Serious Fraud Investigations and The Companies Act, 2013

Mr. Avinash Sharma, Solo Practitioner and Panel Counsel to Competition Commission of India, spoke to the students about the Serious Fraud Investigation Office (SFIO) under the 2013 Act. The aim of this talk was to throw some light on the purpose of establishing the SFIO and whether the objectives of establishing the organization have been achieved.

As per the provisions of the 1956 Act, the SFIO functioned under the Ministry of Corporate Affairs. It was set up in 2003 to undertake investigations of corporate frauds. Under Sections 235 and 237 of the 1956 Act, the Central Government was empowered to appoint an inspector to investigate the affairs of a company and thereafter report to the Government. In 2010, the Ministry of Corporate Affairs passed a notification delegating its powers under Section 240 of the 1956 Act to the Director of the SFIO whereby the Director of SFIO could ask any person or corporate to produce documents, appear before him/her and punish for non-cooperation with fine and/or imprisonment.

As opposed to the 1956 Act, the SFIO under the 2013 Act is a statutory body and not a body created by an executive order. But the SFIO is empowered to carry out an investigation only on the directions from the Central Government pursuant to either a report of the Registrar of Companies, or a special resolution passed by the Company in a matter of public interest or on account of a request from any department of the Central/State Government.

Under the 2013 Act, the SFIO is the exclusive investigative agency to take up matters of corporate concern. The SFIO has the same powers as those vested in a civil court; namely discovery and production of documents, summoning witnesses, call for information (including relevant papers and records), and examination on oath. The SFIO has been empowered to liaison with courts or authorities outside India in the course of an investigation and has the power to arrest if it has reason to believe that a person is guilty of having committed certain offences mentioned in the 2013 Act (including making untrue or misleading statements in a prospectus, fictitious application for subscription of shares, etc.). Another important feature is that the term ‘fraud’ has been defined under the 2013 Act.

Mr. Sharma concluded his presentation by highlighting two crucial deficiencies of the SFIO under the 2013 Act. Firstly, the SFIO is not an independent investigative agency. Secondly, the SFIO cannot suo moto conduct investigations and cannot prosecute matters unless the Central Government issues directions for the same.

Note: This post is part of the report on a conference titled 'Reflections on The Companies Act, 2013' organised by the Michigan-Jindal Centre for Global Corporate and Financial Law and Policy on the 24th of October, 2013