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Tuesday, January 25, 2022

Mahindra Satyam lifts veil over financial fraud

Nearly 20 months after India’s biggest corporate fraud came to the light in January 2009.

Written by ENS Economic Bureau | Mumbai |
September 30, 2010 2:12:59 am

Nearly 20 months after India’s biggest corporate fraud came to the light in January 2009,Mahindra Satyam (formerly Satyam Computer Services) has finally unveiled the financial results for the past two financial years,revealing losses of Rs 8,300 crore,total financial irregularities of Rs 7,855 crore and irregularities of Rs 1,060 crore “where complete information is still not available”.

The company,which had obtained exemption from the Company Law Board from publishing audited results for the past two fiscals after its takeover by Tech Mahindra in April 2009,said it posted a loss of Rs 8,176 crore in fiscal ended March 2009 and Rs 124 crore in March 2010. It posted a revenue of Rs 8,812 crore and Rs 5,481 crore respectively during these years. The company said that specific financial irregularities of Rs 6,795.5 crore were identified during auditing process after the scam was detected in 2009.

Of the Rs 1,060 crore irregularities where information is still not available,the forensic investigation identified fictitious cash and bank balances (Rs 996.4 crore),debtor balances (Rs 55.7 crore) and unrecorded loans (Rs 70 crore) originating in periods prior to April 1,2002 aggregating Rs 1,122 crore (net debit) which resulted in a net opening balance difference of Rs 1122.1 crore as at April 1,2002. In the absence of complete information,this amount has been classified as “Unexplained differences suspense account” in the statement of assets and liabilities. It has adjusted Rs 79.6 crore for prior period errors.

The investigation also identified certain transactions aggregating Rs 16.6 crore during the period from April 1,2002,to March 31,2008,and Rs 7 million from April 1,2008 to December 31,2008 which remain unidentified primarily due to lack of substantive documents. Accordingly,the amounts of Rs 16.6 crore and Rs 7 million have been classified as “Unexplained differences suspense account’.

The investigation has so far been unable to identify the nature of certain alleged transactions aggregating Rs 1,230.4 crore against which the company has received legal notices from 37 companies claiming a repayment of this amount which was allegedly given as temporary advances.

According to Satyam,these legal notices also claim damages/ compensation at the rate of 18 per cent per annum from date of advance till date of repayment. The company has not acknowledged any liability to any of the 37 companies and has replied to the legal notices stating that the claims are legally untenable. The ED is investigating the matter under Prevention of Money Laundering Act,2002 and directed the company to furnish details with regard to the alleged advances and has further directed the company not to return the alleged advances until further instructions from ED.

It said fictitious revenue aggregating Rs 5,352.8 crore was recorded over the period from April 1,2002 to September 30,2008,of which Rs 4870.2 crore was translated into fictitious cash and bank balances. The difference amounting to Rs 482.6 crore comprises of Rs 482.8 crore of debtors net of other liabilities of Rs 2 million. In addition,there was fictitious unrealised exchange gain of Rs 18.2 crore on fictitious debtors which was recognised,resulting in total fictitious debtors of Rs 501 crore.

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