Presentation Transcript

1. Empowered SFIOPresentation by:Ashok PareekExecutive Director, SREI Capital Markets Ltd.

2. Failure of NBFIs, vanishing companies and stock market scam, prompted Govt. to set up SFIO Set up in 2003, as a multi-disciplinary investigation organisationentrusted to carry out investigation of serious corporate frauds Started functioning from Oct 2003
3. SFIO has experts from the fields of Finance, Company Law, Capital Market, Law, Information Technology, Forensic auditing, Taxation and Investigation. HQ of SFIO is located at New Delhi and Regional Office of SFIO at Mumbai Headed by its Director.
4. SFIO carries out investigations referred to it by CG u/s 235 and 237 of the Companies Act, 1956 Officials drawn from the SFIO are designated as Inspectors under the Act On the basis of investigations, designated officials of SFIO are authorised to pursue prosecution under the Act
5. Cases handled in recent years MCA has ordered investigations u/s 235 and 237 of the Act in 139 cases of alleged corporate frauds through SFIO 2010-11: 5 2011-12: 12 2012-13: 46 2013-14: 76* * (this includes 58 companies belonging to five groups which are being investigated for chit fund activities in West Bengal and other States)
6. Shortcomings Powers largely restricted to examination of documents No powers of arrest Search and Seizure Powers subject to permission Operates in an elaborate matrix of investigating bodies with overlapping authority Inadequate/shortage of manpower
7. VepaKamesam Committee Govt constituted VepaKamesam Committee to examine various issues relating to SFIO and to suggest statutory, administrative and organizational changes for improving SFIO’s effectiveness Committee suggested for statutory recognition to SFIO
8. Empowered SFIO Keeping shortcoming in mind, Companies Act 2013 has attempted to strengthen the SFIO In its new avatar, SFIO will be a Statutory Body as the Companies Act 2013 has accorded statutory status to the SFIO Various other provisions of the Companies Act, 2013 would enable SFIO to be more effective in conducting investigations MCA has taken steps to induct technology & skilled manpower to improve functioning of SFIO
9. SFIO & Companies Act 2013 Relevant Sections in the Companies Act 2013: Section 2 (83): Definition Section 206 to 229: Inspection, Inquiry and Investigation (Chapter XIV) Section 447: Punishment for Fraud Draft Rules relating to SFIO released by MCA
10. SFIO & Companies Act 2013 Section 2 (83) SFIO means the office referred to in section 211; Section 211 Central Govt. shall establish an office to be called the SFIO to investigate frauds relating to a company Until the SFIO is established, the existing SFIO shall be deemed to be the SFIO under this section SFIO shall be headed by a Director and consist of such number of experts from various fields like (i) banking; (ii) corporate affairs (iii) taxation (iv) forensic audit (v) capital market (vi) information technology (vii) law;
11. SFIO & Companies Act 2013 Sec. 212: Investigation into affairs of Company by SFIO Where CG is of the opinion, that it is necessary to investigate into the affairs of a company by SFIO: on receipt of a report of the RoC or inspector u/s 208 on intimation of a special resolution passed by a Co. in the public interest; or on request from any Department of CG /SG, CG may, by order, assign investigation into the affairs of the such Co. to SFIO and its Director, may designate inspectors for the purpose of investigation.
12. SFIO & Companies Act 2013 Sec. 212: Investigation into affairs of Co. by SFIO If a case has been assigned by CG to SFIO for investigation, no other investigating agency of CG or SG shall proceed with investigation in such case in respect of any offence under this Act In case any such investigation has already been initiated, it shall not be proceeded further with and the concerned agency shall transfer the relevant documents and records in respect of such offences under this Act to SFIO
13. SFIO & Companies Act 2013 Sec. 212: Investigation into affairs of Co. by SFIO Company and its officers and employees, who are or have been in employment of Co shall be responsible to provide all information, explanation, documents and assistance to the Investigating Officer
14. SFIO & Companies Act 2013 Sec. 212: Investigation into affairs of Company by SFIO Notwithstanding anything contained in Cr.PC, the offences which attract the punishment for fraud provided in Section 447 of the Act, shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond except in certain circumstances
15. SFIO & Companies Act 2013 Sec. 212: Investigation into affairs of Co. by SFIO Director/Additional Director/Assistant Director of SFIO authorized by CG, have power to ARREST in case of offences punishable under certain sections CG may, after examination of the report, direct SFIO to initiate prosecution against the company and its officers or employees Investigation Report filed with the Special Court for framing of charges shall be deemed to be a report filed by a police officer u/s 173 of the Cr. PC
16. SFIO & Companies Act 2013 Sec. 212: Investigation into affairs of Co. by SFIO Where SFIO is investigating any offence, 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 SFIO 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 agencies
17. Limitations dependence on the CG to institute investigations and Prosecutions adequacy of resources and manpower devoted to it by the CG Measures not pre-emptive in nature

18. Thank you !!!

19. Punishment for Fraud Sec. 447. Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud: Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years. Explanation.—For the purposes of this section— “fraud” in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss;