Ramalinga Raju may be behind bars, but have ground realities changed? Have enough safeguards been brought in? What are the lessons from the Satyam scam? More than six years after the self-confessed crime that was termed as 'India's Enron', these questions continue to plague the minds of most people.
JN Gupta, former ED, Sebi stakeholders empowerment services, says the main problem was the failure of the audit system, failure of the board processes and disclosures. "We saw it in last couple of years - lot many measures have been taken which strengthen all these parameters but if you say sufficient – no law can be sufficient because there will always be loopholes and even if there are no loopholes creative people will find loopholes."
Amit Tandon, Founder, IiAS, says waiting six years for a judgement for a self confessed crime is an incredibly long wait.
Below is the verbatim transcript of JN Gupta and Amit Tandon with CNBC-TV18's Shereen Bhan.
Q: Let me start by asking you whether the lessons have been learnt from the Satyam scam and whether enough has been done from a regulatory point of view to enhance corporate governance? There was a lot of talk when the new Companies Act was being designed and being passed that this was actually going to be in a sense a Satyam proof corporate affairs law. Do you believe that whether it is the role of independent directors or it is corporate governance standards, we are much better placed today than we were when the Satyam scam unfolded in 2008?
Gupta: Lessons were learnt not today, they had started right from when the scam broke out. Certain actions were taken by the regulator and moreover over a period of last 5-6 years many changes have happened both in the Companies Act, in the listing agreement and in many regulations that Sebi has.
The main problem as we have seen was the failure of the audit system, failure of the board processes and disclosures. We see it in last couple of years lot many measures have been taken which strengthen all these parameters but if you say sufficient – no law can be sufficient because there will always be loopholes and even if there are no loopholes creative people will find loopholes. The most important thing is the role play. Even if the systems were not proper, if the people who were manning the system if they had played their role properly then probably this would not have happened.
I would say very simply in audit system there are standard operating procedures and if PwC people had followed standard operating procedures they would have discovered that there were no fixed deposits in the bank.
Q: PWC has reacted, it has come out with a statement saying it is actually disappointed with the verdict and it believes that the two former auditors of the firm will challenge this order legally, but on the issue of the role and responsibility of auditors do you really believe at this point in time that there is a need for us to overhaul the ICAI?
Tandon: You are absolutely right when you talk about that. If you look at it and if you go back to the events which had happened, the SEC had a fine of a little over USD 25 million on PWC which in other ways PWC paid out - the ADR at the holders of about USD 25.5 million. In addition SEC also passed fixtures against PWC India but here they seem to have got away with a rap on the knuckles, but let me make one other point. While there is some excitement about the fact that there is a judgement and people who commit white collar crimes will be held accountable.
Let us remember Ramalinga Raju admitted that he had frauded the company and the shareholders of about Rs 5,000 crore and then we have taken about six years. In case he had not said it and someone else had kind of just spoken about it and then the regulators had gone to it then we would still be talking about what needs to happen, what does not need to happen, the changes we need to see. So six years for a self confessed crime is an incredibly long wait.
Q: The Confederation of Indian Industry (CII) has also issued a statement saying that justice needs to be a lot swifter. The CBI has come out with a press release saying in record time the CBI had actually filed the charge sheet in this matter – it took about 10 months for the CBI to file the charge sheet in this matter and we are talking about a verdict now where it has taken six years for us to see light of day.
Gupta: I agree with that, it was a self confessed crime which was done in front of media and it was very clearly articulated by Ramalingam Raju that how he did the crime and then we have taken six years. Rather than blaming the judges or CBI or something, we have to look into the entire system.
As we were listening to other people this morning, first of all we have very poor infrastructure. Secondly proper manpower is not there, properly trained manpower is not there. Third our legal system itself is such that it take ages. I remember order of Justice Khehar in Sahara matter where he has said that we had given 85 hearings to Sahara. Now if that is the system in our country where hearing after hearing takes place and volumes and volumes are written, in my opinion it was a self confessed crime and it was a proven fact that the fixed deposits were not there. So, it should have taken shorter time.
Now it is not the end of the story here, it will go to High Court and then it will go to Supreme Court. So, I don't know how many more years.
Q: Let us talk about the road ahead and let us talk about what more needs to be done. We talked about the overhauling of the ICAI. What about independence of audit committees for instance, what about role of rating agencies, what about the role of independent advisory firms like yours, what about the role of banks when it comes to holding corporate boards accountable?
Tandon: You are absolutely right. At the end of the day the person who walks the longest and holds the hand of the company the most is the auditors and therefore there should be some punitive action against the auditors themselves because if the company wants or if the management wants they alone cannot doctor the accounts. At some stage someone needs to be working with them but I would like to actually just quickly come to since you spoke about a lot of the other people who are involved. I would very quickly like to talk about a lesson which we very quickly seem to have forgotten. No matter what you say about Satyam one of the things was that he confessed to everything in January, in April. It was the by the April of 2009 that the government had appointed a committee to look into it and very quickly it was sold. Tech Mahindra took it over and at that time I remember Ramalinga Raju's letter saying 53,000 employees it was important to get the company back on rails and working and that is how we need to proceed.
So whether it is the government, whether it is the bankers, whoever it is, whether it is the equity holders whoever is involved you need to recognise you have a problem and you need to go ahead and you need to fix it quickly and that unfortunately when I think about it I can only point to Satyam. Whatever reason we hit a sweet spot, we arrived at a solution and after that we have let a host of other companies go down the tune. We have let productive assets go to waste, we have let people lose their jobs, we have let equity holders lose money and we have not said okay, let us quickly find a solution to the problem and are Mr Gupta rightly pointed out let the law take its own course but let us find a solution to getting the asset up and running quickly. And that lesson unfortunately we need to be reminding about it.
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