The article 'Instances of Corporate Governance Lapses in India' provides an overview of notable cases.

The article 'Instances of Corporate Governance Lapses in India' provides an overview of notable cases that have exposed governance failures within Indian companies, highlighting the consequences and the lessons learned from these incidents. The article underscores the critical importance of robust corporate governance practices to safeguard investor interests, foster long-term sustainability, and maintain the overall health of the Indian economy.

At an alarming rate, the number of Corporate Fraud is on the rise. To guarantee control, transparency and reporting mechanisms including whistleblower complaints, the regulations are constantly revised. Even though it’s a tough pill to swallow it is a universal fact that the wrongdoers are always ahead in terms of everything.

We need to accept that cases of fraud have turned out to be inevitable and it is high time that companies realise the importance of implementing solid systems, processes, management practices and a strong recruitment process to ensure they hire people with the right integrity and value systems. In addition, the promotion of employee awareness about fraud targets using highly structured training mechanisms and ensuring that fraud is handled impartially and perpetrators are adequately punished should also be encouraged.

Satyam Scam

In the Indian IT services industry, Satyam Computers Services Limited was one of India's most successful companies. Ramalinga's started the company in 1987, which was based out of Hyderabad, India. The company was founded with 20 employees and has grown to be a global firm. It provides IT outsourcing and business process outsourcing services in a variety of sectors. The company started with a range of complex entrepreneurial growth strategies designed to take on national and international competitors efficiently.

Overall, the company saw considerable growth between 2003 and 2008. The entire sales of Satyam throughout the period were $467 million. In March 2008, the company's entire market worth was calculated to be approximately USD 2.1 billion. In the years 2003 to 2008, it was estimated that businesses grew 35% a year. Even EPS demonstrated a 40% yearly growth interest rate. Last but not least, Satyam's stock price increased by 300% in less than five years, from 138.08 to 526.25 at its high in January 2003. Significant corporate growth and shareholder value were produced by Satyam. The activities Satyam took in the outside world helped the business expand. However, the data did not provide a whole picture.

The chain of events began with Satyam's decision to merge with Maytas Infra and Maytas. The merger of the companies has caused several regulatory issues that have led to difficulties for the Raju brothers. The Raju brothers have conspired such a massive fraud to artificially increase their income. An increase in turnover predicted a huge increase in profits. In turn, it attracted many investors and boosted stock prices to new heights. Such an opportunity has been taken up by the

Satyam brothers, who are the original promoters of the Satyam companies and sold their shares at a much higher price. They got around 1200 crore profit from the deal. For their benefit, the brothers have edited and altered the books and bank accounts. An ERP system is used by most companies to manage their accounts. The Raju brothers, however, used this power to develop their own Enterprise Resource Planning system for accounting. There were a lot of loopholes in the system, unlike other systems. The fake bank statements were estimated to have more money than the actual ones. They had put money in a fixed deposit account and such limit deposits had a value of around 5000 crores.

Harshad Mehta Scam

By exploiting the escape clause in the financial framework, Harshad Mehta, an engaged and prominent businessman, controlled the Bombay Stock Exchange BSE along with his accomplices. Mehta allegedly lured the bank representatives to get Fake Bank Receipts. He borrowed money from these banks to get loans from different banks as they seemed to be lending in favour of state protection.

The same amount has been transferred to the stock market to increase its share price by a massive 4400 per cent. Mehta subsequently made huge profits on those tenders and the principal was returned to the banks. In total, nearly 4,000 Crores have been embezzled by Mehta from the banks.

Later, when his ways of operating the financial market were discovered and exposed, the banks realized they were controlling fake banks with no value. As a result, the hedge control framework for Corporate Banks and the Reserve Bank of India has been broken down by a sharp drop in equity costs and market conditions. As a result of this, the market for 2500 billion was reduced by about 35 billion and it has led to a collapse in bidding. Quotations of Bombay shares changed to change entries in the stock exchange system and this created a general anxiety among the people and the banks suffered badly.

The forgery of bank receipts and cash transfers to Mehta's account was carried out by banks such as Standard Chartered, and ANZ Grindlays.

The authorities noted that the absence of a modern framework which had an impact on the whole market for securities was one of the most important problems with finance exchanges' currency structure. Officials of different banks were held responsible for false accusations. The Bombay High Court and the Supreme Court of India have fined Mehta 49.99 billion rupees $740 million each for financial outrage. They arrested a lot of bank officials, which led to the complete collapse of banking.

KingFisher Airline Scam

Kingfisher Airlines Limited, A Company founded and owned by Vijay Mallya, was an Indian airline group. Passengers were treated with good services by Kingfisher Airlines, but it failed to make a profit. In the domestic market, this company did not make a profit. In 2008, Vijay Mallya decided to buy an International Airline, Air Deccan, and Kingfisher Airlines started flying international flights which led to a huge loss. In addition, the price of jet fuel has risen and the Indian currency was falling compared to the dollar. Kingfisher Airlines had decided to get substantial loans from India's banks. Five banks took up the loan: State Bank of India, Bank of Baroda, United Bank of India and Union Commercial Bank from April to November 2009. They approached a different bank, IDBI, in late 2009. The amount of the firm's debts was so high that it took out new loans with banks to repay its previous commitments.

The debt increased to 9000 crores in 2010, with SBI and IDBI accounting for the largest share of the debt. Kingfisher Airlines has declined to pay its staff. The employees moved to other companies in a few months. Kingfisher Airlines was classified as a non-performing asset by the State Bank of India in 2012. Finally, after its flight licence was cancelled by DGCA in October 2012, Kingfisher Airlines ceased to exist. Kingfisher Airlines's share value became zero.

On January 5, 2019, the Prevention of Money Laundering Act (PMLA) came into force and Justice M.S. Azmi, in his oral order, declared Mallya a wanted economic offender under Section 12 of the Act at the request of the enforcement agency. Under the anti-fugitive law, he was one of the first businessmen to be charged. The government has since been pursuing legal action against him to recover the alleged 9,000 crore loan default. This process may involve confiscating his assets.

Ketan Parekh Case

When it comes to the manipulation of the stock market, Ketan Parekh bears a resemblance to Harshad Mehta. After the Harshad Mehta fraud, Ketan Parekh's scandal was the second major scam for the Bombay Stock Exchange. He was said to be a believer in the Information, Communication and Entertainment Industries or ICE industries. It was not unique, given that these stocks skyrocketed across the world as a result of the Information Technology boom at the beginning of the 1990s and into the 2000s. The irony, of course, was that Ketan Parekh tried to find stocks with very little market cap or liquidity. Then he'd be pumping money into the stocks and starting up a fictitious business within his network of companies.

For starters, he accepted cash from promoters of a lot of companies for the increase in their share prices. It is believed to be an insider trading technique and was sufficient for Ketan Parekh to have been in deep trouble. However, a large amount of money was embezzled from Madhavapura Mercantile Commercial Bank by Ketan Parekh. He was said to be bribing the officials of that bank to make them lend more for his shares than permitted by law.

The Bank initially exceeded the limits for borrowing against marketable securities with a loan to Ketan Parekh. Then he began to receive unsecured loans from the bank. He did not trade on his own but instructed other stockbrokers to hold the securities and paid them a commission to do so, which compensated them for losses incurred in the course of the transaction.

However, Ketan Parekh needed money after the Cartel started to counterfeit K-10's stock. A loan to Parekh was also unable to be renewed or secured by MMCB Bank. Consequently, the Calcutta Stock Exchange has also been closed down and there was a huge sell-off in the market that led to the liquidation of those traders holding positions under his name. Ketan Parekh was immediately arrested and charged in connection with the incident. He was banned from trading on the Bombay Stock Exchange for 14 years until 2017. Additionally, he was convicted of money laundering and sentenced to one year of rigorous imprisonment. Moreover, he was ordered to serve one year's rigorous imprisonment for the offence of money laundering.

The Saradha Group Chit Fund Case

Originally set up as a chit fund, the Saradha group started issuing debentures and redeemable preferential bonds in 2009. SEBI rules on the issuing of prospectuses and balance sheets by companies to obtain capital from a minimum of 50 individuals were directly violated in this case. When SEBI intervened to hamper its ability to find fault, as many as 239 companies belonged to the Saradha Group. Because of the continuing interference from SEBI, the Saradha group adopted its capital-raising strategy in 2010.

From the start, it has been made up of various investment schemes, travel packages, real estate, infrastructure financing and motorcycle manufacturing. The true nature of their investments is not known to them because they are only promised a high return. In 2011, when SEBI issued a warning to the Government of West Bengal about Saradha's financing activities, those methods were modified by Saradha. He acquired and sold shares of a wide range of companies on the stock market, as well as embezzling money from various unknown accounts. In Dubai, South Africa and Singapore Saradha laundered a large amount of money.

In 2012, SEBI forced Saradha to immediately cease all investment activities pending SEBI's clearance to operate. The group has not complied with that requirement, and until the 2013 accident continued to operate. Sudipto Sen sent a letter to the Central Bureau of Investigation on April 6 2013 in which he gave an eighteen-page statement confessing that he'd paid significant amounts of money to several politicians. On April 18, the warrant for his arrest was issued. Later on, after a week Sudipto Sen and his associates, Debjani Mukherjee and Arvind Kumar Chauhan were arrested in Kashmir on 23 April 2013.

The Bank of Baroda case

In this case, the Bank of Baroda is charged with transferring an enormous amount of unaccounted black money disguised as payments for non-existent imports such as cashews, pulses and rice amounting to INR 6,172 crore. The cash advance for imports which never occurred has been attributed to a total of 59 accounts. The Central Bureau of Investigation and the Enforcement Directorate started investigating this matter on 12 October 2015. In addition, it is alleged that the money was transferred as an import cash advance to 59 accounts of the bank's Ashok Vihar branch, in New Delhi, and sent to certain selected companies in Hong Kong. The Bank of Baroda said in a press release that 59 existing accounts which were the subject of major currency transfers have been set up by its branch from May 2014 to June 2015.

Over that year, a total of 5853 remittances amounting to USD 546.10 million were carried out via 38 check accounts and approximately INR 3500 Crores have been transferred by various persons from abroad mainly in Hong Kong and the United Arab Emirates. It should be noted that 13 accounts have been opened in HDFC Bank during February, and March 2015 to send money abroad even before 59 accounts were set up in Bank Baroda which was under surveillance by the Enforcement Directorate and the Central Bureau of Investigation. Subsequently, six people suspected of involvement in the scam have been detained and brought to justice on charges relating to criminal conspiracy, prevention of corruption etc.

The Reebok India Case

Reebok India is alleging fraud amounting to an amount of over INR 870 crores by the former MD, COO. Since 2005, Reebok International Limited has been a subsidiary of Germany Adidas AG and specialised in the production of sports footwear, and accessories. Later, the US Reebok was taken over by German Adidas. The idea of increasing the warranty margins for retailers to achieve increased sales was originally conceived by Reebok India, headed by Shubinder Singh. With its conservative German roots, Adidas has not been in favour of this practice. From the very beginning, however, there had been rifts in the new administration and Shubinder.

In 2010, Adidas commissioned the audit firm KPMG to examine Reebok's India operation, and in June 2011, a report was sent indicating that Singh's expenses were higher than his income. In 2012 the fraud was uncovered, leading to the resignation of Shubhinder Singh Prem from his position as Managing Director for Reebok India on March 25th. Later, Reebok India director Shubinder Singh Prem and CEO Vishnu Bhagat were charged with a scam on 21 May 12. Internal investigations were carried out by the Chief Financial Officer of the company, Shahin Padath. Following this, an FIR was lodged at the Gurgaon police station by Shubhinder Singh who filed a defamation case against the company and demanded damages of INR 15 million.

The main charges made by Adidas are mentioned as follows:

  • Fudging company accounts
  • Loss of a whopping amount of close to 870 Cr due to the opening of warehouses


Consequently, to ensure that these types of fraud do not take place, it is necessary to state that the management of companies must be robust. Corporate governance failures often involve ethical lapses, such as fraudulent accounting practices, bribery, or insider trading. It requires a multi-faceted approach involving regulatory reforms, strengthened oversight mechanisms, enhanced transparency, and improved corporate culture. By learning from past failures, organizations can strive to prevent future governance breakdowns and promote responsible and sustainable business practices.


[1] Analysis on Corporate Governance Failure, Available Here

[2] Corporate Governance Failures in India, Available Here

[3] Naresh Kataria, Corporate Frauds in India, Available Here

[4] Bank of Baroda Scam, Available Here

[5] Harshad Mehta Scam, Available Here

[6] Dalmia Scandal, Available Here

[7] What is the Saradha scam case, Available Here

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Updated On 18 Sep 2023 5:02 AM GMT
R Shakthivel

R Shakthivel

Institution: Presidency University, Bangalore. My area of interest includes M and A, General Corporate, Legal research and content writing.

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