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Satyam Scam in the Contemporary Corporate World: A Case Study in Indian Perspective

Introduction
Satyam Computer Services Ltd was founded in 1987 by B.Ramalinga Raju. The company offers information technology (IT) services spanning various sectors, and is listed on the New York Stock Exchange and Euronext.Satyam's network covers 67 countries across six continents. The company employs 40,000 IT professionals across development centers in India, the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. It serves over 654 global companies, 185 of which are Fortune 500 corporations. Satyam has strategic technology and marketing alliances with over 50 companies. Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam.

"The truth is as old as the hills" opined Mahatma Gandhi, christened the Father of the Nation by Indians. So a company named "Satyam" (Truth, in Sanskrit) inspired trust. The IT boom in India, was fuelled by young, middle-class, and educated, budding Indian entrepreneurs and Western firms anxious to outsource to take advantage of high-skill, low-wage worker. This trend created a new breed of businessmen for the 21st century and generated many fortunes literally overnight. The global corporate community was flabbergasted and scandalized when the Chairman of Satyam, Mr. Ramalinga Raju resigned on 7th January, 2009 and confessed that he had manipulated the accounts by $1.47-billion. On 7th Jan 2009 morning, we tune into CNBC TV 18 and the host Udhayan Mukherjee was there commenting on the up move of Satyam and said it may be capped at around Rs.180 / 190 levels. Capped it did and started moving southwards to a bottomless pit. Why? Because, the Chairman of Satyam, Ramalinga Raju decided to make a confession of sorts as he was unable to keep his conscience quite for very long. We dont know how long he was trying to keep his conscience shut before he decided to listen to conscience. But, in his confession letter, he has told for

Electronic copy available at: http://ssrn.com/abstract=1460022

several quarters he was repeatedly fudging the books to overstate profits and assets. We went through his confessions in detail. We were discussing with few friends of mine. Also my friends were aghast that the auditors of the company did not detect this fraud earlier. The auditors of Satyam are not a small name, they are a reputed name and one of the Big Four (the way things are unfolding, that list may soon become Big Zero). The fraud was committed not once. The confession only reveals about the peak level of the fraud. It was being perpetrated on a continuous basis over many quarters or several years. If the Company needed growth in revenues and profits, they got it; the desired profit was just few book entries away. They most likely made these entries during the last week of the reporting period so that the invented profits filled the blanks perfectly for analyst purposes. We were discussing to find answer about the liability of Raju as the promoter and the director of Satyam. As Satyam was floated by Raju and was headed the Boards of Member. Liability of Auditor is also one of the important issues to be determined. Pricewaterhouse Coopers has been the statutory auditor for Satyam Computer services for last six years. Auditors involvement is crystal clear. Satyam had paid twice the amount of what was charged by other Audit Firms. The issues discussed in the paper that : What will be the liability of Raju as the Promoter and the Director ? ;Whether Independent Directors are really Independent of the management when it comes to taking decisions on behalf of the Shareholders ; Whether shareholders have a locus standi to file a lawsuit against Pricewaterhouse Coopers? If so then what will be the extent of liability of Pricewaterhouse Coopers? The fundamental objective of our research is to find out the role of Raju in Satyam scam. Secondly the extent of involvent of the independent Directors and the Auditors. The Researcher has analyzed the Company Law provisions with respect to above mentioned material facts. The Scope is confined only to Company Law in India and further to the Satyam fraud. The paper argues that the independent directors discharge their roles independently or are influenced in discharging their functions and do they owe any responsibility towards shareholders like other directors. The shareholders have a locus standi to file a lawsuit against Pricewaterhouse Coopers(Auditor). The whole work is divided into three chapters. Chapter 1 deals about the role, power, function and liability of the Director. Chapter 2 provides the Role, power, function and liability of the Independent Director. While Chapter 3 analyses legal implication on Auditor and their duty of care.

Electronic copy available at: http://ssrn.com/abstract=1460022

CHAPTER- 1
Role, power, function and liability of the Director

POWERS The directors, powers are normally set out in the Articles of the Association. The shareholders cannot control the way in which the Board of Directors act provided its actions are within the powers given to the Board. Section 291 of Companies Act, 1956 provides for general powers of the Board of directors. It mandates that the Board is entitled to exercise all such powers and do all such acts and things, subject to the provisions of the Companies Act, as the company is authorized to exercise and do. However, the Board shall not exercise any power and do any act or things which is required whether by the Act or by the memorandum or articles of the company or otherwise to be exercised or done by the company in general meeting. Power of the individual directors- Unless the Act or the articles otherwise provide, the decisions of the Board are required to be the majority decisions only. Individual directors do not have any general powers. They shall have only such powers as are vested in them by the Memorandum and Articles. Section 292(1) of the Companies Act, 1956 provides that the Board of directors of a company shall exercise the following powers on behalf of the company and it shall do so only by means of resolution passed at meeting of the Board: I. II. The power to make calls on shareholders in respect of money unpaid on their shares; The power to authorize the buy-back referred to in the first proviso to clause (b) of subsection (2) of section 77A; III. IV. V. VI. The power to issue debentures; The power to borrow moneys otherwise than on debentures; The power to invest funds of the company; and The power to make loan.

DUTIES 1. Statutory Duties: (A) To file return of allotment: Section 75 of the Companies Act, 1956 requires a company to file with the Registrar, within a period of 30 days, a return of the allotments stating the specified particulars. Failure to file such return shall make the directors liable as .officer in default. A fine up to Rs. 5000/- per day till the default continues may be levied. (B) Not to issue irredeemable preference share or shares or share redeemable after 20 years: Section 80, as amended by Amendment Act, 1996, forbids a company to issue irredeemable preference shares or preference shares redeemable beyond 20 years. Directors making any such issue may be held liable as .officer in default. And may be subject to fine up to Rs. 10,000/-. (C) To disclose interest (Section 299-300): In respect of contracts with director, Section 299 casts an obligation on a director to disclose the nature of his concern or interest (direct or indirect), if any, at a meeting of the Board of directors. The said Section provides that in case of a proposed contract or arrangement, the required disclosure shall be made at the meeting of the Board at which the question of entering into the contract or agreement is first taken into consideration. In the case of any other contract or arrangement, the disclosure shall be made at the first meeting of the Board held after the director become interested in the contract or arrangement. Every director who fails to comply with the aforesaid requirements as to disclosure of concern or interest shall be punishable with fine, which may extend to Rs. 50,000/-. (D) To disclose receipt from transfer of property (sec. 319): Any money received by the directors from the transferee in connection with the transfer of the company property or undertaking must be disclosed to the members of the company and approved by the company in general meeting. Otherwise, the amount shall be held by the directors in trust for the company. This money may be in the nature of compensation for loss of office but in essence may be on account of transfer of control of the company. But if it is bona fide payment of damages for the breach of contract, then it is protected by sec. 321(3). Even no director other than the managing director or whole time director can receive any such payment from the company itself. (E) To disclose receipt of compensation from transferee of shares (Sec.320): If the loss of office results from the transfer (under certain conditions) of all or any of the shares of the

company, its directors would not receive any compensation from the transferee unless the same has been approved by the company in general meeting before the transfer takes place. If the approval is not sought or the proposal is not approved, any money received by the directors shall be held in trust for the shareholders, who have sold their shares. Any such director, who fails to take reasonable steps as aforesaid, shall be punishable with fine, which may extend up to Rs. 2500/-. (F) Duty to attend Board meetings: A number of powers of the company are exercised by the Board of directors in their meetings held from time to time. Although a director may not be able to attend all the meetings but if he fails to attend three consecutive meetings or all meetings for a period of three months whichever is longer, without permission of the Board, his office shall automatically fall vacant [Section 283(1)(g)]. (G) To convene statutory, Annual General meeting (AGM) and also extraordinary general meetings [Section 165,166 &169] (H) To prepare and place at the AGM along with the balance sheet and profit & loss account a report on the companys affairs including the report of the Board of Directors (Section 173, 210 & 217). (I) To authenticate and approve annual financial statement (Section 215). (J) To appoint first auditor of the company (Section 224). (K) To appoint cost auditor of the company (Section 233B). (L) To make a declaration of solvency in the case of Members. Voluntary winding up (Section 488).

General Duties: (A) Duty of good faith: The directors must act in the best interest of the company. Interest of the company implies the interest of the present and future members of the company on the footing that company would be continued as going concern. (B) Duty of care: A director must display care in performance of work assigned to him. He is, however, not expected to display an extraordinary care but that much care which a man of ordinary prudence would take in his own case. Any provision in the companys Articles or in any agreement that excludes the liability of the directors for negligence, default, misfeasance, breach

of duty or breach of trust, is void. The company cannot even indemnify the directors against such liability. (C) Duty not to delegate: Director being an agent is bound by the maxim delegatus non potest delegare which means a delegatee cannot further delegate. Thus, a director must perform his functions personally. However, he may delegate his in certain conditions.

LIABILITES 1. Liability to the company: (A) Breach of fiduciary duty: where a director acts dishonestly to the interest of the company, he will be held liable for breach of fiduciary duty. Most of the powers of directors are .powers in trust. And therefore, should be exercised in the interest of the company and not in the interest of the directors or any section of members. (B) Ultra vires acts: Directors are supposed to act within the parameters of the provisions of the Companies Act, Memorandum and Articles of Association, since these lay down the limits to the activities of the company and consequently to the powers of the Board of directors. Further, the powers of the directors may be limited in terms of specific restrictions contained in the Articles of Association. The directors shall be held personally liable for acts beyond the aforesaid limits, being ultra vires the company or the directors. (C) Negligence: As long as the directors act within their powers with reasonable skill and care as expected of them as prudent businessman, they discharge their duties to the company. But where they fail to exercise reasonable care, skill and diligence, they shall be deemed to have acted negligently in discharge of their duties and consequently shall be liable for any loss or damage resulting there from. (D) Mala fide acts: Directors are the trustee for the moneys and property of the company handled by them, as well as exercises of the powers vested in them. If they dishonestly or in a mala fide manner, exercise their powers and perform their duties, they will be liable for breach of trust and may be required to make good the loss or damage suffered by the company by reason of such mala fide acts. They are also accountable to the company for any secret profits they might have made in course of performance of duties on behalf of the company. Directors can also be held liable for their acts of .misfeasance. i.e., misconduct or willful misuse of powers.

Liability to third parties: Liability under the Companies Act: (A) Prospectus: Failure to state any particulars as per the requirement of the section 56 and Schedule II of the act or mis-statement of facts in prospectus renders a director personally liable for damages to the third party. Section 62 provides that a director shall be liable to pay compensation to every person who subscribes for any shares or debentures on the faith of the prospectus for any loss or damage he may have sustained by reason of any untrue or misleading statement included therein. (B) With regard to allotment: Directors may also incur personal liability for: (a) Irregular allotment, i.e., allotment before minimum subscription is received (Section 69), or without filing a copy of the statement in lieu of prospectus (Section 70) - [Section 71(3)] - Under section 71(3), if any director of a company knowing contravenes or willfully authorizes or permits the contravention of any of the provisions of section 69 or 70 with respect to all allotment, he shall be liable to compensate the company and the allottee respectively for any loss, damages or costs which the company or the allottee may have sustained or incurred thereby. (b) For failure to repay application monies in case of minimum subscription having not been received within 120 days of the opening of the issue: Under section 69(5) read with SEBI guidelines, in case moneys are not repaid within 130 days from the date of the issue of the prospectus, the directors of the company shall be jointly and severally liable to repay that money with interest at the rate of 6 % per annum on the expiry of 130th day. However, a director shall not be liable if he proves that the default in repayment of money was not due to any misconduct or negligence on his part. (c) Failure to repay application monies when application for listing of securities are not made or is refused: Under section 73(2). where the permission for listing of the shares of the company has not been applied or such permission having been applied for, has not been granted, the company shall forthwith repay without interest all monies received from the applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severely liable to

repay that money with interest at1 such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money. (C) Unlimited liability: Directors will also be held personally liable to the third parties where their liability is made unlimited in pursuance of section 322(i.e., vide Memorandum) or section 323(i.e., vide alterations of Memorandum by passing special resolution). By virtue of section 322, the Memorandum of a company may make the liability of any or all directors, or manager unlimited. In that case, the directors, manager and the member who proposes a person for appointment as director or manager must add to the proposal for appointment as a statement that the liability of the person holding the office will be unlimited. Notice in writing to the effect that the liability of the person will be unlimited must be given to him by the following or one of the following person, namely: the promoters, the directors, manager and officers of the company before he accept the appointment. Further, in case of limited liability Company, the company may, if authorized by the articles, by passing resolution alter its Memorandum so as to render the liability of its directors or of any director or manager unlimited. But the alteration making the liability of director or directors or manager unlimited will be effective only if the concerned officer consents to his liability being made unlimited. This alteration also, unless specifically consent to by any or all directors will not have any effect until expiry of the current term of office. (D) Fraudulent trading: Directors may also be made personally liable for the debts or liabilities of a company by an order of the court under section 5422. Such an order shall be made by the court where the directors have been found guilty of fraudulent trading. Section 542(1), in this regard, provides that if in the course of the winding up of a company, it appears that any business of the company has been carried on, with intent to defraud creditors of the company or any other person, or for any fraudulent purpose, the court, on the application of the Official Liquidator, or the liquidator or any creditor or contributory of the company may if it thinks it proper so to do, declare that any persons who were knowingly parties to the carrying on business in the manner aforesaid shall be personally responsible without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct. Further, section 542(3) provides
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that every person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to fifty thousand rupees, or with both.

CONFESSIONS OF RAJU 1. Inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books) on the balance sheet as of September 30, 2008 2. An accrued interest of Rs 376 crore which is non-existent 3. An understated liability of Rs 1,230 crore on account of funds 4. An overstated debtors position of Rs 490 crore (as against Rs 2,651 reflected in the books) 5. For the September quarter, Satyam fraudently reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24% of revenues) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3% of revenues). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone. Raju acknowledged that the gap in the balance sheet had arisen on account of inflated profits over a period of last several years.

LIABILITY OF RAMALINGA RAJU AS A DIRECTOR CRIMINAL CHARGES AGAINST RAJU Satyam founder Ramalinga Raju and his brother Rama Raju were arrested as part of the crackdown by state authorities and the central government, which disbanded the tainted IT firms board on a day of fast -paced developments. Raju was arrested and has been booked in a case of financial irregularities, Additional Director General of CB-CID A.S. Shivnarayan said minutes after the police action. Both are in our custody. A case has been registered and we will produce them before the court within 24 hours, Kaumudi told reporters outside the office Director General of Police, Andhra Pradesh. The 54-year-old Raju, who stepped down as chairman after admitting to the fraud and Rama Raju, who resigned as CEO and MD of the company, were arrested under five sections of the

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Indian Penal Codesection 120B for criminal conspiracy, section 420 for cheating, section 409 for criminal breach of trust, section 468 for forgery and also section 471 for falsification of records. All the charges are non-bailable offences. 3 FUTHER CHARGES AGAINST RAMLINGA RAJU The shareholders have locus Standi to file a lawsuit against Raju as a chairman, board member and managing director. As a director, Raju owed certain fiduciary duties to the company and the shareholders. Of these, the foremost fiduciary duty that a director owes is the duty to act bona fide and in the interest of the company, i.e. the duty of loyalty. 4 In Dale & Carrington P. Ltd. v. P.K. Prathapan 122 Comp Case 161 (SC), the Supreme Court of India held that the fiduciary capacity within which the directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company. Therefore, the shareholders may claim a breach of fiduciary duty. The shareholders may file a lawsuit on behalf of them or also file a derivative lawsuit brought by the shareholders on behalf of the Company against Raju 5.There are also appearing to be violations of the Companies Act (the Act) which may lead to action by the Registrar of Companies. Pursuant to Section 210 and Section 211 of the Act, the Board of Directors must place before the Annual General Meeting a copy of the balance sheet and profit and loss of the company and that the balance sheet and the profit and loss account of a company must reflect the true and fair view of the state of affairs of the company at the end of the financial year. Section 215 requires the balance sheet to be signed by a manager or secretary, if any, and by two directors, one of whom necessarily must be a managing director.

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http://www.livemint.com/2009/01/09225139/Satyam8217s-Raju-brothers-a.html http://news.helplinelaw.com/1009/echo2.php 5 http://www.gauravblog.com/?tag=ramalingama-raju

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Any director who fails to take suitable steps to ensure that provisions of Section 210 and Section 211 are followed may be punished with imprisonment of up to 6 months and a fine which may extend to INR 10,000 or more. Under section 628, if any return, report, certificate, balance sheet, prospectus, statement or other document required by or for the for the purposes of any provisions of the Act is made false or such a person omits any material fact, it shall be punishable with imprisonment for a term which may extend to two years.Further, under section 635 of the Act, the Central Government may investigate the affairs of the Company including through the Serious Frauds Investigation Office. 6 In addition, under the Companies Act, Depositories Act and the Listing Agreement, SEBI will have a cause of action for violation of mailing a false annual report to the shareholders. As Satyams ADSs are listed on t he New York Stock Exchange, action may also be taken in the US, including by the SEC. The company may face a class action lawsuit by its US shareholders.7 Mr. Raju and his brother could be proceeded against under the various provisions under the Companies Act, 1956 and the Indian Penal Code for fraud, falsification of accounts and breach of fiduciary duties as a director. In addition, they could also be proceeded against for having violated the rules, regulations, laws and bye- laws of the stock exchanges and SEBI - in particular, the Listing Agreement. Since Satyam is listed on the New York Stock Exchange, they could also be prosecuted under applicable law of the United States of America. In addition to the above, there could also be criminal proceedings and civil shareholder lawsuits that could be brought against him and his brother in India and in the US. Further, the news reports seem to suggest that the Government is considering referring the matter to the Serious Frauds Investigation Office and also mulling a concerted series of actions involving the SEBI, stock exchanges, Company Law Board etc.

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http://www.commodityonline.com/news/What-offence-did-Ramalinga-Raju-commit-13947-2-1.html http://satyamscam.in/2009/01/satyam-scam-and-its-legal-implications/

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Mr. Raju and his brother could be prosecuted under S. 477A of the Indian Penal Code, 1860 for falsification of accounts and under S. 418 and S.420 of the Indian Penal Code, 1860 for cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to protect. In addition, certain provisions of the Companies Act to provide for imprisonment for violations by the directors and officers in default. In addition, they could also possibly be prosecuted under Section 406 of the IPC for criminal breach of trust. Under section 621 of the Act, violations of the sections of the Act are cognizable offenses and are therefore bailable. However, the offenses may be compounded which may lead to more serious charges. The offence under S. 477A of the IPC carries a maximum punishment of 7 years imprisonment and/ or fine and is non- bailable. The offence under S. 418 of the IPC carries a maximum punishment of 3 years imprisonment and/ or fine and is bailable. The offence under S. 406 carries a maximum punishment of 3 years imprisonment and is a non-bailable offence.The sons do not seem to be directly implicated since they are involved with Maytas and not with Satyam. Raju in his letter states that none of his immediate family members had any knowledge of the fraud. The entire board of Satyam will share liability. Although Raju in his letter states that the other board members were not aware of the fraud, the independent directors will still face liability questions because they will have to prove that they were not in breach of fiduciary duty. The independent directors also owe a duty of care and a fiduciary duty to the shareholders of the Company. Unless the facts on record indicate that they were aware of the fraud or that they were blatantly and grossly negligent in their duties, it may not be possible to bring any proceedings against the independent directors. If they had not been aware of the falsification of the financial records of the company, one could not hold them responsible for relying on the genuineness of the accounts as provided to them, as they had been audited by a reputed accounting firm. The episode has international ramifications. Satyam serves as the back office for some of the largest banks, manufacturers, and healthcare and media companies in the world, handling everything from computer systems to customer service. Clients have included General Electric, General Motors, Nestl and the US government. In some cases, Satyam is even responsible for

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clients finances and accounting. Investors in USA have initiated two class action suits against the company for its American Depository Receipts.8 Uncertainty surrounds the survival of the company. Customers are reassessing their contracts with the company and its 53,000 employees are in a shock. The Satyam (Satyam Computer Services Limited) episode is tragic. However, this tragic episode has the potential of turning the year 2009 into a watershed year in the history of corporate governance in India. The world knows that India is perennially weak in law implementation. The government and regulators can take this opportunity to establish that they have the will and machinery to enforce laws. So far, the government and regulators have shown signs of swift actions. On January 9, 2008, the government superseded the board of the company and decided to appoint 10 nominee-directors. Regulators have initiated investigations and have promised appropriate penal action against those who will be found guilty. We have to wait and watch whether these immediate responses are backed up by credible action. Those who do not directly deal in the stock market or who do not have direct interest in the theoretical discourse on corporate governance are bewildered by the magnitude and scope of the corporate fraud. Some are angry with the board and particularly with independent directors, while others are sympathetic to them. Similarly, some have already pronounced the auditor guilty, while others are not so sure that the auditors are expected to detect management fraud. Some feel that regulators have to take the blame. The Satyam episode has brought out the failure of the present corporate governance structure. The present corporate governance structure hinges on the independent directors, who are supposed to bring objectivity to the oversight function of the board and improve its effectiveness. Stakeholders place high expectation on them. But is the expectation misplaced? Perhaps, yes. An individual independent director cannot play an effective role in isolation. Even if a particular independent director is highly committed, she can only watch wrong doing and at best initiate a discussion, but alone she cannot stop a decision even if it is detrimental to the interest of shareholders or other stakeholders. Neither can she blow the whistle outside the board room (e.g. to regulators) because board proceedings are considered confidential 9.

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The only way independent directors can stop wrong decisions is by acting collectively. Even then they can seldom be expected to stop management fraud since turning independent directors into policemen in the board room will have excessive detrimental effects on the independence of directors, the freedom of enterprise of the managers and the costs of governance. 10 In discharging its responsibility of ensuring adequate and effective internal control the board must depend on other institutions of corporate governance such as internal audit, external audit, and legal counsel. Therefore, the effectiveness of independent directors depends significantly on the independence and effectiveness of those institutions. Independent directors may not be in a position to stop management fraud perpetrated at the highest level, but with high level of commitment and due diligence they should be able to identify signals that indicate that everything is not hunky dory.11 Although, at this stage, it is difficult to say anything definitely about the performance of independent directors in Satyam, it appears that independent directors, particularly those who were members of the audit committee failed to apply due diligence. This conjecture is based on the fact that the accounting fraud was perpetrated over a long period of five to seven years and that DSP Merrill Lynch, who were hired to identify some partners for the company could within a week smell accounting fraud. Moreover, as reported in many news papers, some customers, including the World Bank, were complaining of fraudulent and unethical practices by the company. This leads to the conjecture that independent directors lacked commitment, at least collectively. This brings us to the fundamental question of what incentives should be provided to independent directors to ensure their commitment to board responsibilities. At a theoretical level, two types of incentives work. One is monetary incentive, which is to compensate independent directors adequately. And the second is the threat of losing hard-earned social stature and personal reputation. It appears that both types of incentive failed in case of Satyam. 12 The independent directors on the board included Vinod K Dham (famously known as 'father of Pentium and an ex-Intel employee), M Rammohan Rao (Dean of Indian School of Business), U S Raju (former director of IIT Delhi), TR Prasad (former union cabinet secretary),
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www.caclubindia.com/forum/messages/2009/4/30288_raju_brothers_masterminds_in_satyam_fraud_.asp news.in.msn.com/business/article.aspx?cp-documentid=1773407 12 world.rediff.com/news/article/www/money/2009/jan/07ramalinga-raju-resigns.htm

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M Srinivasan (retired professor from many US universities) and Krishna Palepu (Professor at the Harvard Business School).13 The company in its corporate governance report for 2007 did not name Palepu as independent director, perhaps because he received Rs 87 lakh from the company towards consultancy fees. Each individual director received around Rs 13 lakh for the year 2007 for say 100 hours of work (a survey in US reveals that independent directors in large companies devote 50-100 hours per annum to carry out board responsibilities). Keeping in view the compensation levels in India, the compensation should be considered good. It is not only in Satyam that independent directors showed lack of commitment. In the case of Enron, WorldCom and other companies in which corporate governance failed independent directors failed to perform effectively. If an individual considers certain responsibilities as peripheral and if the chance of failure in performing those duties coming to light is low, it is likely that he will shirk those responsibilities, because in that case the cost of failure to the individual is low. Independent directors are human beings and therefore, we should not expect them to behave differently from a rational human being. If the regulators fail to assess the performance of the board on regular basis, albeit indirectly through scrutiny of filings, and if law enforcement agencies fail to penalize errant independent directors, the present corporate governance structure will remain ineffective. 14 However, the solution is not simple. If independent directors are held liable for corporate fraud and severe penalties are imposed on them, it will be difficult to induct right people as independent directors in the board and companies will be deprived of the collective wisdom of people who can make a difference in the performance of companies. 15 Perhaps, it is the time to have a relook at the present corporate governance structure. It will require innovation in its true sense to develop a better model. Let regulators, industry and academia join hands in this endeavor.16

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www.adtan.com/mobilereviews/satyam-scam/ news.outlookindia.com/item.aspx?657476 15 newsx.com/tag/satyam-scam 16 http://www.financialdirector.co.uk/accountancyage/news/2235787/satyam-scandal-casts-shadow-pwc4463639

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CHAPTER- 2
Role, power, function and liability of the Independent Director .

LISTING AGREEMENT After completing all the formalities for listing its securities, including of entering into listing agreement, the securities of the company are listed and traded at the concerned stock exchanges. Before listing, the company enters into a listing agreement with the concerned stock exchanges. 17Almost all the stock exchanges have a standard listing agreement (which is amended from time to time by issuing circulars by each of the stock exchanges). Companies listed on stock exchanges have many obligations to discharge. These obligations are elaborated in all the relevant clauses of the Listing Agreement which the company has entered into with the Stock Exchange(s).18 CLAUSE 49

Background SEBI had constituted a Committee on Corporate Governance under the chairmanship of N R Narayana Murthy to improve standards of corporate governance in India. SEBI introduced some major amendments based on the report on this committee on 26th August, 2003, in clause 49 of its listing agreement.19 Applicability of Clause 49

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Easterbrook, Frank H. and Daniel R. Fischel, The Economic Structure of Corporate Law. Listing Agreements entered into by the listed companies with the respective Stock exchanges where the shares of the company are listed has over the times emerged to be the prime document for ensuring corporate transparency and investor protection. 18 www.indiainfoline.com/lega/lico/ch03.html 19 R. Kalidas, Corporate Governance-An Analysis of the Prescription Contained in Revised Clause 49 , SEBI & Corporate Laws, 50 (56).

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All companies which were required to comply with the requirement of the erstwhile clause 49 i.e. all listed entities having a paid up share capital of Rs 3 crores and above or net worth of Rs 25 crores or more at any time in the history of the entity, are required to comply with the requirement of this clause. This clause does not apply to other listed entities, which are not companies, but body corporates, incorporated under other statutes. Clause 49 will apply to these institutions as long as it does not violate their respective statutes, guidelines or directives. 20 Clause 49 of the SEBIs listing agreement21relates to Independent Directors. Clause 49 - Corporate Governance The company agrees to comply with the following provisions: I. Board of Directors (A) Composition of Board (i) The Board of directors of the company shall have an optimum combination of executive 22 and non-executive23 directors with not less than fifty percent of the board of directors comprising of non-executive directors. (ii) Where the Chairman of the Board is a non-executive director, at least one-third of the Board should comprise of independent directors and in case he is an executive director, at least half of the Board should comprise of independent directors. (iii) For the purpose of the sub-clause (ii), the expression independent director shall mean a non-executive director of the company who: a. Apart from receiving directors remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director; b. Is not related to promoters or persons occupying management positions at the board level or at one level below the board;
20 21

Prashant Panda, Independent Directors-Only on Paper, SEBI & Corporate Laws, 47(226). SEBI/CFD/DIL/CG/1/2004/12/10 October 29, 2004 22 An executive director is the senior manager or executive officer of an organization, company, or corporation. The position is comparable to a chief executive officer (CEO) or managing director. An executive director is usually remunerated for his or her work. 23 A non-executive director (NED, also NXD) or outside director is a member of the board of directors of a company who does not form part of the executive management team. He or she is not an employee of the company or affiliated with it in any other way.

18

c. Has not been an executive of the company in the immediately preceding three financial years; d. Is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following: 1. The statutory audit firm or the internal audit firm that is associated with the company, and 2. The legal firm(s) and consulting firm(s) that have a material association with the company. e. Is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director; and f. Is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.

OTHER DEFINITIONS The Department of Company Affairs (DCA) had appointed a Committee headed by Mr. Naresh Chandra along with the distinct professionals from various fields. Apart from this, the Kumaramangalam Report also has suggestions about Independent Directors. Some definitions on Independent Directors. THE CADBURY REPORT (1992) Apart from their directors fees and shareholdings, they should be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgment. 24 THE KUMARAMANGALAM REPORT (1998) Independent directors are those directors who apart from receiving directors remuneration do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgment of the board may affect their independence of judgment. THE NARESH CHANDRA REPORT (2003)
24

Cadbury, Sir Adrian, "The Code of Best Practice", Report of the Committee on the Financial Aspects of Corporate Governance, Gee and Co Ltd, 1992. Cited from Cadbury, Sir Adrian, " Corporate Governance : Brussels", Instituut voor Bestuurders, Brussels , 1996.

19

Apart from receiving directors remuneration, does not have any other material pecuniary relationships or transactions with the company, its promoters and senior management. It is significant to mention hear that the Naresh Chandra Committee report has opined that the recommendations made by the Kumaramangalam Committee in relation to independent directors are not precise and cannot fulfill the requirement of the independency as compared to the International best-in-class definitions and other pragmatic factors.25 An independent director is characterized by the following principle features: INDEPENDENCE of JUDGMENT. NO MATERIAL RELATIONSHIP. NO PECUNIARY RELATIONSHIP. COMPANIES ACT, 1956-- INDEPENDENT DIRECTORS Under the Companies Act,1956 the powers and duties of directors has evolved under interpretation of various Sections such as 291, 297, 299, 397, 398, 408, 629A, to name a few which have recognised and upheld directors fiduciary duties t o shareholders, to act with due care, skill and good faith. Sections 297 and 299, for example, are intended to eliminate possibility of conflict of interest. Unfortunately, the Act does not envisage a proper remedial regime, providing for recission of underlying transactions, compensation for corporate and stakeholder losses, disgorgement of ill gotten gains etc. Theoretically, some of these reliefs can be agitated for before the Company Law Board but courts are hesitant to pass such drastic orders, in cases of such large, reputed companies. 26

WHY HAVE INDEPENDENT DIRECTORS ON THE BOARD

There are several distinct benefits that an independent board of directors can bring to a company, ranging from long-term survival to improved internal controls. Independent directors in the board can: Counterbalance management weaknesses in a company.
25 26

Prashant Panda, Independent Directors-Only on Paper, SEBI & Corporate Laws, 47(226). Govind Shankaranarayan, What is Corporate Governance ? (McGraw-Hill, December 2008).

20

Ensure legal and ethical behavior at the company, while strengthening accounting controls. Extend the reach of a company through contacts, expertise, and access to debt and equity capital. Be a source of well-conceived, binding, long-term decisions for a company. Help a company survive, grow, and prosper over time through improved succession planning through membership in the nomination committee etc.27

ROLE OF INDEPENDENT DIRECTOR TOWARDS SHAREHOLDERS Corporate Governance principles all over and listing requirements assign tasks that have a potential for conflict of interest to independent directors, examples of these are integrity of financial and non-financial reporting, review of related party transactions, nomination of board members and key executives remuneration. The shareholders, especially the minority shareholders, look to independent directors providing transparency in respect of the disclosures in the working of the company as well as providing balance towards resolving conflict areas. In evaluating the boards or management decisions in respect of employees, creditors and other suppliers of major service providers, independent directors have a significant role in protecting the stakeholders interests. One of the mandatory requirements of audit committee is to look into the reasons for default in payments to deposit holders, debentures, non-payment of declared dividend and creditors. Further they are required to review the functioning of the Whistle Blower mechanism and related party transactions. These, essentially, safeguard the interests of the stakeholders. 28

SATYAM FRAUD AND ROLE OF INDEPENDENT DIRECTORS Independent directors are nominated by the management and are at the mercy of the promoters. So, the independence of the directors is more a myth than a reality.29

27

S. Gopalakrishnan, ROLE & RESPONSIBILITIES OF INDEPENDENT DIRECTORS, THE CHARTERED ACCOUNTANT, JANUARY 2005, P.86
28 29

Ibid Prithvi Haldea of Prime Database, which owns a website dedicated to independent directors

21

Shareholders, who rely on the presence of independent directors to provide the balance against transgressions of governance, Satyams independent directors includes 30 Mangalam Srinivasan, Vinod Dham (Entrepreneur) Krishna Palepu (Harvard professor) M. Rammohan Rao (Indian School of Business dean) By any yardstick, these are men of eminence and learning who should be independent. Clause 49, of the Indian listing agreement deals with the role of independent directors and assumes, that not being related to a promoter or having a direct economic benefit from a company, makes a director independent. This definition ignores the reality, namely that even eminent persons, find their prestige enhanced by association with board membership and some having been CEOs earlier, are empathetic to management. The current regulatory dispensation focuses strongly, on what goes into making an independent director, but makes little effort to assess whether that person continues to remain independent, once he is on the board. Making such an assessment, in the real world is a challenge given that the mere presence of a related party dealing is not in itself evidence of value eroding behaviour. There can be many situations in which a transaction may not appear to pass the smell test of governance, but may still benefit the shareholder. If, Satyam had to pay only a tenth of the price recommended by the promoters, to buy the two Maytas companies, one could make a cogent case, that, despite there being no obvious synergy between the two businesses, the shareholders would have benefited from a good opportunistic investment, at an attractive price. However, Satyam had to pay $1.6 billion dollar which came in for severe criticism from investors and analysts, dubbed one of the worst corporate governance events in India. When faced with such grey situations, the appearance of opacity or inadequate due diligence can be avoided if shareholders had some way, to infer that directors have fulfilled their fiduciary duties. All directors have a primary duty of loyalty to the shareholders who appoint them. In the public form of corporation as it exists today, most of the voting power remains with large institutional shareholders. As a fiduciary, independent directors should have the opportunity to meet with

30

CNN-IBN Published on Thu, Jan 08, 2009 at 13:10 , Updated at Thu, Jan 08, 2009 at 17:42

22

institutional investors to understand their views. How, after all does a director satisfy the demands of his role if he is unaware of the views of his shareholders? Although current regulations, correctly, would not permit the sharing of information between directors and select groups of shareholders, it does not, prevent shareholders from meeting directors and expressing their views on the companies strategy. It would certainly elevate the level of participatory governance if independent directors could get a more direct sense of how major shareholders feel about strategic issues, through meetings with groups of shareholders. In Satyams case, directors may have voted differently if they knew perhaps through such meetings the views of shareholders on the issue of unrelated diversification of the kind proposed by the promoters. Shareholders on their part, have a right to know how their directors represent them. Details of dissenting views, in a board can convey useful information about the various options considered at a meeting. While detailed views cannot usually be disclosed in the short term, it is possible to have minutes publicized after two-three years. This will not serve the immediate purpose of protecting present shareholders, but would impose pressure on independent directors to be seen to be fulfilling their duty of loyalty. Moreover, important judicial rulings, especially those of justices Bradley and Fuller of the US Supreme Court31 have concluded the need for directors to also demonstrate due care and skill as the situation demands. This duty of care, enshrined in law, would have required Satyams directors to undertake an assessment of the benefits of the transaction, question the valuation method and examine alternate uses for the cash in the company, before approving the Maytas transaction. There is little evidence in the public domain available to shareholders to show if this was done. One way to know, if diligence was exercised at the board is to know how independent directors voted on such issues, perhaps through a statement in the annual report. It would call in to question, the real independence in a board, if persons of widely varying backgrounds were to always seem to agree, on every issue. By resigning instead of coming up with an explanation for what transpired at the board, some of the directors of Satyam, beg the question whether any meaningful debate took place at all, on this issue. It is not difficult for the regulators to bring the
31

Railroad Co v. Lockwood, 1873

23

sunlight of transparency to board discussions, through a few changes in their disclosure guidelines. FOLLOWING ARE THE LEGAL IMPLICATIONS OF THE SCAM : Under the SEBI and Companies Act 1956, all directors cannot be held responsible because institutional directors and independent directors are nominated directors of various financial institutions or the government nominees. They cannot be held responsible as nominated directors cannot be held legally liable.32 1. Under the Companies Act 1956, if one presents fraudulent accounts to shareholders, that in itself is an offence but the amount of punishment is not as severe as under SEBI law. 2. Under the IPC this is cheating under section 420 and that could involve at least 7 years imprisonment. 3. Its a criminal offence under section 24 of the SEBI Act, 1992 and could mean penalty and imprisonment of upto 10 years. The powers that Sebi has, enables it to put any person in charge and responsible for the state of affairs out of the market system for a long period of time. 4. The audit company, Price Water House Coopers, which was supposed to verify the finances of Satyam and audit its books is also liable to pay a sum of Rs. 5 lakh. The charges though will be placed on the person who has audited the account and not Price Water House Cooper. J.J.IRANICOMMITTEE REPORT,2005 The Committee had expressed the view that given the responsibility of the Board to balance various interests, the presence of Independent Directors on the Board of a company would improve corporate governance. This is particularly important for public companies or companies with a significant public interest. While directors representing specific interests would be confined to the perspective dictated by such interests, independent directors would be able to bring an element of objectivity to Board process in the general interests of the company and thereby to the benefit of minority interests and smaller shareholders. In its view, independence,
32

Satish Maneshinde, Criminal Lawyer

24

therefore, has to be looked from the point of view of vulnerable stakeholders who cannot otherwise get their voice heard. Law should, therefore, recognize the principle of independent directors and spell out their role, qualifications and liability. However, requirement of presence of Independent Directors may vary depending on the size and type of company. There cannot be a single prescription to suit all companies. Therefore, number of independent directors may be prescribed through rules for different categories of companies, with a clear definition of independent director incorporated in the company law itself.

FICCI RESPONSE33 FICCI is happy to note that the Committee has suggested a minimum of one third of the total number of directors as independent directors should be adequate for a company having significant public interest, irrespective of whether the Chairman is executive or non-executive, independent or not. In the first instance this requirement should be extended to public listed companies and companies accepting public deposits. The requirements for other types of companies may be considered in due course. In this context, nominee directors should not be deemed to be independent directors. FICCI, however, feels that the real issue is not the quantity but the quality (i.e. effectiveness) of independent directors. The appointment of prescribed percentage of independent directors is no guarantee of corporate governance. A look at the active independent directors, as they are now in some companies will reveal that several lack adequate knowledge of the company, its business model and risk profile, and many do not even attend the meetings regularly. The truly independent directors must be competent, committed and have an independent state of mind to challenge and ask the right questions and be able to provide insight for the growth of the company. How many of such persons would we have? Would we be able to have around three thousand such persons for meeting the envisaged requirements? In todays global business environment, corporates are conscious that to survive they must have good corporate governance. Across the world, companies are increasingly choosing to move beyond seeing it in compliance terms to looking at it as a strategic investment.
33

http://www.ficci.com/studies/jj-irani.pdf

25

The changes in the operating environment have raised the stakes on managing business risks. Strong and effective Corporate Governance is no longer a nice to have but a must have. Why should then there be a minimum percentage limit for the appointment of independent directors? Let the shareholders and the Board decide as to how many of them would be adequate to have effective governance for their company. That apart, it has to be appreciated that promoters who have majority stake in the business and on whose confidence people have subscribed in the company must have significant representation on the Board. In this perspective, FICCI is of the view that the limit of independent directors should not be more than 25% including nominee directors. It is to be recalled that as per the SEBI Regulations, companies will have to comply with the requirements of Clause 49 of the Listing Agreement by December, 2005, which provides for a minimum of 50% independent directors on the Board. It is, therefore, inevitable that the decision on this aspect expedited to avoid confusion and uncertainty amongst corporates.

COMPANIES BILL, 2008 PROPOSED CHANGES The bill seeks to harmonize governance norms and bring listed companies under the jurisdiction of the act. The term 'independent director' does not include nominee directors. The bill seeks to exclude a nominee director from being considered as an independent director of a listed company, whereas Clause 49 of the listing agreement recognizes such nominee directors as independent directors. This deviates from existing practice. Even the definition of 'nominee director' is in for a change. According to Clause 49, nominee directors are those nominated by an institution which has invested in or lent money to the company, whereas the bill defines a 'nominee director' as a director nominated by any institution under any applicable law or agreement, or appointed by any government body, to represent its shareholding. QUALIFICATIONS The bill lays down the qualifications of an independent director modelled on Clause 49 of the Listing Agreement. An independent director must be a person of integrity and possess relevant

26

expertise and experience in the opinion of the board. However, the bill provides no guidelines for the determination of a person's integrity, except on the basis of relevant expertise and experience, reflected in the personal profile of the person concerned. Such persons and their relatives: shall not have a pecuniary relationship with the company, its holding, subsidiary or associate company, or its promoters or directors amounting to 10% or more of the company's gross turnover during the two previous financial years or the current financial year; shall not hold or have held a senior management position or key managerial position, or not be or have been an employee of the company in any of the three previous financial years preceding the financial year in which they are proposed to be appointed; shall not be or not have been, in any of the three previous financial years preceding the financial year in which they are proposed to be appointed, an employee or a partner of a firm of auditors, company secretaries or cost auditors of the company or its holding, subsidiary or associate company, or any legal or consulting firm that has or has had any transaction with the company or its holding, subsidiary or associate company amounting to 10% or more of the gross turnover of such firm; shall not hold, together with their relatives, 2% or more of the total voting power of the company; or shall not be a chief executive or director of any non-profit organization receiving 25% or more of its income from the company, any of its promoters or directors or its holding, subsidiary or associate company, or hold 2% or more of the total voting power of the company. These qualifications mostly come from Clause 49 of the Listing Agreement and seek to harmonize company law with the listing agreement, with minor variations. These restrictions are intended to ensure that the independent director has no affiliation or influence which may conflict with the company's interests. In addition, the government will prescribe other qualifications required to hold the position of an independent director. The bill's scope in relation to independent directors is extensive and seeks to exclude those who do not qualify for the position. Taken together, the qualifications

27

are numerous and extend to the relatives of the proposed director, including spouses, brothers, sisters and all descendants of such individuals related to the person by either marriage or adoption. Such extensive provisions cut across the expertise and experience of independent directors. In addition, the restrictions are too numerous and it may be difficult to find people fulfilling all the requirements. There is too much emphasis on the independence of independent directors and too little emphasis on their business acumen and ability to take business decisions. APPOINTMENT Independent directors are appointed by the shareholders of a company. However, at board level the promoters holding a considerable stake in the company can choose independent directors and have them elected at the general meeting. In effect, the presence of these directors on the board depends on the promoters; this does not bode well for the ability of such directors to maintain their independent status. This situation is unsatisfactory and, particularly in the context of the Satyam affair, needs to be examined seriously. FUNCTIONAL ROLE OF INDEPENDENT DIRECTORS The bill provides that the board of every listed company shall establish an audit committee and a remuneration committee. The audit committee should consist of a minimum of three directors, with independent directors forming a majority and at least one director having knowledge of financial management and accounts. The remuneration committee shall consist of non-executive directors as may be appointed by the board, of whom at least one shall be an independent director. In addition, the chairman of the audit committee shall be an independent director (Clause 158 of the bill). The position of an independent director appears to have been conceived as a person who can participate in board proceedings and vote thereon without being influenced by the promoters or other interest groups. He or she is expected to vote on corporate decisions in a fair and reasonable manner in the larger interest of the company and for the benefit of the shareholders. He or she is expected to bring expertise and experience to board proceedings and impart a measure of professionalism to corporate management. Companies are expected to gain a lot from this process. Corporate boards are commercial boards and the directors on the board are

28

expected to take business decisions in the wider interest of the company and its shareholders. Independent directors must have business acumen and be aware of the industry to which the company belongs. Clauses 154 and 158 of the bill prescribe the manner of participation of independent directors. While a meeting of the board must be called with at least seven days' notice in writing or by electronic means, an urgent board meeting may be called at shorter notice, provided that at least one independent director is present at the meeting. Decisions taken in the absence of independent directors must be circulated to all directors and the minutes of the meeting shall become final only on ratification by at least one independent director. This deviates from corporate jurisprudence as the management powers are exercised by the board as a collective body and no director, independent or otherwise, can take on supervisory powers and overrule the board's judgement. CONFLICT The new Company Law is likely to notify the minimum number of independent directors on the board of a company at 33% of total the strength, instead of 50% 34 as being enforced by the Securities and Exchange Board of India (Sebi) through its listing agreements under clause 49. 35

34 35

JJ-IRANI., COMMITTEE REPORT http://timesofindia.indiatimes.com/articleshow/2148728.cms

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CHAPTER- 5
Legal implication on Auditor and their duty of care
Consequent to a written confession by Satyam Computer Chairman B. Ramalinga Raju, admitting to the recent multi crore scam of misrepresenting facts in the Companys Balance sheet to the tune of around Rs. 8000 crore, has brought the role of auditors and Accountants for the company under scrutiny. 36 The role of PricewaterhouseCoopers37- the statutory auditors in Indias Enron comes under the spotlight amid allegations that large Indian companies regularly use misleading accounting techniques and bully analysts, accountants and auditors into staying quiet.38 An Auditor, first and foremost has to be a Chartered Accountant under the Chartered Accountants Act, 1949.39 The Companies Act, 195640 requires that every balance sheet and profit and loss account of a company should give a "true and fair view" of the state of affairs of the company as at the end of the financial year and that they should comply with the requisite accounting standards. 41 To find whether proper books and accounts as required by law have been maintained and whether they represent a true and fair view, the auditor is appointed. 42 Every company in compliance with the sections 224, 225 and 226 of the Companies Act, 1956 appoints an auditor in a general meeting. The powers and duties of an auditor for the purpose of carrying out audit in a company are laid down in section 227.43

36 37

The Economic Times, date - Jan.10 Auditor of Satyam Computer Services Ltd 38 Business Standard, date Jan.12 39 Codified in 1949 40 Codified in 1956 41 See Sec. 227, Companies Act, 1956 42 Ibid 43 Companies Act, 1956

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The auditor owes a duty to the shareholders of the company to ensure that the rights of the shareholders are safeguarded. An auditor has a fiduciary relationship Vis-a` Vis the shareholders as a body. 44 The audit is intended for the protection of the shareholders and the auditor is expected to examine the accounts maintained by the directors with a view to inform the shareholders of the true financial position of the company. It was held by the Supreme Court in Institute of Chartered Accountants v. P.K Mukherjee that "directors occupy a fiduciary position in relation to the shareholders and in auditing the accounts maintained by the directors, the auditor acts in the interests of the shareholders who are in a position of beneficiaries ". A similar view was also reflected in CIT v. Dandekar.

Right to inspect -:
Section 227 of the Companies Act facilitates the auditor's duty to report a true and fair view of the company's financial status, by giving the auditor the right to inspect and examine the books and accounts, balance sheet and vouchers and other documents as may be necessary for the purpose of audit report. The auditor can also require any information or explanation from any officers of the company. It is obligatory on the officers to furnish any such information as required by the auditor. In addition to this, the auditor may inquire for the purpose of audit in relation to six specific matters as described in sub-section 1A of section 227.45 He may also attend the general meetings of the company or require the minutes of any meetings if he thinks necessary. The auditor must take reasonable care to ascertain that books furnished by the company show the company's true position. The auditor may also carry his search outside the books by conducting any inspection or inquiry under the powers given by section 227.

44 45

Capro Industries v. Dickman (1996) 1 All E.R 568: (1990) 2 AC 605 (HL) See Section 227 (1)(A), Companies Act, 1956

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The auditor must not confine himself to checking arithmetical accuracy of the balance sheets and accounts but must also see that they reflect the true and fair view of the company's financial affairs.

Duties of an Auditor
The statutory duties of the auditor basically entail the following: 1. Duty to make certain inquiries 2. Duty to make a report to the company on the accounts examined by him 3. Duty to make a statement in terms of the provisions prescribed. The auditor has a duty to inquire into certain matters and seek any information required for the audit, from the company. 46 This could be in relation to security on loan and advances made by the company, any transactions entered into by the company and whether they are prejudicial to the interests of the company, whether personal expenses are recorded and charged to proper accounts, any transaction with respect to sale of shares and whether the position depicted in the books and balance sheet is correct, honest and proper if there are any suspicious circumstances or unusual transactions like unavailability of original documents, or sudden increase or decrease in shareholdings or debt, employees given the liberty to access unauthorized documents etc., then the auditor is under a clear duty to probe into these transactions and ensure that they are proper and legal. At all times, auditor has to act with care and skill of a professional of reasonable competence. The degree of care and skill required however, varies from case to case.47 The Institute of Chartered Accountants (ICAI) 48 have, in their "Statement of Accounting Principles" stated that an auditor must discharge his professional responsibility with high ethical standards.

46 47

See Sec. 227, Companies Act, 1956 Capro Industries v. Dickman (1996) 1 All E.R 568: (1990) 2 AC 605 (HL) 48 Formed in 1949

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Further, Clause (6) Part I, Second Schedule of the Chartered Accountants Act, 1949, provides that, failure of an auditor to report a known material mis- statement in the financial statements of a company, with which he is concerned in a professional capacity, shall be deemed to be 'professional misconduct'.49

Auditors Report
Under Section 227 of the Companies Act, 50 the auditor is supposed to report to the beneficiaries of the company i.e. the shareholders in the general meeting, about the books and accounts of the company, the balance sheet and profit and loss account on the basis of their assessment. They have to give their opinion on the financial position of the company and also make sure that it has been fairly, truly and honestly depicted.51 As per Section 227 of the Companies Act, the report should state-: 1. That the auditor has obtained all information and explanations, which are to the best of his knowledge and belief necessary for his purpose; 2. Whether in his opinion, all the books of accounts and requisite documents necessary for the audit have been furnished by the company; 3. Whether the balance sheet and profit and loss account comply with the books of accounts; and 4. Any observation and comments on the functioning of the company, especially, which may have an adverse effect on the company. He is thus required to report not merely on the balance sheet but on the accounts he examines, and he also has to express his opinion whether the company has properly kept all the books as per law and whether the balance sheet and profit and loss account are in accordance with the accounting standards and procedures prescribed by the ICAI.52 The report should be complete, concise, clear and unambiguous and the auditor should be careful about the language used, as the readers of the report are all laymen. Auditors opinion can be qualified or unqualified. A qualified opinion is an opinion subject to certain reservations. That means that the auditor is

49 50

Ramaiya, Guide to the Companies Act, 16 Edi. See Sec. 227, Companies Act, 1956 51 See Sec. 227(3), Companies Act, 1956 52 Second Sechdule, Chartered Accountants Act, 1949

th

33

unable to satisfy himself that the accounts present a true and fair view of the companys financial position. 53 As per Section 227(4) of the Companies Act, the nature and reasons of qualification should also be clearly stated, instead of merely stating grounds for suspicion. For the purpose of drawing up the report, the auditor is given the right to inspect and examine the books and accounts, balance sheets and vouchers or any other requisite documents necessary for the purpose of the audit. These documents can be accessed by the auditor at all times, irrespective of where they are kept. The auditor can also ask for any information and explanation from the officers of the company, and the officer would be under a duty to furnish the information and explanation so needed. 54

Duty to report fraud

During the course of the audit, the auditor could come across situations where he discovers that a senior employee is defrauding the company or using unfair practices, then an obligation arises of the auditor to report what he has discovered to the management immediately so that appropriate action can be taken55. If the auditor identifies the possible existence of fraud or other irregularities in accounting practices, the auditor should attempt to clarify it or report it. There may be circumstances, where the auditor needs to report to a third party without the consent and knowledge of the management, when he suspects that the management may be involved.56 The auditor should consider the magnitude of loss that will occur due to the fraud and irregularity and the number of people that will be affected by it or the possibility of recurrence of the fraud if gone unreported. As a measure of recoverable loss, the court noted that no losses would have been incurred from the date of discovery if the auditor had taken some action to blow the whistle

Auditors duties to third parties

The courts have held that if the auditors know or have reason to believe that the accounts so prepared by them will be relied upon by third parties, they are under a duty to ensure
53 54

Avtar Singh, Company Law, 15 Edi. th Ramaiya, Guide to the Companies Act, 16 Edi. 55 A.k. Majumdar and Dr. G.K. Kapoor, Company Law and Pratice, 13th Edi. 56 Ibid

th

34

that those accounts are carefully prepared and that they dont contain any false information or negligent misstatements and that they reflect a true and fair reflection of the companys financial position. 57 There is no legal principle that a holding company is unable to recover damages for loss in the value of its subsidiary resulting directly from a breach of duty owed to the company itself, as distinct from a duty owed to the subsidiary. With respect to the duty of auditors towards shareholders and investors, in the case of -: Caparo Industries Plc. v. Dickman,58 the plaintiff company, in an attempt to make a bid for the takeover of another company, relied upon the accounts and statements prepared by the auditors of the target company and suffered a loss, due to inaccuracy of the accounts. In an action against the auditors, the court held that the auditor owed a duty to the companys shareholders but not to potential investors. This ruling was affirmed in a number of cases thereafter. But post the ruling of Columbia Coffee & Tea Pty. Ltd v. Churchill59 the Supreme Court of New South Wales held that a companys auditors do owe a duty of care to potential purchasers, although since in this case, no reliance was placed on the auditors report, the auditors were not held liable. This has now been overruled but the law now states that under special circumstances, there may arise a direct relationship between a third party and the auditors. In the absence of such circumstances, an auditor is generally not found to owe any duty to the third party unless he or she intended that person to rely on the statement, or if there is an assumption of responsibility.

Duty as to considerable accuracy

The auditors function is not just to verify the arithmetical accuracy of the

57 58

See Sec. 227 (3), Companies Act, 1956 Capro Industries v. Dickman (1996) 1 All E.R 568: (1990) 2 AC 605 (HL) 59 (1992) 29 N.S.W.L.R 141S

35

accounts; but that it includes all the particulars required by law and that it presents a correct and honest view of the companys financial standing. 60 Therefore he must examineall the records and books of the company with utmost care and precision.

Detection and Prevention of Fraud

The term fraud is defined as: An intentional perversion of the truth, for the purpose of inducing another in reliance upon it, to part with some valuable thing belonging to him, or to surrender a legal right. A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury. 61 A generic term, embracing all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get advantage over another by false suggestions or by suppression of truth, and includes all surprise, trick, cunning, dissembling, and any unfair way by which another is cheated.62 Fraud basically falls into the following three categories: Management fraud - when the senior management is involved and they are manipulating the financial statements and misrepresenting the real picture, or theft or improper use of company resources; Employee fraud - which involves non-senior employee theft or improper use of company resources and carrying out of practices and transactions under the table; and External fraud - which involves theft or improper use of resources by people who are neither management, nor employees of the firm.
63

Internal audit staff and external auditors have to perform an essential function of fraud prevention and deterrence as they are up to speed, experienced and trained in the same and can see to it that the loopholes in the system and the risk areas are identified and investigated.

60 61

See Sec. 227 (3), Companies Act, 1956 th A.k. Majumdar and Dr. G.K. Kapoor, Company Law and Pratice, 13 Edi. 62 Ibid 63 Company law and its Practices by- Dr. Ramesh Swami

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Once they are identified, quick action has to be taken to address and rectify them. The internal processes and programs have to be tested at regular intervals to test their effectiveness. 64 In order to do this, the auditor needs to ensure that effective anti fraud programs are in place, which not only prevents fraud but also assists in its detection and cure. This can be done by -:65

1. Observing the modus operandi of financial reporting; 2. Overseeing the internal audit and control system; and 3. Reporting findings to the management. Some of the factors that indicate the existence of fraud are unavailability of original documents, unusual relationships, unauthorized transactions, and unexplained items in the accounts, sudden increase or decrease in trends, employees given liberty to access system and records, disparities in accounts and spur of the moment adjustments in the books.66 Once the fraud is detected, the auditor can investigate it further by authentication of original documents, impromptu tests and location visits, contacting major customers and suppliers, interviewing the personnel and testing the veracity of computer records. 67 The auditor should then report of this to the director or the management, unless circumstances are such that their involvement is suspected. The possibility of detection is a lot less in such cases. However, then the auditor can either approach a third party or consider legal counsel. 68 The auditor is at all times, required to act with reasonable care and skill, but he is not required to always be on the lookout for fraud or a lie, unless he comes across such information or situation which is unusual and instigates him to act with suspicion of a professional man of reasonable competence. An a uditors main function is to assess the financial position of the company and depict the same in the accounts i.e. the balance sheet and profit and loss account. There is no hard and fast rule for defining reasonable skill and care and that varies

64

A.k. Majumdar and Dr. G.K. Kapoor, Company Law and Pratice, 13 Edi.
th

th

65 66

Gower and Davies, Principle of Modern Company Law, 17 Edi. Ibid 67 A.k. Majumdar and Dr. G.K. Kapoor, Company Law and Pratice, 13th Edi. 68 Ibid

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from case to case. If there are suspicious and unusual transactions and features in the accounts or other prima facie reasons, reasonable skill and care has to be exercised. 69 An auditor is not to be confined to the mechanics of checking vouchers and making arithmetical computations. He is not to be written off as a professional adderupper and subtractor. His vital task is to take care to see that errors are not made- of omissions, commissions or downright untruths. To perform his duty properly, he must come to it with an inquiring mind- not suspicion or dishonesty.

FORENSIC ACCOUNTING CONSULTANTS-:

In some situations, the company has to look beyond the independent audit team for expertise in the arena of fraud prevention. In such cases, CPA forensic accounting consultants can provide additional assurance or advanced expertise, since they have special training and experience in fraud prevention, deterrence, investigation, and detection. Forensic accounting is unique in that it combines accounting with investigation. The bloodhounds-as opposed to the watchdogs- the auditors attempt to sniff out fraudulent transactions from the financial records of banks and companies.

LIABILITIES OF AN AUDITOR
The auditor has a fiduciary relationship vis--vis the shareholders of a company, therefore he has a moral obligation to see that ensuring that the statements issued are made with the utmost skill safeguards their interests and care and depict the true and fair state of affairs of the company. Section 23370 of the Companies Act imposes a penalty for on the auditors for noncompliance of Sections 227 and 229 with payment of fine if there is wilful negligence and default.71 The auditor may have to compensate the members or shareholders of the company who have suffered losses attributable to the negligence in performance of the auditors duties. The auditor may be held liable in tort for fraud and if there is negligence in detection of errors that may cause loss to the company.

69 70

See Sec. 227, Companies Act, 1956 Companies Act, 1956 71 Ibid

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In order to hold the auditor liable for fraud, the following conditions must be satisfied: 1. That the statement signed by the auditor is untrue and false; 2. That he knew it to be untrue either or did not apply reasonable care and skill; 3. That he intended the report to be relied on by others; and 4. That the parties on relying upon the report suffered loss. The Companies Act, 1956 imposes a Criminal liability under Section 628 on any person who makes a false or untrue statement through any document like balance sheet, profit and loss account, return, prospectus, intentionally, thereby causing a loss to the people who rely on such documents. The auditor who knowingly doesnt make a fair and honest report of the companys financial position in any report, certificate, return, prospectus or other documents, and makes false statements therein is liable. The shareholders interests are dependent on the degree of care and skill applied by the auditor to draw up an accurate and honest report of a companys state of affairs. Therefore, the auditors should employ utmost good faith, care and vigilance in the carrying out of their duties.72 If there is the slightest bit of suspicion of the legality and integrity of a record or transaction, the auditor is under a duty to investigate and report it,before he certifies it to be true.73

Liability of Pricewaterhouse Coopers (PwC)

Under S. 227 read with S. 233 of the Companies Act, the auditors are required to accurately, fairly and diligently review and audit the accounts of the company before issuing the signed auditors report.74 Failure to do so would result in a penalty under S.233 of Rs. 10,000. Under Sections 62 and 63 of the Act, any person issuing a prospectus that contains a false statement may be punished with up to 2 years imprisonment and fine up to Rs.50, 000.75 This includes directors, promoters and experts such auditors and investment bankers. Satyam also had an ADS listing in the US and filed a prospectus with the US SEC. Under Rule 10b-5 issued under Section 10 of the Securities Act of 1933, it is unlawful for any person to make any untrue statement of a material fact or to omit to state a material fact in connection with the sale of a

72 73

Ramaiya, Guide to the Companies Act, 16 See Sec. 227, Companies Act, 1956 74 See Sec. 233, Companies Act, 1956 75 See Sec. 63, Companies Act, 1956

th

Edi

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security.

Under Section 11 of the Securities Act, the persons who signed the registration

statement (directors and officers) are liable in addition to the underwriters, auditors and other experts. In addition, disciplinary proceedings/enquiries could be initiated by the Institute of Chartered Accountants of India76 against the audit firm, which would be a very serious implication for the audit firm, as it could have the immediate effect of disqualifying their eligibility to act as statutory auditors for several banks and other institutions. Such an event could also result in suspension or debarment of the audit firm if the ICAI77 concludes that there were serious lapses on the audit firms part.

Locus Standi of Shareholder to file suit -:

The Indian laws are not clear on whether action can be taken by a company and shareholders against the auditors. The contract that the auditor has with the company is not a contract the shareholders or other stakeholders are privy to.78 Hence, under Indian law it would be difficult for the shareholders or any other stakeholder to take any action against the auditors under the Law of Contract. Even if the company wants to take an action against the auditors, the maximum liability under the contracts will be usually restricted to the fees they have charged from the company. For shareholders action in law can be taken only in tort.79 In Caparo Industries Plc v. Dickman, 80 the plaintiffs being the investors, made a bid for a company relying on the accuracy of the accounts prepared by the auditors of such company. There was a negligent inaccuracy which resulted in huge economic losses to the investors. The investors sue to auditors in the capacity of shareholders and potential investors. The House of Lords held that the three criteria for imposition of duty of care were forseeability of damage,
76 77

ICAI, 1949 ICAI, 1949 78 Avtar Singh, Law of Contract, 9 Edi. 79 Capro Industries v. Dickman (1996) 1 All E.R 568: (1990) 2 AC 605 (HL) 80 Ibid

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proximity of relationship and the reasonableness or otherwise of imposing a duty. The statement made by the auditors must be known to have been relied upon for the purpose of any transaction to impose a duty of care on the auditors. The auditors do not owe any duty of care to the public at large or individual shareholders, but to the body of shareholders as a whole as the purpose for which accounts are prepared and audited is to enable the shareholder as a body to exercise informed control over the company.

Liability under the Companies Bill 2008 -:

Proposed change-: Sec. 29- Criminal Liability for mis-statement in prospectus - 3 year imprisonment and fine upto 25 lakh Sec. -130- Liability of Auditor for violation 0f Sec. 123-129upto 25 lakh 1 year imprisonment and fine

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CONCLUSION AND RECOMMENDATION-:

The Satyam episode has sparked a big debate on whether India possesses adequate laws and guidelines for corporate governance. Risk managers say that while India has no dearth of such provisions in various enactments, the real issue emanates from the ability to follow these provisions in spirit and the means to monitor and enforce the same. The law makers in India, they believe, need to ascertain the merits of encouraging a principle-based approach (like in the case of the combined code in the UK) to compliance - where the nature, size and complexities of a business govern compliance and disclosures - instead of a standard rules based approach for universal compliance (like in the US). The Satyam fiasco has called into review the Corporate Governance in India. The problem in India relates to the fact that we have been adopting Corporate Governance rather than formulating our own. The watchdog of investors SEBI was instituted as a body under SEBI ACT, 1992. Thus it has been only 16 years since a watchdog for the investors has been incorporated. In the past 16 years this is the first major scam which has affected Corporate Governance in India and the concept of India Inc. as a whole. In India, guidelines for corporate governance are provided in clause 49 of the listing agreement and also in various sections of the Companies Act. Industry experts hold view that once appointed, the

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performance and contributions of these directors should be monitored and evaluated objectively with peer reviews serving as a means of such evaluations. The Satyam scandal has, ironically, uncovered the second most populated country in the world, of having a problem with numbers in terms of finding the requisite number of directors who can exercise their independence while influencing decisions of the board. The challenge for India Inc, is to come out of the mindset that only well known personalities can be nominated as independent directors. The role of Independent Directors has again been brought under preview however there is still a conflict between SEBI and Company Bill, 2008 as to the percentage of Independent Directors on the board. The shareholders of a company place very high reliance on the auditors report, which apparently shows the true and fair view of the accounts of a company. The auditors should perform their duties with utmost care and vigilance to ensure that there are no illegal or improper transactions. But still, Satyam has happened. The role of the UICAI and MCA should now not Just be confined to punishing Satyams auditors, but they should also re -examine the present system to strengthen and intensify internal audit system. Some of such remedial steps, which may be taken, are as follows: 1). Appointment and remuneration of auditors should not be left to the companies they audit, as the fees can easily in fluence the auditors report. A better option would be to pool in money and hand it over to the stock exchanges that can appoint auditors. This will make the auditors answerable to the bourses and not corporate executives; 2). Forensic auditors should be used to unearth evidence of wrongdoing, which needs a combined team of people from the police or the CBI, lawyers and audit professionals with an adversarial approach; 3). Other than forensic audits, even investigative audit techniques could be applied wherever major weaknesses in internal controls or their implementation are found. An investigator does not accept a stated fact as correct unless it is substantiated; 4). The professional firms should introduce partners audit review and partner -rotation programs. This will also ensure healthy participation on the part of the partners; and 5). The auditors should also ensure that the audit is conducted in accordance with the Auditing and Assurance Standards (AAS), which are is benchmark on which the quality of audit

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performance can be measured, and any material departure should be disclosed. AAS-4 talks about the Auditors responsibility in considering fraud in audit of financial statement. Besides these, steps should be taken to ensure that the auditors are fulfilling their general duties of getting third party evidence, identifying and assessing the risk of material misstatement in financial statement due to fraud, contacting major customers/suppliers etc. These steps will bring in light fraud but wont stop them.

Strong laws have never deterred criminals. But if there is a comprehensive paperwork to support it, over a period of time, it can be detected by common sense approach instead of mechanical. Meanwhile many feel that if the two pending bills in Parliament related to company affairs- The Companies Bill 2008 and Limited Liability Partners Act were passed earlier, stringent action could have been taken against corporate fraudsters and protect the interest of shareholders.

ROTATE THE WATCHDOGS: FIXED, FINITE AND ROTATING TENURE Auditors and independent directors are the first line of defense against abuse for ordinary investors. The best strategy would be to have one watchdog watch the other. We suggest that a fixed tenure for auditors for a finite period of three years. At the end of his tenure, the auditor will have to hand over his assignment to a new auditor. The new auditor will take a sign off from the previous auditor and it would be reasonably difficult for any auditor to assist in perpetuating wrongdoings if there is a more than reasonable chance of being discovered by the new incoming auditors. This could be a simple and effective deterrent against wrongdoing. A similar system is already in place for the Indian banking sector where auditors are appointed in rotation for a fixed tenure of three years. MAKE INDEPENDENT DIRECTORS TRULY INDEPENDENT WITH A FINITE TENURE A lot of hopes have been pinned on the role of independent director on the board of directors in recent times. However, its impact has been hollowed by giving management the prerogative of choosing the independent director. This in itself is a contradiction with directors being called

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independent. More often than not, the independent director chosen by management is chosen because of his proximity to the controlling management and is beholden to management for selecting him to the board of the company. This raises serious conflicts of interest in impartial discharge of duties. Many independent directors are not technically and professionally qualified to head the committees they chair in the companies. We recommend that the independent directors be chosen from a pool of qualified professionals who are known for their expertise and integrity. Further, like the auditors, they should be chosen for a fixed tenure of three years, after which they should be replaced by another set of independent directors from the identified pool of independent directors. A small note on identifying this pool of watchdogs (auditors and independent directors) would be appropriate at this juncture. SEBI is quite suitable for implementing this scheme.

There should be clear guidelines for eligibility for admission to the proposed pool of auditors and independent directors. A thorough and open vetting process at the selection stage itself is critical for this initiative to succeed. The internet can be used effectively for this. The list of eligible candidates and their resumes and qualifications should be posted on the internet and public feedback invited. The feedback received should be considered on due merit. My guess is that the rotten apples amongst the eligible candidates would be exposed by empowering the masses in this manner. The watchdogs should be divided into various categories depending on their size and experience in the case of auditors, and experience and qualifications in the case of independent directors. An appropriate match between experience, size and qualifications of these watchdogs and the size of the companies where they are to be appointed should be made.The companies should be given a slate of eligible independent directors from which they can choose the directors. A 360 degree feedback system could be used to monitor the performance of the watchdogs and keep the pool fresh with movement between the various categories dependent on skill sets and

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feedback. A market-driven compensation guideline for the watchdogs should be disclosed. The compensation should be reviewed every three years to keep it in line with market requirements.Subsidiaries over a certain size should have different auditors than the parent company. Business conducted in subsidiary companies is normally not scrutinized in the same detail as the parent company and is open to abuse. Subsidiary companies which are over a certain size relative to the size of the parent company should not be audited by the same set of auditors auditing the parent company. This, combined with a rotating tenure for auditors, would ensure transparency and further minimize the possibility of conflicts of interest. INSTITUTIONAL NOMINEES ON THE BOARD Pension Funds, Mutual Funds and FIIs today own a bigger chunk of equity than the promoters in many of our large companies. They owe it to their own shareholders and stake holders to work towards protecting their business interests and underlying investments. The same pool of independent directors could be utilized to have them nominate their directors on the boards of various companies. While the financial community needs to inspect its own doings and the propensity to turn a blind eye to the goings-on in corporate India, We believe that, collectively, the financial community can be one of the most significant agents of change. However, we worry that by the time change is implemented and percolates down the system, the same Satyam story might have been repeated in many companies in India, and Satyam most certainly would not be the last one to hit the can due to accounting fraud.

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BIBLIOGRAPHY
Books
Davies Paul L., Gower and Davies Principles of Modern Company Law, eighth edition, Sweet and Maxwell, 2008, London. French Derek and Ryan L. Christopher, Company Law, 25th edition, Oxford University Press, 2008, New York. Hopt K., Comparative Corporate Governance, Oxford University Press, 2005, New York. Majumdar A.K. and Kapoor G.K., Company Law and Practice, 13th edition, Taxmann Publication, 2008, New Delhi

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Articles
www.vccircle.com/500/news/the-legal-implications-rajus-confession - 47k www.uslaw.com/law_blogs/?item=342048 www.scribd.com/doc/9892543/Satyam-Asatyam-Fraud-on-Investors-0901005 www.itatindia.com/datafolder/News/News4968.htm blogs.ibibo.com/danendra12012009/can-you-suggest-ways-to-reform-andrejuvenatesatyam www.ibtimes.co.in/articles/20090131/satyam-receives-boost-from-govt-legal-immunitygranted-present-board_all.htm news.in.msn.com/business/article.aspx?cp-documentid=1773411 www.expressindia.com/latest-news/Satyam-scam-Raju-traceless-WB-imagesuffers/408297/ www.expressindia.com/latest-news/Satyam-scam-Raju-we-feel-sorry-for-you www.zorsebol.com/latest-news/software-fraud-satyam-banned-by-world-bank/ - 62k www.vccircle.com/500/news/satyam-buys-100-in-maytas-properties-51-in-maytas-infra 45k ww.indianexpress.com/full coverage/satyam-scam/187/ timesofindia.indiatimes.com/Vadodara/CAs-being-targeted-post-Satyam-scam-ICAIpresident/articleshow/4315872.cms - 48k www.hindu.com/2009/01/13/stories/2009011355340801.htm - 18k www.satyamscam.in/category/latest-updates-satyam-fraud/ - 46k www.nhatky.in/satyam-scam-close-to-rs-10000-cr-12329208 - 28k www.ndtv.com/convergence/ndtv/story.aspx?id=NEWEN20090079469 - 106k www.merinews.com/catFull.jsp?articleID=155440 - 48k

Reports -:
THE CADBURY REPORT (1992) THE KUMARAMANGALAM REPORT (1998)

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THE NARESH CHANDRA REPORT (2003) J.J.IRANICOMMITTEE REPORT,2005

Statutes -:
Companies Act, 1956 ICAI, 1949 Indian Contract Act, 1872 Indian Penal Code, 1860