Satyam & beyond

Directors & Officers Liability

Prepared by:
Samarth Bhadoria (141607)
Himanshu Chandel (141610)
Akshaya Kumar (141633)
Section -1

Directors and Officers

Liability
Directors have responsibility to their company,

shareholders, employees and public at large.

They become liable to pay damages for wrongful acts
such as failure of supervision of affairs of company etc.
Therefore, policy is designed to provide protection to
directors and officers of a company against their personal
liability for financial losses arising out of wrongful acts.
Directors and officers may be liable to:
Employees
Shareholders
Creditors
Government regulatory bodies
Members of the public

Coverage under the policy

Insured
The directors and officers of the Company
The company itself
Insuring clause
Underwriters agree subject to the terms and
conditions of this policy to:
Pay on behalf of the Directors or Officers of the
company the loss arising from any claim.
Pay on behalf of the company, loss arising
from any claim first made against Directors or
Officers during the period of insurance.

Exclusions
Underwriters shall not pay any loss arising from

any claim:
Where legal action or litigation is brought in
court of law within Excluded Territories stated in
Schedule.
To the extent that an indemnity or payment is
available from any source, other than the policy
For any actual or alleged bodily injury, sickness,
disease or death of any person or any actual or
alleged damage to or destruction of any
tangible property, including loss of use thereof.

Claim Condition
Directors and officers and the Company shall:
give underwriters immediate notice in writing of any claim
give underwriters such information and co-operation as they

may reasonably require.

not admit liability for or settle or attempt to settle any claim.

Premiums are based on limit of indemnity, the

policy excess and based on following factors:
Turnover and gross assets, financial position of the company.
The geographical operations of the company and jusrisdiction
The trade activity and organization structure.
The number of directors and officers seeking cover.
The aggregate limits of indemnity

Satyam Scam
What is the Satyam scam about?

It is about corporate governance and fraudulent auditing

practices allegedly in connivance with auditors and
chartered accountants. The company misrepresented its
accounts both to its board, stock exchanges, regulators,
investors and all other stakeholders.
The Satyam Computer Services scandal is a corporate
scandal that worked in India in 2009 where chairman
Ramalinga Raju confessed that the company's accounts
had been falsified. The Global corporate community was
shocked and scandalised when the chairman of Satyam,
Ramalinga Raju resigned on 7 January 2009 and confessed
that he had manipulated the accounts by US$1.47-Billion.

In February 2009, CBI took over the investigation and

filed three charge sheets (on April 7, 2009, November
24, 2009 and January 7, 2010), which were later
clubbed into one. On April 10, 2015, Ramalinga Raju
was convicted with 10 other members.

Anatomy of a fraud:
Maintaining records
Fake invoices and bills
Web of companies
Why did he need the money

 For the seven years Accounting books were cooked

Profits were inflated
Liabilities were understated
Debts were overstated
Accrued interests
The gaps in the balance sheet were due to

Inflated profits.

PricewaterhouseCoopers affiliates served

as independent auditors of Satyam
Computer Services when the report of
scandal in the account books of Satyam
Computer Services broke.

The Indian arm of PwC was fined $6

million by the SEC (US Securities and
Exchange Commission) for not following
the code of conduct and auditing standards
in the performance of its duties related to
the auditing of the accounts of Satyam
Computer Services.

Later:
TECH MAHINDRA ACQUIRED SATYAM,

RENAMED IT AS MAHINDRA SATYAM AND

REPLACED ITS EXECUTIVE BOARD AND
AUDITORS
SWIFT GOVERNMENT ACTION SAVED

SATYAM ULTIMATELY
CHALLENGES AHEAD

D&O liability insurance in

demand after Satyam fraud
The fraud at Satyam Computer Services Ltd has

seen an increase in demand for directors and

officers (D&O) liability insurance.
A D&O cover is designed to protect directors and

officers of a company for any wrongful acts that

include misleading financial statements and
mismanagement of funds, in respect to their
potential exposure for the personal liability which
can arise in the course of performing their duties. It
also protects the company in respect of payments
which it is legally permitted to make on behalf of its
directors or officers.

Enquiries about D&O products have seen a jump.

Earlier, awareness for this product was quite low and was
from large companies, mainly from those that had private
equity and institutional investors. Now even smaller
companies are opting for D&O against any possible liabilities.
Sanjay Kedia, managing director and country head at Marsh

Insurance Brokers, said: Post-Satyam many small and midsized companies have started showing a lot of interest in
this product. Also, the larger ones are making sure the
coverage is enough. On an average, listed companies have
been taking covers up to Rs25 crore. The premium for
which would be around 0.5% of the cover. This cover could
go up to Rs500 crore depending on the companys size.
Apart from companies from possible risks from within, even

independent directors in India are becoming increasingly

demanding such protection before taking on any
assignment. With increasing demand, the premium rates
are also expected to rise.

The Rs 7000-crore scandal at Satyam

Computer Services has brought the
issue of corporate governance into
sharp focus.

Capital markets regulator SEBI could make it mandatory for all listed

companies to buy directors' & officers' (D&O) liability insurance to

shield them from the risk of huge liabilities in the event of frauds
stemming from poor corporate governance practices.

Less than 10% of companies listed on the BSE now have any kind of

D&O policies, which typically cover top executives from being held
personally liable in the event of misleading financial statements and
mismanagement of funds. It also guards companies in case of
litigation payments made on behalf of its directors or officers.

Such D&O policies are common overseas. Romania was the first

country in the European Union (EU) to make D&O insurance

compulsory for all corporations. Brazil requires foreign companies to
compulsorily purchase a locally-issued D&O insurance policy to protect
their local subsidiary's directors and officers from litigation. In the US,
a survey revealed that 46% of those suing the directors were
shareholders, 30% were from employees while customers and clients
constituted 12%.