Meaning

Corporate frauds are illegal activities carried out by an individual or a company to give advantage to the individual or the company. Corporate frauds in India have emerged as the biggest risks which companies are exposed to, and are increasingly becoming a big threat. Incidents of frauds are increasingly at an alarming rate and in the process:

1. Destroy the confidence of investors in stock markets.
2. Results in enormous destruction in wealth of investors.
3. Damage the reputation of the affected company, its management and board of directors.
4. Erode ability of affected company to borrow and thus creating financial stress.

MAJOR CORPORATE FRAUDS IN INDIA

Some of the major corporate frauds in India are:

1. Satyam computer (Satyam)

Satyam was the first major fraud of its kind, which shocked the country and led to tightening of regulations, reporting and governance mechanisms.

Promoters of the company had devised ingenious methods to commit frauds with large scale dummy billings for services rendered to foreign clients. As a logical step forward, fake proceeds were shown to have been received in multiple bank accounts, opened in various countries. Many of these accounts were later found to be non-existing. https://zbaszynek.pl/

The company was consistently showing large bank balances in its financial statements, which were not consistent with other IT companies considering the size of its business. The whole of these operations was overseen by the promoter with the assistance of a separate staff working on this, what I would call a fraud factory.

2. Kingfisher Airlines (KLA)

KLA was another corporate fraud, which was first of its kind in the Airlines industry, which ultimately led to fall of the empire of King of good times. The airline was launched by flamboyant Vijay Mallya, well known as King of good times. Over a short period of time KLA established a reputation of https://cicodeh.univalle.edu/ finest private airline of the country, with high quality service standard and was enjoying second highest market share after Jet Airways.

The company resorted to borrowing funds by all possible means, including related parties and pledge of Kingfisher brand by over-valuation of brand value. Good times did not last long, and Vijay Malia had to sell its family jewel liquor and beer business to liquidate part of its debts.

At the closure of financials and to satisfy auditors, fake bank confirmations and statements were generated and produced as evidence of balances to auditors. The amount involved in the fraud was around USD 1 billion.

3. ILFS

ILFS fraud was the largest corporate fraud in India and triggered a showdown in the economy, as the company was a key vehicle for infrastructure development of the country. Fraud occurred, in spite of marquee shareholders like LIC, SBI etc., being the largest shareholders, having representatives on board. ILFS had the largest debt exposure of around Rs. 91000 crores (including Rs, 20000 crores invested by PF and pension funds),

Fraud was perpetrated mainly by:

1. Diversion of borrowed funds to related entities of some of members of top management team.
2. Imprudent lending to parties who were not credit worth for ulterior motives.
3. Evergreening of loans by routing money from one group company to another through an unrelated party.
4. Over invoicing of project costs by vendors, accounting of fake expenses etc. and difference being routed back to related entities of some of members of top management team.
5. Overstatement of profits by non- provisioning of loans, accounting of fake expense, inappropriate recognition of project revenue etc.
6. The company had unprecedented number of subsidiaries and group companies, (346) which were used to route above transactions.
7. Non – disclosure of some of these companies as related parties.
8. Non-disclosure some of subsidiaries, associates, joint ventures.

4.DHFL

DHFL was the first ever fraud in a housing finance company, which happened mainly due to active involvement of promoters in syphoning of funds and alleged money laundering.

How fraud was committed:

1. Granting of loans to related parties of promoters.
2. Loans granted to parties, who were not credit worthy or were unknown having same addresses in obscure locations.
3. Evergreening of bad loans.
4. Creation of around 6 lacs dummy accounts at one branch, using name of borrowers who had already repaid loans. These accounts were used to grant loans which were used to siphon funds to promoter companies. These loans ultimately turned out to be non-recoverable.
5. Utilization of borrowed funds for personal purposes, such as acquiring personal properties, yachts etc.
6. Consequently, huge amounts were shown as recoverable in the balance sheet, which were not recoverable.