Measures to Prevent and Deal with Occurrence of Frauds

During the last three years and the current year (till date), the Ministry of Corporate Affairs has ordered investigations under section 235 and section 237 of the Companies Act, 1956 in 139 cases of alleged corporate frauds through the Serious Fraud Investigation Office (SFIO) of the Ministry. Giving this information in written reply to a question in the Lok Sabha today, Shri Sachin Pilot, Minister for Corporate Affairs, said that these cases involve allegations of siphoning off/ diversion of funds belonging to companies by the promoter/ directors, manipulation of books of accounts and other records and frauds through running of pyramidal schemes and misuse of Collective Investment Schemes by companies for collecting money from public, etc. Year-wise details are as under:

* (this includes 58 companies belonging to five groups which are being investigated for chit fund activities in West Bengal and other States)

            On the basis of the above, however, it is not possible to conclude that there is any rise in the corporate frauds.

            Shri Pilot further said that the Government has initiated a number of measures to prevent and deal with occurrence of frauds. These are as under:

·              Definition of “Fraud” as a substantive offence in the recently enacted Companies Act, 2013;

·              Stricter norms of Corporate Governance and their implementation under the new Companies Act;

·              Conferring statutory status to the SFIO;

·              Amendments to securities laws through Securities Laws (Amendments) Ordinance amending the Securities and Exchange Board of India (SEBI) Act, the Securities Contracts (Regulation) Act (SCRA) and the Depositories Act enabling SEBI to deal effectively to violations of laws by companies and individuals including those running Ponzi schemes;

·              Increasing application of technology for helping to detect potential frauds through data mining and Forensic Audit technique.