SERIOUS FRAUD INVESTIGATION OFFICE

[Mr. M. GOVINDARAJAN]

The Government of India decided to establish Serious Fraud Investigation Office (‘SFIO’ for short) to overcome the then developments on  the corporate sector in India and outside India on the basis of the recommendations made by Naresh Chandra Committee on Corporate Audit and Governance to professionally investigate financial frauds on the lines of Serious Fraud Office in U.K.

The SFIO is conceived as a multi disciplinary unit capable of investigating corporate white collar crime professionally.   It will only take up investigation of frauds characterized by-

• a company and having inter departmental and multi disciplinary ramifications;
• substantial involvement of public interest in terms of monetary misappropriation or in terms of number of persons affected; and
• the possibility of investigation leading to, or contributing towards a clear improvement to systems, laws and procedures.   It will investigate only corporate frauds.

The SFIO will investigate fraud by setting up multi disciplinary team consisting of experts in the fields such as accountancy, forensic audit, taxation law, information technology and capital market.   Whenever necessary it may also outsource investigation to professional agencies.  The SFIO would forward the investigation report on violation under other Acts to respective agencies for prosecution and/or other appropriate action.

The SFIO was set up by the Central Government in terms of the Government of India Resolution No. 45011/16/2003-Admn-I, dated 02.07.2003 under the control of Ministry of Finance, Department of Company Affairs.   Vide Resolution No. 3/9/2002-D.cell/Admn IV, dated 05.09.2004 the SFIO has been authorized to draw upon the service of experts and expertise in various fields including accountancy, forensic auditing, taxation, Information technology, capital markets and financial transactions with a view to fulfilling the assigned task.  The SFIO is headed by an officer designated as ‘Director’ (of the level of Joint Secretary/Additional Secretary to Government of India) has been declared as Head of the Department for all financial and administrative purposes.

To supervise, review and monitor the work of SFIO, a similar co-ordination committee headed by Secretary, Department of Company Affairs and having as its members Chairman, SEBI, Chairperson, CBDT and CBEC and Director, CBI, Revenue Intelligence, enforcement would be formed.

SFIO does not initiate any investigation on its own, based on any complaints/documents received from any source. The cases are taken up for investigation as are ordered for investigation by the Government i.e. Ministry of Corporate Affairs under section 235, 237, 239 and 247 of the Companies Act, 1956.

SFIO under Companies Act, 2013

Section 211 provides for the establishment of Serious Fraud Investigation office to investigate the frauds relating to a company.   The proviso to Section 211(1) provides that the SFIO set up by the Central Government in terms of Government of India Resolution No. 45011/16/2003-Admn-I, dated 02.07.2003 shall be deemed to be the SFIO for the purposes of this section.

Section 211(2) provides that 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 from amongst of ability, integrity and experience in  banking, corporate affairs, taxation, forensic audit, capital markets, information technology, law or such other fields as may be prescribed.

Investigation by SFIO

Section 212 provides that where the Central Government 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 Registrar or Inspector under Section 208;
• on intimation of a special resolution passed by a company that its affairs are required to be investigated;
• in the public interest; or
• on request from any Department of the Central government or a State Government

the Central Government may assign the investigation into the affairs of the said company to the SFIO.  The Director of SFIO may designate such number of inspectors as he may consider necessary for the purpose of such investigation.

When an investigation is assigned to SFIO no other investigating agency of the Central Government or State Government shall proceed with investigation in such case in respect of any offence under the 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 to SFIO.

Procedure

Where the investigation into the affairs of a company has been assigned by the Central Government to SFIO it shall conduct the investigation in the manner and follow the procedure as detailed below:

• The SFIO has the power of Inspector under Section 217 of the Act;
• 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 investing officer as he may require for the conduct of investigation.
• The Authorized officer, has on the basis of material in his possession, reason to believe that any person has been guilty of any offence punishable under fraud, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest;
• After arrest of such person the Authority shall forward a copy of the order, along with the material in his possession to the SFIO in a sealed envelope, in such manner as may be prescribed and the SFIO shall keep such order and material for such period as may be prescribed;
• Every person so arrested shall within 24 hours be taken to a Judicial Magistrate or a Metropolitan Magistrate, having jurisdiction;
• The period of 24 hours shall exclude the time necessary for the journey from the place of arrest to the Magistrate’s Court;
• The Central Government may direct SFIO to submit an interim report to the Central Government;
• On completion of the investigation, the SFIO shall submit the investigation report to the Central Government;
• A copy of the investigation report may be obtained by any person concerned by making an application to the court;
• On receipt of the investigation report, the Central Government may, after examination of the report direct the SFIO to initiate prosecution against the company and its offers or employees who are or have been in employment of the company or any other person directly or indirectly connected with the affairs of the company.
• 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 SFIO;
• 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 authorities.

Cognizable offence

Section 212(6) provides that the offences under the Companies Act, 2013, involving fraud shall be cognizable and no person accused of any offence under those sections shall be released on bail on his bond unless-

• the Public Prosecutor has been given an opportunity to oppose the application for such release; and
• where the Public Prosecutor opposes the application the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence, while on bail.

A person under the age of 16 years or a woman or is sick or infirm, may be released on bail, if the special court so directs.  The special court shall not take cognizance of any offence except upon a complaint in writing made by-

• the Director, SFIO; or
• any office of the Central Government authorized, by a general or special order in writing in this behalf by that Government.