Inspection and monitoring unveil corporate frauds

The Companies Act, 1956, empowers the Registrar of Companies (ROC) to inspect books of accounts and other records of companies. Inspections are to serve one or more of the following objects and to verify: (1) compliances by companies under the act; (2) whether company accounts represent a true and fair picture of a company’s finances and have been disclosed in compliance with the act; (3) whether a company’s funds have been siphoned off, applied or diverted, or the company management has misused its fiduciary position for any personal advantage, in violation of the act; (4) whether there are acts of mismanagement or oppression that adversely affect or may adversely prejudice the interest of company stakeholders, which may merit winding up the company on the just and equitable ground; (5) whether statutory auditors have properly carried out their duties to certify a true and fair view of the state of affairs of a company.

Fraud investigation

The investigation of companies under sections 235 and 237 of the act is entrusted to the Serious Fraud Investigation Office (SFIO) in cases where: (1) the size of the alleged fraud is estimated to be ₹500 million (US$10 million) or more; (2) the company is listed or has paid-up capital of more than ₹50 million and 20% or more of the capital is subscribed by the public; (3) the fraud involves widespread public concern estimated to affect more than 5,000 people.

The following are examples of the kinds of fraudulent activities unearthed by SFIO.

Shardul Thacker is a partner at Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.