UPSC Mains 2015 GS Paper 2 Q14: model answer

On 7 January 2009 B. Ramalinga Raju wrote to his board that Satyam's balance sheet showed over ₹5,000 crore of cash that did not exist. 'It was like riding a tiger,' he wrote. Independent directors had approved, auditors had signed, regulators had not noticed. Investors lost heavily when the share price crashed.

Gaps exposed

• Promoter dominance and passive independent directors.
• Auditors who did not verify bank balances.
• Weak whistleblower channels and minority shareholder rights.

Changes under the Companies Act, 2013

• Independent directors: one-third of boards of listed companies, a code of conduct, and liability for lapses.
• At least one woman director on certain boards.
• Auditor rotation every five years for individuals and ten for firms; auditors barred from many non-audit services.
• Audit committees with independent majorities; mandatory vigil mechanism.
• Class action suits by shareholders (Section 245).
• Serious Fraud Investigation Office given statutory status.
• NFRA (2018) to regulate auditors.

SEBI reforms

• Revised Clause 49, then the LODR Regulations, 2015.
• Kotak Committee (2017): separation of chair and MD, more board disclosure.
• Disclosure of pledged promoter shares.

Remaining gaps

IL&FS (2018) and other collapses show that boards still defer to promoters, independent directors are often friends, and auditors' fees depend on management.

Satyam taught India that governance is about people as well as rules. The law now holds directors and auditors accountable; the culture of boardroom courage must follow.