Satyam Corruption Debacle Leads to New Indian Fraud Law

The government of India has said that a new law will be introduced to prevent scandals in the IT services sector like the one that occurred at one of India's premier outsourcing firms, Satyam.

Ramalinga Raju, chairman and founder of Satyam, came out with the shocking news in January that he had engaged in exaggerating profits for several years and overstated Satyam's balanced sheets.

Salman Khurshid, the Indian Corporate Affairs Minister said in a statement that the legislation would be an insurance to investors so that unscrupulous firms would end up paying damages for such actions. Speaking at a session in the Indian Parliament, Khurshid said that there would strict penalties, a higher level of transparency, and more participation by stakeholders in examining company assets.

This new regulation would imply that officers would have to reveal any profits that are made at the expense of stakeholders, reports The Economic Times segment of India Times.

During a debate on the issue in Parliament, several steps have taken in order to prevent a fiasco like the Satyam debacle from happening again. So far, federal investigators say that the total amount involved in the Satyam fraud is equivalent to three billion dollars. They also say that this figure is likely to rise.

Khurshid reiterated that by implementing the law, New Delhi would be putting up a warning sign for shareholders. The law, which is in its drafting phase, is also a measure to assuage fears of foreign investors from setting up camp in India. The rule is expected to make it mandatory for corporations to run in a more transparent manner.

This is also significant for new opportunities in litigation since class actions suits will be allowed against companies for the first time in India's history. A class action refers to a litigation filed by an individual representing a group of individuals who have the identical nature of complaint.

Additionally, the Indian government has already set up a research agency to keep a tab on companies. The bill in progress will be closely studied by a parliamentary agency before it goes to vote in the Indian Parliament.