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SFIO under Sec.211 & 212 of the Companies Act,2013

CS M.Kurtrala Nathan 
on 07 March 2014

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Introduction:

The Serious Fraud Investigation Office (SFIO) is a fraud investigating agency in India. It is under the jurisdiction of the Government of India. The SFIO is involved in major fraud probes and is the co-ordinating agency with the Income Tax and CBI. The Serious Fraud Investigation Office is a multi-disciplinary organization having experts from financial sector, capital market, accountancy, forensic audit, taxation, law, information technology, company law, customs and investigation. These experts have been taken from various organizations like banks, SEBI,CAG and concerned organizations and departments of the Government.

The Government approved setting up of this organization on 9 January 2003 on the basis of the recommendations made by the Naresh Chandra Committee which was set up by the government on 21 August 2002 on corporate governance. Agency headquarters is in the Indian capital, New Delhi, with field offices located in major cities throughout India . The SFIO draws most of its officers from the IAS, IPS and IRS.

Responsibilities of  SFIO:

(a) Detecting and prosecuting or recommending for prosecution white-collar crimes/corporate frauds;

(b)  The SFIO will normally take up for investigation only such cases, which are characterized by:

- complexity and having inter-departmental and multi-disciplinary ramifications;

- substantial involvement of public interest to be judged by size, either in terms of monetary misappropriation or in terms of persons affected, and;

- the possibility of investigation leading to or contributing towards a clear improvement in systems, laws or procedures. The SFIO shall investigate serious cases of fraud received from Department of company Affairs.

SFIO Under Companies Act,2013:

Establishment of SFIO:

Section 211 of the Companies Act 2013 deals with the Establishment of Serious Fraud Investigation Office.

The Central Government shall establish an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a company:

The SFIO shall be headed by a Director and consist of such number of experts from the following fields to be appointed by the Central Government

(a) Banking,

(b) Corporate Affairs,

(c) Taxation,

(d) Forensic audit

(e) Capital Market,

(f)  Information Technology,

(g) Law, or

(h) Other fields.

The Central Government shall appoint a Director in the Serious Fraud Investigation Office, who shall be an officer not below the rank of a Joint Secretary to the Government of India having knowledge and experience in dealing with matters relating to corporate affairs.

Investigation into the affairs of the company by SFIO:

Section 212 of the Companies Act 2013 deals with the Investigation into the affairs of the company by SFIO

The Central Government may by order assign investigation into the affairs of a company –

(a) On receipt of a report of the Registrar or inspector under Section 208;

(b) On intimation of a Special Resolution passed by a company that its affairs are required to be investigated;

(c) In the public interest, or

(d) On request from any department of Central Government or State Government.

If a case has been assigned to the Serious Fraud Investigation Office for investigation, the case shall not investigated by any other department of Central Government or State Government and all existing investigation shall also be transferred to the Serious Fraud Investigation Office.

The Investigation Officer of the Serious Fraud Investigation Office has power of inspector under Section 217.

The company and its officers and employees, who are or have been in employment of the company shall be responsible to provide all information, explanation, documents and assistance to the Investigating Officer as he may require for conduct of the investigation.

The Offence contained under the Companies Act, which attract punishment for fraud under Section 447 of the Act, shall be cognizable and non – bailable.

The Special court shall not take cognizance of any offence only upon a complaint in writing made by –

(a)  The Director, Serious Fraud Investigation Office; or

(b) Any officer of the Central Government authorised by a general or special order in writing in this behalf.

The Director, Additional Director or Assistant Director of Serious Fraud Investigation Office are empowered to arrest a person. They shall inform the person so arrested the grounds for such arrest as soon as it may be.

Every person so arrested shall within twenty – four hours be taken to a Judicial Magistrate or Metropolitan Magistrate having jurisdiction.

On completion of investigation, the Serious Fraud Investigation office shall submit the investigation report to the Central Government. Where Central Government direct to submit an interim report, then such interim report shall also be submitted 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 may direct the serious Fraud Investigation Office to initiate prosecution against the company and its past or present officers or employees or any other person directly or indirectly connected with the affairs of the company.

The investigation report filed with the Special Court for framing of charge 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 Serious Fraud Investigation Office;

The SFIO shall 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.

Eminent Investigation by SFIO:

Satyam Scam:

a. Serious Fraud Investigation Office has investigated the satyam scam and concluded that the Independent directors of Satyam were not involved in the multi-crore accounting fraud in the IT company and were kept in the dark by  the chairman.

b. The over 14,000-page report submitted to the government, marking the end of three month-long investigation, the probe agency of the Corporate Affairs Ministry said four independent directors of the company were questioned in connection with the scam.

c. SFIO questioned the independent directors and found that they had no knowledge about the falsification of accounts that happened allegedly at the behest of the chairman and other top executives of the IT giant.

d. SFIO also questioned the then whole-time director and senior executives but no clear evidence linking him to the scam found.

e. The government had ordered SFIO probe into the scam soon after the chairman admitted to a Rs 7,800-crore fraud at the company, wherein he disclosed that he had falsified profits for several years.

f. The role of independent directors had come under scanner when Satyam said that its board has unanimously approved a proposal to acquire two firms promoted by the chairman.

g. Satyam had to abandon the deal after investors opposed it strongly and thereafter Chairman disclosed that the company's profits were overstated .

h. However, some of the independent directors later said that the approval for the deal was not actually unanimous and it was subject to certain conditions.

i. Later, all the independent directors had resigned.

Deccan Chronicle Holding Ltd (DCHL) Case:

a. Serious Fraud Investigation Office (SFIO) has charged debt-laden newspaper publisher Deccan Chronicle Holdings and its directors with violation of as many as 20 sections of the Companies Act, some of which, if proved, could lead to imprisonment.

b. Hyderabad-based Deccan Chronicle Holdings (DCHL), which owns the English dailies Deccan Chronicle and Asian Age, is under probe for alleged financial irregularities and failure to repay loan.

c. The Ministry of Corporate Affairs had sought a scrutiny of the company's books for possible violation of the Companies Act.

d. In a report to the ministry, the SFIO has pointed to violations of several sections, including sections 209 and 211 (deviation of accounting standards and financial statements), sections 269 and 309 (contravention of provisions governing remuneration to directors), section 295 (non-compliance of corporate governance procedures for entering into related party transactions), and section 628 (penalty for false statements) under Companies Act,1956.

e. The SFIO report has confirmed that the money was availed of by the company's management from various banks through sale of non-convertible debentures and other commercial papers.

f. Later,DCHL declared itself sick and registered with the Board for Industrial and Financial Reconstruction (BIFR). Although the BIFR has accepted the company's plea under the Sick Industries Act, the move does not deter DCHL's lenders from taking action against the company under the Securitisation Act.

Cases Filed in SFIO:

There are totally 878 cases filed in SFIO. In that 796 cases are Company law related and 82 cases are IPC related. Mumbai has the highest number of cases filed both in Company law and IPC related matters. Place wise Cases filed details are summarized below:

PLACE

CASES

Total

Co.Law

IPC

Mumbai

432

42

474

Delhi

184

6

190

Lucknow, Sultanpur

60

13

73

Indore

27

3

30

Chennai

23

2

25

Ahmedabad

21

2

23

Kolkata

15

1

16

Solan

12

5

17

Hyderabad

9

1

10

Bangalore

8

6

14

Goa

4

0

4

Varanasi

1

1

2

Grand Total

796

82

878

Source: http://sfio.nic.in

Conclusion:

Thus the companies Act, 2013 has given statutory recognition to Serious Fraud Investigation Office by establishment of SFIO and Investigation into the affairs of the company by SFIO under section 211 and 212 respectively. In the old Companies Act,1956 there is no specific provision for SFIO, but the investigation had been done by SFIO on the request of Ministry of Corporate Affairs. After notification of the said sections by the government, SFIO will investigate the corporate frauds efficiently.


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