CORPORATE FRAUDS DETECTION & INVESTIGATION IN INDIA

INTRODUCTION

The phrase corporate fraud encompasses a wide scope of unethical and illegal operations that officers and employees take in any small, medium or big scale organization and enterprises. While anyone in a corporation can commit a crime of corporate fraud, they are usually perpetrated by managers, executives, officers, employees, or others who are in a position of power and command and having the ability to sway management within such organizations. White Collar Crimes are the kind of crimes that are committed by reputable persons, holding fortunate positions, either in public or private institutions. It is practically very strenuous for the bureaucratic service to track and detect such deception and frauds and probably because such an affair is carried out in much confidentiality. Such frauds are defined by the Federal Bureau of Investigation as, Illegal acts distinguished by deceit, concealment, or infringement of Today, the focus of white-collar crimes has advanced from the individuals to the organization, where human beings alone or in collaboration with others carry out criminal acts. One aforesaid white-collar crime is also a Corporate Fraud. In the comprehensive sense, a fraud is a calculated deception made for self-interest and personal profit or to damage another entity. 'Fraus Omnia Vitiate' - Fraud darken everything. In order to carry off this objective not only the government officials need to be adequately furnished to look into the event of a company, but the provisions need to be made to penalize the culprit who is blameable of corporate fraud by imposing rigid punishment on them.


CORPORATE FRAUDS IN INDIA

Corporate fraud takes place when an entity deliberately trades and conceals sensitive detail which then evidently makes it look healthier. Corporations adopt various modus-operandi to perform such corporate frauds, which may contain dis-information in the prospectus, deceive of accounting records, debt hiding, etc. The characteristic of falsification of financial detail includes untrue accounting entries, faulty trades for the boom of profits, disclosure of price-sensitive information which proceed under the scope of insider trading and showing false dealing which result in fascinating more investors and lenders for finance. There can be several grounds cited for which corporation commit such frauds like creating more falsified money, creating a fallacious image of the corporation for the market scenario, and ambiguous governmental authorities for tax avoidance.

Looking at the present-day records, India has observed some biggest corporate frauds like UTI Scam, Saradha Chit Fund, Satyam Computers, and the Cobbler Scam, etc. The scams were committed position of debts were concealed and fundamental facts such as revenues, operating profits, interest liabilities, and cash balances were miserably inflated to show the corporation is in good health. Such manipulations permit the involved individual to benefit from blown-up stock prices, high quotations, increased. There is a prerequisite for a strict adherence to high degree of ethical behaviour for the uniform honest functioning of new social, political and economic operation. The description of the Vivian Bose Commission investigating into the events of the Dalmia Jain group of companies in 1963, spotlighted as to how the big companies indulge in frauds, falsification of accounts and record falsification for personal gains and tax avoidance etc.


TYPES OF FRAUD:

There are many types of frauds like Fraudulent Financial Statements, Employee Fraud, Vendor Fraud, Customer Fraud, Investment Scams, Bankruptcy frauds and miscellaneous. Some of the common types of frauds are:

1. Financial frauds - Manipulation, falsification, reshaping of accounting records, misquoting or deliberately omission of amounts, misutilization of accounting principles, intentionally false, misleading, or omitted declaration.

2. Misappropriation of Assets - Theft of tangible assets by internal or external parties, sale of proprietary information, causing improper payments.

3. Corruption - making or receiving improper payments, offering bribes to public or private officials, receiving bribes, kickbacks, or other payments, aiding and abetting fraud by others.

The financial and corporate frauds or scams like the Harshad Mehta case, Satyam fiasco, Sahara case required the attention of lawmakers. Such scams made it vital to evaluate the ensign set in corporate governance and strict methods were required to be executed to tackle corporate scams.


PUNISHMENT FOR CORPORATE FRAUDS UNDER COMPANIES ACT, 2013

I. Punishment for Fraud (Section 447 Of C.A. 2013)

Any individual who is found at fault of fraud shall be blameworthy with imprisonment for a duration which shall not be less than six months but which may also expand to ten years and shall also be accountable to fine which shall not be less than the sum involved in the scam, but which may expand to three times the sum involved in the scam. Where the scam in interrogation involves public interest, the term of detention shall not be less than three years.

II. Punishment for False Statement (Section 448 Of C.A. 2013)

If in any report, financial statement, prospectus or any other document needed by, or for the motive of any of the provisions of this Company Act, 2013 or the rules constructed thereunder, any individual makes a statement -

1. Which is untrue in any material particulars, intentionally it to be untrue.

2. Which leaves off any material fact, knowing it to be material.

III. Punishment for False Evidence (Section 449 Of C.A. 2013)

If any individual intentionally gives incorrect evidence -

  • upon any scrutiny on oath or solemn affirmation.

  • in any affidavit, accumulation, or solemn affirmation in or about winding up of any institution under this Company Act, 2013 or otherwise in or about any matter emerging under this Act.

  • he shall be actionable with imprisonment for a period which shall not be less than three years but which may expand to seven years and with a penalty which may extend to ten lakh rupees.

IV. Punishment Where No Specific Penalty or Punishment Is Provided (Section 450 Of C.A. 2013)

If a corporation or any official of the corporation or any other person breaches any of the provisions of the Company Act 2013, or the rules made hereafter and for which no punishment or fine is provided elsewhere in the Act, then they shall be fraudulent with fine which may expand to ten thousand rupees and where the violation is continuing one, with a further fine which may expand to one thousand rupees for every day after the first throughout which the infringement continues.

V. Punishment in Case of Repeated Default (Section 451 Of C.A. 2013)

If a corporation or an official of a company induces any offense illegitimate either with fine or with imprisonment and where the same wrongdoing is committed for the second or following occasions within a term of three years, then, that corporation and every official thereof who is in levant shall be actionable with twice the sum of the fine for such frauds in addition to any detention provided for that fraud.


CORPORATE FRAUD INVESTIGATION.

In order to comprehensively prosecute these scams, a corporate fraud inquiry is essential to gather authentication, identify the appellant and trace expropriate assets. Corporate fraud inspection aims to locate the assets owned or used by the appellant and identify the holding and use of belongings which can then be restrained. Restraint orders can be used to seal misappropriated assets at the beginning of a private prosecution and, if pertinent, whilst the corporate fraud inspection is being undertaken.

When fraud is committed against a corporation, private execution can have a significant disincentive effect. A private prosecution sends a clear communication to a potential scammer that a corporation swindle will take robust and decisive measures.


CONCLUSION

There are certain mechanisms that have been cited by the Government by which the frauds can be prevented under the Companies Act 2013. Section 211 authorizes the Central Government to institute an office called the Serious Fraud Investigation Office (SFIO) to scrutinize frauds relating to companies and corporations. No other inquiring agency shall proceed with inquiry in a case in respect of any offense under the Companies Act 2013, once the case has been allotted to SFIO. The SFIO has the authority to arrest individuals if it has grounds to believe that he or she is culpable based on the material in custody. SFIO shall communicate to the Central Government on the conclusion of the investigation. Central Government may straight SFIO to initiate proceedings against the corporation. SFIO shall share particular they possess regarding a case being investigated by the SFIO.



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