The chairman of one of India’s largest IT outsourcers has resigned after confessing to a £1 billion fraud, in a scandal that has been dubbed the country’s Enron.

B. Ramalinga Raju, 54, chairman and founder of Satyam, said that he had wildly inflated the company’s profitability for years. The deception, which went undetected until he revealed it, resulted in the presence of 70 billion rupees (£950 million) of “nonexistent” cash on the group’s books.

“It was like riding a tiger, not knowing when to get off without being eaten,” Mr Raju said, describing how the fraud, which he claimed began as an effort to smooth over a minor accounting discrepancy, had “attained unmanageable proportions”.

He added in a letter to Satyam’s board: “I am now prepared to subject myself to the laws of the land and face consequences thereof.”

The scandal will stoke concerns over the state of corporate governance in a country blighted by endemic corruption. Overseas investors have often voiced fears over improper deals by India’s many family-controlled businesses, but it had been hoped that the IT sector was setting a new benchmark in acceptable behaviour.

India’s outsourcers, which specialise in handling sensitive information such as the credit card details of Western consumers, guard their reputations fiercely and executives at Satyam’s rivals were dismayed at the prospect of being tarred by the same brush as Mr Raju. One said: “Sure, there is a chance to pick up some business from clients who jump ship from Satyam, but at what cost long-term?”

Satyam’s clients have included General Electric and the United States Government and in many cases it manages its customers’ accounting systems.

Mr Raju’s disgrace also marked the final downfall of one of India’s most honoured entrepreneurs. He started Satyam – ironically the name means “truth” in Sanskrit – in the southern city of Hyderabad in 1987 after branching out from his family’s construction business. He went on to amass a vast personal fortune and a plethora of international business awards.

C. B. Bhave, the chairman of the Securities and Exchange Board of India, the markets watchdog, said that Mr Raju’s financial wrongdoings were of a “horrifying magnitude . . . this event is a first of its kind in India. We have a lot to learn.” R. K. Gupta, the managing director of Taurus Asset Management in Delhi, said that the fraud had “put a question mark on the entire corporate governance system in India”.

Under particular scrutiny will be the role of PricewaterhouseCoopers, Satyam’s auditor since 2001, when the group listed on the New York Stock Exchange, which appears to have missed a huge systematic fraud.

Satyam is regarded now as being vulnerable to takeover, but few bankers would venture a valuation yesterday. One said: “They said they made a pretax profit of $143 million [£94 million] in the first quarter, but who knows if that is true. I do not even trust them when they say they employ 50,000 people.”

Mr Raju has been facing a wave of shareholder hostility since December 16, when he said that Satyam would spend $1.6 billion taking over two struggling property development businesses – Maytas Properties and Maytas Infra – that were owned largely by him and were run by his sons. Maytas is Satyam spelt backwards.

He was forced to drop the deal hours later after India’s usually sedate institutional investors threatened to derail the acquisition. Most shareholders had assumed that Mr Raju was trying to plunder Satyam’s cash reserves. Yesterday he said that the Maytas purchases were part of a last-ditch plan “to fill [Satyam’s] fictitious assets with real ones”.

A week after the Maytas debacle, the World Bank said that it had blacklisted Satyam, India’s fourth-biggest software services provider, for eight years, alleging that improper benefits had been offered to employees of the bank. Mr Raju insisted that he did not take “even one rupee/dollar from [Satyam] . . . on account of the inflated results”, but sympathy for him is likely to be thin.

Shares in Satyam plunged by nearly 80 per cent yesterday, helping to send Mumbai’s benchmark Sensex index down more than 7 per cent, partly because of fears that other companies may be hiding similar skeletons in their cupboards.

That the Maytas deal had been approved by Satyam’s board will raise further questions about Indian governance. The company’s directors included Vinod Dham, the scientist known as the “father of Pentium” for his role in developing the breakthrough computer chip made by Intel; T. R. Prasad, a former Cabinet Secretary in the Indian Government; and Krishna Palepu, who teaches at Harvard Business School.

Also cast in a dim light by the affair were those who dole out business awards. Late last year, the World Council for Corporate Governance ranked Satyam as among the best-run companies in the world.

Satyam’s rise and rise

1987 Byrraju Ramalinga Raju founds Satyam Computer Services

1991 Wins first Fortune 500 customer – John Deere & Co. Lists on the Bombay Stock Exchange, with the IPO hugely oversubscribed

1999 Satyam Infoway, part of the Satyam group, becomes the first Indian internet company listed on Nasdaq

2006 Revenue exceeds $1 billion

2007 Mr Raju named the Ernst & Young Entrepreneur of the Year

2008 Acquires S&V Management Consultants, a Belgian company, Caterpillar’s market research and customer analytics operations, and Bridge Strategy Group of Chicago

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