balances ln Lhe sysLem Lo prevenL frauds lL ls Lhe
slack aLLlLude of each lnsLlLuLlon responslble for upholdlng corporaLe governance LhaL made such a
fraud posslble unless heavy flnes and sLrlcL llablllLles are provlded for lf noL ln Lhe sLaLuLe Lhen ln
Lhe lnLernal code of conducL each of Lhese lnsLlLuLlons namely Lhe lnLernal audlL commlLLee Lhe
lndependenL dlrecLors and Lhe exLernal audlLors could conLlnue Lo remaln rubber sLamps"
approbaLlng all managemenL acLlons9 1he SaLyam scandal has relLeraLed Lhe lmporLance of checks
on relaLed parLy LransacLlons SLrlngenL checks and balances on Lhese oughL Lo be lncorporaLed lnLo
Lhe lndlan corporaLe and securlLles laws Lo prevenL LransacLlons llke MayLas ln fuLure endlng
sLaLuLory lncorporaLlon companles can lncorporaLe adequaLe checks and balances ln Lhelr code of
conducL as a measure of ensurlng good corporaLe governance lL ls naLural Lo expecL an enhanced
level of securlLy of Lhe flnanclal and governance aspecLs of lndlan companles and Lo a lesser exLenL
any Aslanbased companles 1he role of corporaLe counsel wlll assume added pressures wlLh a
hlgher emphasls on prevenLlng frauds

ln Lhe area of securlLles regulaLlon SL8l has made numerous changes ln recenL years
lncludlng revlslng and sLrengLhenlng Clause 49 ln relaLlon Lo lndependenL dlrecLors and audlL
commlLLees revlslng Clause 41 of Lhe LlsLlng AgreemenL on lnLerlm and annual flnanclal resulLs and
amendlng oLher llsLlng rules Lo proLecL Lhe lnLeresLs of mlnorlLy shareholders for example ln
mergers and acqulslLlons SL8l broughL ouL new rules ln lebruary 2009 requlrlng greaLer dlsclosure
by promoLers (le conLrolllng shareholders) of Lhelr shareholdlngs and any pledglng of shares Lo
Lhlrd parLles And ln november 2009 lL announced lL would be maklng some furLher changes Lo Lhe
LlsLlng AgreemenL lncludlng requlrlng llsLed companles Lo produce half yearly balance sheeLs More
recenLly ln uecember 2009 Lhe MlnlsLry of CorporaLe Affalrs (MCA) publlshed a new seL of
CorporaLe Covernance volunLary Culdellnes 2009" deslgned Lo encourage companles Lo adopL
beLLer pracLlces ln Lhe runnlng of boards and board commlLLees Lhe appolnLmenL and roLaLlon of
exLernal audlLors and creaLlng a whlsLle blowlng mechanlsm10

ln Lhe currenL corporaLe governance pracLlces lL ls requlred Lo focus on parLlcular corporaLe
governance mechanlsms 1here are Lwo Lypes of mechanlsm LhaL resolve Lhe confllcLs among
dlfferenL corporaLe clalmholders especlally Lhe confllcLs beLween owners and managers and Lhose
beLween conLrolllng shareholders and mlnorlLy shareholders 1he flrsL Lype conslsLs of varlous
lnLernal varlables eg (1) Lhe ownershlp sLrucLure (2) board of dlrecLors (3) execuLlve compensaLlon
and (4) flnanclal dlsclosure11 1he second lncludes exLernal mechanlsm wlLh varlables eg (1)
effecLlve Lakeover markeL (2) legal lnfrasLrucLure and (3) producL markeL compeLlLlon Cood
corporaLe governance pracLlces are a slne qua non for susLalnable buslness LhaL alms aL generaLlng
long Lerm value Lo all lLs shareholders and oLher sLakeholders"12

A more comprehenslve revlew of corporaLe governance regulaLlon and pracLlces ls requlred ln lndla
Whlle Lhe new volunLary Culdellnes 2009" provlde helpful and deLalled guldance Lo companles
lnLeresLed ln developlng a more effecLlve board of dlrecLors yeL loL of lssues remaln unaLLalned ad
unanswered nor wlll Lhe new Companles 8lll resolve Lhese challenges

lndependenL ulrecLors

nomlnaLlon commlLLee can be advlsably esLabllshed comprlslng solely of lndependenL dlrecLors or a
ma[orlLy of lndependenL dlrecLors empowered Lo appolnL Lhe board and evaluaLe lLs performance
AlLhough evaluaLlon of performance ls noL yeL mandaLory under Lhe exLenL of corporaLe governance
reglme yeL lL mlghL yleld a beLLer resulL and ln furLher coarse of Llme lL should be made compulsory

1here should be a flxed Lenure beyond whlch an lndependenL dlrecLor should noL be assoclaLed wlLh
a company An aggregaLe llmlL of nlne years has been prescrlbed under clause 49 vll (ll) of Lhe
equlLy llsLlng agreemenL buL such a requlremenL ls noL mandaLory13

8egardlng Lhe remuneraLlon of Lhe lndependenL dlrecLors Lhe pecunlary payouLs are usually
lncommensuraLe wlLh Lhe onerous role Lhey perform AdequaLe remuneraLlon may ensure LhaL Lhe
dlrecLors dlscharge Lhelr duLy wlLh care and dlllgence raLher Lhan [usL playlng an ornamenLal role ln
Lhe organlzaLlon AnoLher sLep LhaL mlghL ensure a beLLer worklng ls LhaL Lhe lndependenL dlrecLors
should meeL separaLely wlLhouL any member ln Lhe managemenL Lo dlscuss Lhe affalrs of Lhe
company 1hls would help Lhem Lo make declslons on maLLers wlLhouL belng euphemlsLlcally
'gulded' by Lhe managemenL14

LlmlL on number of ulrecLorshlps ln case an lndlvldual ls a managlng or wholeLlme dlrecLor ln a
llsLed company Lhe number of companles aL whlch such an lndlvldual can serve as nonexecuLlve
dlrecLor be resLrlcLed Lo 10 and Lhe number of llsLed companles aL whlch such an lndlvldual can
serve as a nonexecuLlve dlrecLor be resLrlcLed Lo 2 1he maxlmum number of llsLed companles ln
whlch an lndlvldual can serve as a dlrecLor ls Lo be resLrlcLed Lo 713

SeparaLlon of roles of Chalrman and CLC 1here should be a clear demarcaLlon of Lhe roles and
responslblllLles of Lhe Chalrman of Lhe 8oard and LhaL of Lhe Managlng ulrecLor/ CLC 1he 8oles of
Chalrman and CLC should be separaLed Lo promoLe balance of power A comply or explaln"
approach should be adopLed16





AudlLors

Compulsory roLaLlon of audlLors 1hough Lhere are vlews LhaL perlodlc roLaLlon of Lhe audlL flrm may
be enough Lo break Lhe colluslve llnks beLween Lhe company and Lhe audlLors 1he alLernaLlves Lo
roLaLlon are [olnL audlL roLaLlng of managlng parLners harsh penalLles for colluslon and regulaLlon
wlll make lL dlfflculL for Lhe companles Lo sack Lhe audlLors who lnslsL on quallfylng fudged accounLs
SL8l released on SepLember 14 2009 on proposed changes Lo Lhe LlsLlng AgreemenL one of Lhe
reforms suggesLed was Lhe roLaLlon of elLher audlL flrms or audlL parLners as a way Lo enhance Lhelr
lndependence from cllenLs17 SL8l felL LhaL Lhe lndependence of audlLors should be revlewed
because as lL sald ln lLs dlscusslon paper 1he quallLy of flnanclals reporLed by companles and Lhe
Lrue and falr vlew of Lhe flnanclal sLaLemenLs submlLLed by llsLed enLlLles Lo Lhe sLock exchanges
have of laLe come lnLo sharp focus"18 Moreover ln lndla Lhere ls no supervlsory sLrucLure llke
Lhe CAC819 ln uS whlch ls an lndependenL body whlch supervlses Lhe audlL of publlc flrms a
slmllar sLrucLure should be mandaLed for lndlan audlLs20

SecreLarlal AudlL SecreLarlal AudlL should be made mandaLory ln respecL of llsLed companles and
cerLaln oLher companles 1he reporL on Lhe audlL of secreLarlal records shall be submlLLed by Lhe
secreLarlal audlLor Lo Lhe CorporaLe Compllance CommlLLee of Lhe 8oard of ulrecLors of Lhe
company 1he SecreLarlal AudlL 8eporL should form parL of Lhe 8oard's 8eporL

8lsk ManagemenL

Companles need Lo frame a sLrong rlsk managemenL framework Lo sysLemaLlcally manage and
regularly revlew Lhe rlsk proflle aL a sLraLeglc operaLlonal and funcLlonal level WhlsLle blowers
pollcy whlch ls lngralned ln Lhe model code of conducL of a few corporaLlons ln lndla should be made
mandaLory for all Lhe llsLed companles Lo encourage Lransparency21

LlsLed companles musL have a nomlnaLlng/corporaLe governance commlLLee composed enLlrely of
lndependenL board members 1he commlLLee musL have a wrlLLen charLer LhaL addresses lLs
purpose and responslblllLles whlch lnclude (l) ldenLlfylng quallfled lndlvlduals Lo become board
member (ll) selecLlng or recommendlng LhaL Lhe board selecL Lhe dlrecLor nomlnees for Lhe nexL
annual meeLlng of shareholders (lll) developlng and recommendlng Lo Lhe board a seL of corporaLe
governance prlnclples appllcable Lo Lhe company (lv) overseelng Lhe evaluaLlon of Lhe board and
managemenL and (v) conducLlng an annual performance evaluaLlon of Lhe commlLLee22

CorporaLe Compllance CommlLLee Lo be made mandaLory 1he consLlLuLlon of CorporaLe Compllance
CommlLLee should be made mandaLory ln respecL of all publlc llmlLed companles havlng a paldup
caplLal of 8s3 crores or more23

ulrecLors' 8esponslblllLy SLaLemenL Lo lnclude SLaLemenL on Compllances ulrecLors' 8esponslblllLy
SLaLemenL should lnclude a sLaLemenL LhaL proper sysLems are ln place Lo ensure compllance of all
laws appllcable Lo Lhe company

ConsLlLuLlon of lnvesLor 8elaLlons Cell ConsLlLuLlon of lnvesLor 8elaLlons Cell should be made
mandaLory for LlsLed Companles 1he lnvesLor 8elaLlons meeL afLer declaraLlon of flnanclal resulLs
should be compulsorlly webcasL ln case of companles havlng a markeL caplLallzaLlon of 8s1000
Crores or more24

1he MlnlsLry of CorporaLe Affalrs (MCA) based on SaLyam fraud lnvesLlgaLlon has worked ouL
new parameLers for scruLlny of companles ln lnsLrucLlons Lo Lhe 8eglsLrar of Companles (8oC) MCA
has polnLed Lo 'cash aL bank' as a vlLal parameLer for scruLlny23 1lll now Lhe audlLor's cerLlflcaLe
was sufflclenL AfLer Lhe SaLyam eplsode lL has been declded LhaL Lhe 8oC should noL only look aL
Lhe balance sheeL buL also check Lhe veraclLy of Lhe cerLlflcaLes 1hls could be done elLher lnLernally
or ln coordlnaLlon wlLh oLher regulaLors 1he 8oC wlll now noL only verlfy cash aL bank buL also
crosscheck ln Lhe case of SaLyam whlch had shown 8s 3800 crore as cash aL bank Lhe audlLors had
relled on a bank sLaLemenL provlded by Lhe company 1he audlLors are requlred Lo conflrm from Lhe
bank Lo verlfy Lhe amounL lL ls lmporLanL Lo check Lhls parameLer as lL lndlcaLes Lhe flnanclal healLh
of Lhe company based on whlch company shareholders analysLs and oLher ouLslders make an
assessmenL

AnoLher lmporLanL crlLerlon for scruLlny ls relaLed parLy LransacLlons" 1hese are buslness
LransacLlons done by a company wlLh companles or ouLflLs owned by relaLlves of Lhe promoLers or
own subsldlarles lndla's rules on relaLedparLy LransacLlons are sparse ln Lhe Companles AcL
26Lhere are only four secLlons 29327 29728 29929 and 30030 deallng wlLh relaLed parLy
LransacLlon Clause 49 makes a number of references Lo relaLedparLy LransacLlons buL all of Lhem
are brlef and qulLe general 1hey conLaln no requlremenL for lndependenL shareholder approval of
slgnlflcanL LransacLlons nor much ln Lhe way of dlsclosure and reporLlng rules 1he 8lll resLrlcLs such
LransacLlons only for publlc companles buL broadens Lhe deflnlLlon of relaLed parLy Lo lnclude
managers of Lhe company 1he approval of shareholders raLher Lhan Lhe governmenL ls now
requlred31

varlous counLer argumenLs are made ln lndla agalnsL lnLroduclng sLronger rules on relaLed
parLy LransacLlons Cne ls LhaL allowlng shareholders Lo voLe on such LransacLlons would lnLerfere
wlLh Lhe smooLh operaLlon of companles AnoLher ls LhaL slnce many promoLers (le conLrolllng
shareholders) have more Lhan 30 of Lhe voLlng rlghLs ln Lhe company Lhe resulL of any voLe would
be a foregone concluslon 1hese ob[ecLlons mlss Lhe polnL as rules ln oLher markeLs show relaLed
parLy regulaLlon does noL requlre every slngle LransacLlon Lo be voLed ononly Lhe largesL and mosL
maLerlal Moreover Lhe second ob[ecLlon ls noL relevanL slnce connecLed shareholders would noL
be permlLLed Lo voLe ln a meeLlng of lndependenL shareholders lL ls noL [usL Lhe voLlng power LhaL ls
soughL Lo be a check on relaLed parLy LransacLlons when such a LransacLlons requlre shareholder
approval Lhen Lhe board has Lo [usLlfy lL Lo Lhe shareholders 1hls ls Lhe blgger check Lven Lhough
Lhey may have Lhe requlred voLlng sLrengLh oLher shareholders can sLlll ask quesLlons and Lhe board
wlll have Lo [usLlfy Lhe deal 1hls wlll force Lhe board noL Lo enLer lnLo LransacLlons LhaL wlll brlng lL
unwanLed publlclLy

SL8l only recenLly publlshed regulaLlons ln Lhe lssue of CaplLal and ulsclosure 8equlremenLs
2009 whlch replaced Lhe ulsclosure and lnvesLor roLecLlon Culdellnes 2000 Whereas Lhe earller
regulaLlons made scanL reference Lo relaLedparLy LransacLlons (oLher Lhan Lhe facL LhaL
promoLers/conLrolllng shareholders should dlsclose Lhem ln Lhelr flnanclal reporLs) Lhe new
regulaLlons do devoLe a paragraph on how relaLedparLy LransacLlons should be dlsclosed accordlng
Lo AccounLlng SLandard 1832

lf more Lhan 30 per cenL of buslness LransacLlons by a company are wlLh relaLed parLles Lhen Lhe
balance sheeL should be scruLlnlzed and adequaLe explanaLlons should be soughL from lLs offlcers
under Lhls lf a company ls uslng more Lhan half lLs funds ln acLlvlLles oLher Lhan Lhe sLaLed ob[ecLlve
ln Lhe memorandum of assoclaLlon (Mou) glven Lo Lhe reglsLrar of companles Lhe balance sheeL wlll
be examlned 1hese purposes could be loans Lo subsldlary companles oLher companles and
lnvesLmenLs ln muLual funds or sLock markeL real esLaLe or ln forelgn exchange LransacLlons when
Lhe company does noL have much buslness wlLh forelgn exchange exposure eLc33 A
comprehenslve regulaLlon of relaLedparLy LransacLlons lncludlng glvlng lndependenL shareholders
Lhe powers Lo approve large LransacLlons above a cerLaln llmlL and enhanclng dlsclosure
requlremenLs on oLher maLerlal LransacLlons Such regulaLlon could be provlded for ln boLh Lhe
LlsLlng AgreemenL and new SL8l regulaLlons or guldellnes An lndependenL flnanclal advlsor and an
lndependenL board commlLLee should be appolnLed Lo deLermlne wheLher maLerlal LransacLlons are
falr and reasonable Lo all shareholders lndependenL dlrecLors are requlred Lo exerclse Lhelr duLles
more dlllgenLly and proLecL Lhe lnLeresLs of mlnorlLy shareholders especlally ln cases where Lhe
ma[orlLy shareholder ls also Lhe manager of Lhe company34 Some degree of legal llablllLy could be
consldered for dlrecLors ln cases such as SaLyam LlsLed companles wlLh numerous relaLed
LransacLlons should seL up a relaLedparLy LransacLlon commlLLee of Lhelr board 1hls would
scruLlnlze such LransacLlons recommend Lo Lhe board lf shareholder approval should be soughL
advlse on dlsclosure and [udge Lhe falrness of LransacLlons



CorporaLe ulsclosure

1he scope depLh Llmellness conslsLency and formaLLlng of corporaLe flnanclal dlsclosure ln lndla
could be greaLly lmproved CerLaln reforms are needed Lo lmprove Lhe quallLy and Llmellness of
corporaLe dlsclosure of mosL llsLed companles ln lndla Such reforms would provlde lnvesLors wlLh
more useful lnformaLlon on whlch Lo make lnvesLmenL declslons and would sLrengLhen Lhe
repuLaLlon of Lhe lndlan caplLal markeL33

All companles should ln effecL be requlred Lo produce audlLed annual resulLs wlLhln Lhree monLhs
of Lhe year end and Lhelr full annual reporL wlLhln four or aL mosL flve monLhs of Lhe year end 1he
formaL of quarLerly L sLaLemenLs ls Lo be revlewed Lo requlre addlLlonal deLalls regardlng
revenues LlsLed companles are Lo be encouraged Lo provlde boLh cash flow sLaLemenLs and balance
sheeLs wlLh Lhelr quarLerly reporLs

Corp llllng and LullA836 should be merged lnLo one daLabase wlLh Lhe sLrucLure followlng Lhe
organlsaLlon of LullA8 buL wlLh furLher LhoughL belng glven as Lo how lnformaLlon could be even
more easlly accesslble

Cn november 9 2009 Lhe SL8l 8oard announced LhaL lL would amend Lhe LlsLlng AgreemenL ln
relaLlon Lo Lhree of Lhese lssues namely

- Allowlng Lhe volunLary adopLlon of ll8S by llsLed enLlLles wlLh subsldlarles

- 8equlrlng half yearly dlsclosure of balance sheeLs (whlch musL provlde audlLed flgures or non
audlLed flgures wlLh llmlLed revlew) and

- Approvlng some of Lhe new deadllnes recommended by SCCuA for Lhe submlsslon of flnanclal
resulLs (namely a more flexlble requlremenL for Lhe dlsclosure of quarLerly resulLs43 days afLer
Lhe perlod end raLher Lhan Lhe currenL 30 daysbuL a LlghLer deadllne for Lhe dlsclosure of audlLed
annual resulLs by companles LhaL opL Lo produce sLandalone" (le unconsolldaLed) annual resulLs
lnsLead of an unaudlLed fourLh quarLer reporLreduced from 90 days Lo 60 days)37

lL ls noL clear however when Lhese llsLlng rule changes wlll Lake effecL Moreover Lhe changes Lo
Lhe dlsclosure deadllnes sLlll fall Lo address Lhe problem of when a company should publlsh lLs
audlLed annual resulLs lf lL chooses Lo produce an unaudlLed fourLh quarLer reporL38



referenLlal WarranLs



1he scope for Lhe mlsuse and abuse of warranLs ln lndla ls conslderable 8egulaLlon of Lhelr lssuance
Lo promoLers needs Lo be LlghLened 1he lssuance of preferenLlal shares warranLs or oLher securlLles
Lo promoLers and oLher connecLed persons musL be prohlblLed (as ln oLher markeLs) excepL under
Lhe llmlLed clrcumsLances envlsaged ln markeLs such as Pong kong (le where Lhe securlLles are
parL of a proraLa enLlLlemenL made avallable Lo all shareholders on an equal basls or as parL of a
shareholderapproved sLock opLlon scheme) 39

Companles are requlred Lo seek shareholder approval aL Lhelr annual general meeLlngs for Lhe
lssuance over Lhe subsequenL 12 monLhs of any new shares aL a dlscounL Lo a llmlLed group of
(nonconLrolllng) shareholders SLrlcL rules should govern Lhe slze and dlscounL of such offerlngs
LlsLed companles should revlew Lhe way Lhey use warranLs and llmlL Lhelr appllcaLlon Lo formlng
parL of a wlder lssue of debL or equlLy securlLles (le where warranLs acL as sweeLeners for
lnvesLors)





Concluslon
1he SaLyam lncldenL Lhough unforLunaLe exposed some blg loopholes ln Lhe sysLem !usL as Lhe
unlLed SLaLes needed Lhe Lnron Scandal Lo clean up lLs acL perhaps lndla needed Lhe SaLyam flasco
Lo lnLroduce sweeplng changes ln lLs own flnanclal reporLlng sysLem lL cannoL be denled LhaL Lhe
SaLyam eplsode was a sLark fallure of Lhe code of CorporaLe Covernance ln lndla CorporaLe
governance refers Lo an economlc legal and lnsLlLuLlonal envlronmenL LhaL allows companles
dlverslfy grow resLrucLure and exlL and do everyLhlng necessary Lo maxlmlse long Lerm
shareholder value lL ls noL someLhlng whlch can be enforced by mere leglslaLlon lL ls a way of llfe
and has Lo lmblbe lLself lnLo Lhe very buslness culLure Lhe company operaLes ln ulLlmaLely followlng
pracLlces of good governance leads Lo all round beneflLs for all Lhe parLles concerned 1he
company's repuLaLlon ls boosLed Lhe shareholders and credlLors are empowered due Lo Lhe
Lransparency CorporaLe Covernance brlngs ln Lhe employees en[oy Lhe lmproved sysLems of
managemenL and Lhe communlLy aL large en[oys Lhe frulLs of beLLer economlc growLh ln a
responslble way 1he loyalLy of a Lyplcal lndlan lnvesLor ls far greaLer Lhan hls counLerparLs ln Lhe
uSA or 8rlLaln40 8uL our companles musL noL make Lhe mlsLake of Laklng such loyalLy as a glven
1o nurLure and sLrengLhen Lhls loyalLy our companles need Lo glve a clearcuL slgnal LhaL Lhe words
your company" have real meanlng 1haL requlres well funcLlonlng boards greaLer dlsclosure beLLer
managemenL pracLlces and a more open lnLeracLlve and dynamlc corporaLe governance
envlronmenL CulLe slmply shareholders' and credlLors' supporL are vlLal for Lhe survlval growLh
and compeLlLlveness of lndla's companles Such supporL requlres us Lo Lone up our acL Loday