Corporate Scam, Chit funds & Corporate Governance-Case study on Saradha scam,India

1. BY:
Zeba Rukhsar
MBA(HR & MARKETING)
2013-15
13MBA030
13209V14025
Dept.of Business Administration,Utkal University
Bhubaneswar,Odisha,INDIA.

2. SCAM-
 A fraudulent scheme/activity performed by a dishonest individual,
group, or company in an attempt obtain money or something else
of value.
DEFINITION OF 'CORPORATE SCAM'
 Activities undertaken by an individual or company that are done in a
dishonest or illegal manner, and are designed to give an advantage
to the perpetrating individual or company.
 By creating effective policies, a system of checks and balances and
physical security, a company may limit the extent to which fraud can
take place. It is considered a white collar crime.

4.  A chit fund is a kind of savings scheme practiced in India.
 A chit fund company is a company that manages, conducts, or
supervises a chit scheme—as defined in Section of the Chit Funds
Act, 1982.
 According to Section 2(b) of the Chit Fund Act, 1982: "Chit means
a transaction whether called chit, chit fund, chitty, kuree or by
any other name by or under which a person enters into an
agreement with a specified number of persons that every one of
them shall subscribe a certain sum of money (or a certain
quantity of grain instead) by way of periodical installments over a
definite period and that each such subscriber shall, in his turn, as
determined by lot or by auction or by tender or in such other
manner as may be specified in the chit agreement, be entitled to
the prize amount“.

5. Notable Scandals- INDIA
Scandal Year
reported
Scope INR
Crore
Location Key players
Saradha Group
financial
scandal
2013 2,500
West
Bengal
Kunal Ghosh,Sudipto Sen, Madan Mitra and many
more[1][2][3]
Vyapam Scam 2013 NA
Madhya
Pradesh
Laxmikant Sharma, Dr. Vinod Bhandari, O. P.
Shukla, Pankaj Trivedi, Sudhir Sharma, C. K.
Mishra, Nitin Mahendra, Dr. Jagdish Sagar
Indian coal
allocation
scam[8]
2012 185,591 National
Comptroller andAuditor General of India, the coal
ministry, manyelectricity boards and private
companies
Uttar Pradesh
NRHMscam
2012 10,000
Uttar
Pradesh
Mayawati, Babu Singh Kushwaha
2G scam 2008 176,000 National
Nira Radia, A. Raja, M. K. Kanimozhi, many
telecommunications companies
Uttar Pradesh
food grain scam
2003 35,000
Uttar
Pradesh
Mulayam Singh Yadav, Mayawati

6. SARADHA CHAIRMAN & M.D-
SUDIPTO SEN

7.  The Saradha Group financial scandal was a major financial scam and alleged
political scandal caused by the collapse of a Ponzi scheme run by Saradha
Group, a consortium of over 200 private companies that was believed to be
running collective investment schemes(CIS) popularly referred to as chit
funds in Eastern India.
 The group collected around 200 to 300 billion (US $4–6 billion) from over
1.7 million depositors before it collapsed in April 2013.
 The State government also set up a fund of 5 billion (US$79 million) to
ensure that low-income investors were not bankrupted.

9.  Sudipto Sen was a Naxalite.In his youth, he was known as Shankaraditya Sen,
and was part of the Naxalite movement in West Bengal. He changed his name to
Sudipto Sen and may have had plastic surgery sometime in the 1990s,after
which he became associated with land development projects in South Kolkata.
 Many prominent personalities were arrested for their involvement in the scam
including two Members of Parliament(MP) - Kunal Ghosh Srinjoy Bose, former West
Bengal Director General of Police Rajat Majumdar, a top football club official
Debabrata Sarkar, Sports and Transport minister in the West Bengal Government –
Madan Mitra.Odisha MP Ramchandra Hansda (Biju Janata Dal),MLA Pravat
Tripathy(Biju Janata Dal) and former Odisha MLAs Subarna Naik(Biju Janata Dal)and
Hitesh Kumar Bagarti(Bharatiya Janata Party) have also been arrested for ponzi scam.
Madan Mitra Debjani Mukherjee Kunal Ghosh
 Sudipto Sen, Debjani Mukherjee and Arvind Singh Chauhan were arrested in Sonmarg,
Kashmir, on 23 April 2013.

11. Fate
Allegations that this consortium of
companies is a Ponzi scheme
Founder Sudipto Sen
Defunct April 2013
Headquarters Kolkata, West Bengal, India
Key people Sudipto Sen, Chairman and MD
Debjani Mukherjee, Director
Kunal Ghosh, CEO, Media Div.
Number of employees 16,000+
Divisions
Saradha Realty
Saradha Exports
Global automobiles
Saradha media group

12.  Scandals in the corporate world, whether centered around corruption,
bribery, fraud, or other greed tend to have a significant impact on the
economy as a whole.
 The increasing rate of white-collar crimes demands stiff penalties,
exemplary punishments, and effective enforcement of law with the right
spirit.
 Corporate scams show a complete failure of Corporate Governance. To
avoid this, a company needs to strictly follow a proper system of corporate
governance and rotating the auditors for every couple of years.
 The Satyam,2G spectrum and southern mining scandals have left India’s
system exposed and naked on corporate governance like never before. From
the Ambanis to the Jindals,Adanis,Tatas,K.M.Birla and others have had to
face awkward questioning & suspicion in many scams.

13.  CONT…
 An attempt is made to examine and analyze in-depth the
Satyam Computer’s “creative-accounting” scandal, which
brought to limelight the importance of “ethics and
corporate governance”.
 The Satyam scandal highlights the importance of
securities laws and Corporate Governance in ‘emerging’
markets. Indeed, Satyam fraud “spurred the government
of India to tighten the CG norms to prevent recurrence of
similar frauds in future”.
 The focus of virtues in corporate governance is to
establish a series of practical application of core values
& principles as well as commitment to ethical business
practices.

14. 1) First, the promoters’shareholding is spread across several
friends and relatives as well as corporate entities. It is
sometimes difficult to establish the total effective holding
of this group.
2) Second,the promoters are the dominant shareholders &
that a large chunk of the shares is held by state owned
financial institutions. As the financial institutions play a
passive role, the promoters are effectively dominant
shareholders and are able to get general body approval for
all their actions.
3) The system's inability to separate promoter interests from
corporate interests, leading to the shortchanging of
minority shareholders.

15. 4) Over several decades of the command economy, a large
parallel black economy has developed in India where
transactions are carried out in cash and are not recorded in
the books of accounts. Many Indian business groups have
succumbed to the lure of black money.
 5) Another important corporate governance issue is that of
mergers and restructuring of companies in the same
group.The promoters had secretly built up large positions in
this company as a cheap means of acquiring shares of the
merged company.
 6) The continuing decline in interest rates, rapid
financialisation of household savings, lack of financial
literacy and investor awareness, political patronage,
absence of adequate legal deterrence, and regulatory
arbitrage encouraged the growth of similar companies.

16.  1. Businesses should conduct & govern themselves
with ethics,transparency & accountability.
 2. Businesses should provide goods & services that are
safe and contribute to sustainability throughout their
lifecycle.
 3. Businesses should promote the wellbeing of all the
employees.
 4. Businesses should protect the interest of and be
responsive towards all stakeholders,especially those
who are disadvantaged,vulnerable & marginalized.

17.  5. Businesses should protect and promote
human rights.
 6. Businesses should respect,protect and make
efforts to restore environment.
 7. Businesses when engaged in influencing
public and regulatory policy shoul do so in a
responsible manner.
 8. Businesses should support inclusive growth
and equitable development.
 9. Businesses should engage with & provide
value to their customers and consumers in
responsible manner.

18.  The problem in the Indian corporate sector (be it the public sector, the
multinationals or the Indian private sector) is that of disciplining the
dominant shareholder and protecting the minority.
 The problem of corporate governance can be solved only by forces outside
the company itself- the regulator and the capital market.
Regulators can facilitate the process by measures such as: enhancing the
scope, frequency, quality and reliability of information disclosures;
promoting an efficient market for corporate control; restructuring or
privatizing the large public sector institutional investors; and reforming
bankruptcy and related laws.
 The newly unleashed forces of deregulation, disintermediation,
institutionalization, globalization and tax reforms are making the minority
shareholder more powerful and are forcing the companies to adopt healthier
governance practices.

19.  Corporate Accounting Fraud: A Case Study of Satyam Computers
Limited by Madan Lal Bhasin
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 www.wikipedia.org
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