Happy Independence Day!

Wish you a Happy Independence Day! While digging Companies Act, 2013, we came across few rules that were not spoken much into the market and thought of discussing it in this edition. We will be discussing in detail about Serious Fraud Investigation Office (SFIO) which is an organization that deals with Corporate Fraud.

As usual, our Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST will follow the article. Come lets see what SFIO says about.

 Saranya Deivasigamani,
CEO

SFIO, 2003

We know that the Companies Act 2013, guarantees several rights to investors and also regulates the affairs of a company with a view to ensure efficient functioning of a company so that investors may receive their due returns of the capital invested by them and their rights and interests are adequately protected. We also know that the Investors are the real owners of a company but the power of management of the company is vested in the Board of Directors. Now, the Ministry of Corporate Affairs came forward will set up two committees to look at possible withdrawal of court cases related to investor protection pending for 10 years or more. There are chances to abuse of power like committing fraud, by few directors of the company. As we know that there is close nexus between corporate governance and ethics but conflicts between these two are also bound to occur. Corporate fraud, an inevitable incident occurring, in recent, is an aggravated form of corruption in corporate world. It is difficult to prevent and to catch such white collar crimes. Such incidents reduce the interest and trust in corporate investments and in turn reduce the confidence on the government. The Companies Act empowers the Central Government with the right to investigate the affairs of the company, especially in cases of an alleged fraud or even in the oppression of the minority shareholders. The Central Government is empowered to appoint inspectors to investigate either on its own if it is of the opinion that such investigation is required on the report of the Registrar or Inspector under section 208 or in public interest or on the request of the company on the basis of a special resolution or on the Direction of the court/tribunal or from such members of the company having requisite number of shares as specified in section 213 of the Companies Act, 2013. The Central Government has also set up the Serious Fraud Investigation Office (SFIO) in the ministry of corporate affairs, a specialized, multi-disciplinary organization to deal with serious cases of corporate fraud. This was also a major recommendation made by the Naresh Chandra Committee which was set up by the government on 21 August 2002 on corporate governance. Headquarters of this office is located in New Delhi, with field offices located in major cities throughout India. The SFIO is headed by a director not below the rank of a Joint Secretary to the Government of India having knowledge and experience in dealing with the matters relating to corporate affairs and also consist of experts from various disciplines. This will, certainly protect the investor’s interest and will also bring back the confidence of investors in Indian capital market. The Serious Fraud Investigation Office (SFIO) is a fraud investigating agency in India. It is under the jurisdiction of the Ministry of Corporate Affairs, Government of India. The SFIO is involved in major fraud probes and is the coordinating agency with the Income Tax and CBI. Asserting that the country’s capital market was in a healthy condition, the minister told the Lok Sabha that various agencies, including the Serious Fraud Investigation Office (SFIO), are working to curb the black money menace. The Serious Fraud Investigation Office (SFIO) is aiming to deploy an early warning system (EWS) by 2018 to facilitate advance detection of frauds by corporate entities.

Process of Investigation

An investigation into the affairs of a company can be initiated by the Central Government and entrusted to the Serious Fraud Investigation Office under the following circumstances:-

1. As per Section 212 (1) of the Companies Act, 2013, the Central Govt. may assign the investigation into the affairs of a company to the Serious Fraud Investigation Office –

a. On receipt of report of the Registrar or Inspector under section 208;

b. On intimation of a special resolution passed by a company requesting an investigation into its affairs;

c. In public interest;

d. On the request of any Department of Central Government or State Government.

On receipt of such order from the Government, Director, SFIO may designate such number of Inspectors as he may consider necessary for the purpose of such investigation.

2. As per sub-section (3) of section 212 of Companies Act, 2013, the investigation into the affairs of a company shall be conducted in the manner and by following the procedure specified in Chapter XIV of Companies Act, 2013. The SFIO shall submit its report to the Central Government within the period specified in the order.

3. As per sub-section (4) of section 212 of Companies Act, 2013, the Director SFIO shall cause the affairs of the company to be investigated by an investigating officer, who shall have the powers of the Inspector under section 217 of the Companies Act, 2013.

4. As per sub-section (5) of section 212 of Companies Act, 2013, it shall be the responsibility of the company, its officers and employees, who are or have been in the employment of the company to provide all information, explanation, documents and assistance to the investigating officer as he may require for conduct of business.

5. As per sub-section (11) of section 212 of Companies Act, 2013, the Serious Fraud Investigation shall submit an interim report, if so directed by the Central Government.

6. As per sub-section (12) of section 212 of Companies Act, 2013, on completion of investigation, the SFIO shall submit the Investigation Report to the Central Government.

The SFIO will only deal with investigation of corporate frauds characterized by:

1. Complexity and having inter- departmental and multi-disciplinary ramifications.
2. Substantial involvement of public interest in terms of monetary misappropriation or in terms of number of persons affected and
3. The possibility of investigations leading to or contributing towards a clear improvement in systems, law of procedure.

SFIO Experts

SFIO comprises experts from various relevant disciplines including law, banking, corporate affairs, taxation, capital market, information technology, forensic audit etc. Where an investigation is ordered by the Central Government in pursuance of clause (b) of sub-section (1) of section 210, or in pursuance of an order made by the Tribunal under section 213, the Central Government may before appointing an inspector under subsection (3) of section 210 or clause (b) of section 213, require the applicant to give such security not exceeding twenty-five thousand rupees as may be prescribed, as it may think fit, for payment of the costs and expenses of the investigation and such security shall be refunded to the applicant if the investigation results in prosecution.

The number of Prosecution Cases filed by SFIO in various designated Courts and Forums as on 15.03.2017 are as under:

The number of Conviction, Acquittal and disposed off cases on technical ground cases as on 15.03.2017 are as under:

Power of SFIO to arrest the accused

Director, Additional Director or Assistant Director of SFIO, if authorized by Central Government by general or special law, may arrest such person, who is found guilty of cases of fraud as mentioned above. Every person arrested shall, as soon as possible, be intimated the ground of arrest and within twenty-four hours, be taken to a Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction; provided that the period of twenty-four hours shall be excluded the time necessary for the journey from the place of arrest to the Magistrate’s court. A person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs.

Submission of Investigation Report by SFIO

Submission of Interim Investigation Report- The Central Government if so directs, the SFIO will submit an interim report to the Central Government within stipulated time. This report may contain the preliminary findings related with seriousness, wrongdoers of the fraud etc.

of final Investigation Report- SFIO shall submit the detail and final investigation report, on completion of the investigation to the Central Government. A copy of the investigation report may be obtained by any person concerned by making an application in this regard to the court. On receipt of the investigation report, the Central Government will, after examination of the report (and after taking such legal advice, as it may think fit), may direct the SFIO to initiate prosecution against the company and its officers or employees. The investigation report filed with the Special Court for framing of charges shall be deemed to be a report filed by a police officer under section 173 of the Code of Criminal Procedure, 1973. In case SFIO has been investigating any offence under this Act, any other investigating agency, State Government, police authority, income-tax authorities having any information or documents in respect of such offence shall provide all such information or documents available with it to the SFIO.

The SFIO will also share any information or documents available with it, with any investigating agency, State Government, police authority or income tax authorities, which may be relevant or useful for such investigating agency, State Government, police authority or income-tax authorities in respect of any offence or matter being investigated or examined by it under any other law.

Eligibility criteria to become a consultant at SFIO:

Educational qualification:

Consultant in the Field of Law (Advocates): Advocate with minimum 4 years’ experience at the bar in the relevant field.

• To draft complaints, petitions, replies, rejoinders, affidavits and other legal documents to be filed before various Hon’ble courts.
• To appear before benches of the Hon’ble Company Law Board and if required in the District and subordinate courts in various states throughout India.
• To give expert opinion regarding filing of appeals in cases decided against SFIO.
• To keep SFIO informed about all the developments of each hearing and timely make available copies of judgements.

Consultant in the field of Financial Analysis: The candidates should possess a Chartered Accountant (CA)/ Cost and Works Accountant (CWA)/Company Secretariat (CS) degree with minimum 3 years’ experience in the relevant field.

The consultants engaged in the field of Financial Analysis would be required to perform following functions:-

• To critically analyses the data stored with SFIO of the companies.
• To critically analyses the data available in MCA 21 database in relation to relevant provisions and pronouncements.
• To critically analyses the corporate announcements made by the listed companies.
• To study financial reports of the companies under investigation and make complex financial analysis.
• To assist investigation teams in forensic audit, examination/scrutiny of board minutes, directors reports and other schedules and documents.
• Any other relevant work assigned by the SFIO.

Consultant in other fields (Banking/ Law): The candidates should possess a post graduate degree in the relevant field or subject with minimum 5 years’ experience.

It is concluded that SFIO is performing well to find out the corporate frauds, during recent time which reflects the good corporate governance in our country and certainly protect the investor’s interest and will also bring back the confidence of investors in Indian capital market.

Legal Term

Praecipe

An original writ, one of the forms of legal process used to commence an action.

MCA Updates

• Companies (Incorporation) Second Amendment rules, 2017.
• Companies(Meetings of Board and its Powers) Second Amendment Rules 2017,

SEBI Updates

• Securities and Exchange Board of India (International Financial Services Centres) Guidelines, 2015-Liquidity Enhancement Scheme.
• Online Registration Mechanism for Custodian of Securities.
• Disclosures by listed entities of defaults on payment of interest/ repayment of principal amount on loans from banks / financial institutions, debt securities, etc.
• Online Filing System for Alternative Investment Funds
• Online Filing System for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
• Position Limits for Agricultural Commodity Derivatives .
• Investments by FPIs in Corporate Debt .
• Disclosure of divergence in the asset classification and provisioning by banks .

RBI Updates

• No major Notifications.

Income Tax Updates

• Clarifications on computation of book profit for the purposes of levy of Minimum Alternate Tax (MAT) under section 115JB of the Income-tax Act, 1961 for Indian Accounting Standards (Ind AS) compliant companies.
• Section 9A (3) of the Income-tax Act, 1961 in respect of Fund Manager Regime -reg.
• Clarifications on computation of book profit for the purposes of levy of Minimum Alternate Tax (MAT) under section 115JB of the Income-tax Act, 1961 for Indian Accounting Standards (Ind AS) compliant companies.

GST Updates

• Related to Letter of Undertaking in place of a bond for export without payment of integrated tax .
• Modes of verification under CGST Rules 2017 .