SERIOUS FRAUD INVESTIGATION OFFICE UNDER COMPANIES ACT, 2013

This article was written by Somya Jotwani, a student of Faculty of Law, Delhi University.

INTRODUCTION:
The SFIO is a multi-disciplinary organization and fraud detecting agency under Ministry of Corporate Affairs, consisting of experts in the different fields for detecting and prosecuting or recommending for prosecution white-collar crimes/frauds in the company. SFIO is an agency formed on the recommendations of Naresh Chandra committee which was approved in January 2003. Earlier, SFIO works on orders of MCA having provisions under Section 235, 237,239 and 247 of Companies Act , 1956 .NOW WITH A NEW COMPANIES ACT,2013 provisions relating to SFIO were strengthen and made mandatory under Section 211 and 212 .

Investigation by SFIO:
The SFIO will take up investigation, which involves:

 Inter departmental ramifications and complexity;
 Substantial involvement of public interest ,which get effected by such fraud and misappropriation;
 Possibility of fraud in the company;
 Clarity of system laws and procedures;
 Detection and recommendations for corporate frauds.

NEW PROVISIONS IN COMPANIES ACT, 2013
 Section 2 (83) SFIO means the office referred to in section 211; Section 211

(ESTABLISHMENT OF SFIO):
(1) The Central Government shall, by notification, establish an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a company Office which is HEADED BY:
 The Director;
 In addition to director, other experts from the fields of law, finance, forensic audit, information technology, taxation, banking, corporate affairs and others.

Provided such director shall not be an officer below the rank to the joint secretary to the government of India having knowledge in dealing with corporate affairs.

Section 212(INVESTIGATION OF AFFAIRS):

Where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company by the SFIO—
(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 the Central Government or a State Government.

RESTRICTION ON OTHER INVESTIGATING AGENCIES
If the investigation, is headed by SFIO, it shall not be proceeded by any other department of Central or State Government and all documents relating to investigation shall be transferred to them. [Section 212(2)]

In case SFIO is investigating the matter, all documents income tax authorities, state government, police authority shall be provided to Serious Fraud Investigation Office. Provisions of Section 210,213,216 shall be applicable to the company, their officers and employees.The Serious Fraud Investigating Officer has all powers of inspector under Section 217. [Section 212(4)]

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.[Section 212(5)]

The offence contained under the Companies Act will attract a punishment of fraud under Section 447. Such offence is cognizable and non-bailable.

OTHER PROVISIONS:
The Special court shall not take cognizance of any office only upon a complaint in writing made by –
(a)The Director, Serious Fraud Investigation Office;
(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 and shall inform the person so arrested the grounds of such arrest. [Section 210(8)]

Such person shall be produced before Judicial Magistrate and Metropolitan Magistrate within twenty –four hours having jurisdiction.[Section 212(10)]

If directed by the Central Government, the Serious Fraud Investigation shall submit an interim report to the Central Government. [Section 212(11)]

On completition of the investigation, the Serious Fraud Investigation Office shall submit the investigation report to the Central Government.[Section 212(4)]

A copy of investigation report shall be sent to person who demands.[Section 212(13)]

On receipt of the investigation report, the CG may direct the serious fraud investigation to initiate prosecution against the company, employees or officers or any person connected with the affairs of the company. The investigation report filed with special court for framing of charge shall be deemed to be filed
by police officer under section 173 of CrPC, 1973. [Section 212(14)]

In case SFIO is investigating the matter, all documents with income tax authorities, state government, police authority shall be provided to Serious Fraud Investigation Office.

LIMITATIONS ON SFIO:
1) Dependence on CG for intuition of investigation.
2) Adequacy of resources and manpower.
3) Measures not pre -emptive in nature.
CASES:

SATYAM CASE:
Serious Frauds Investigation Office (SFIO) a body set up to crack complex white collar crimes to probe the financial irregularities in Satyam Computer Services and report its findings in three months .Serious fraud investigation officer investigated the satyam case and concluded that the independent directors did not know such fraud in accounts and they were kept in dark by chairman of company. The government had ordered SIFO for investigating such when they found 7800 crore scam and fraud at the company by the chairman.

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DECCAN HOLDING LTD CASE:
Hyderabad DCHL which owns English dailies Deccan and Asian age was alleged to commit financial irregularities and failed to repay the loan to their lenders. MCA had made scrutiny done through SIFO which investigated and pointed the violation of 20 sections of Company Act, 1956. The SFIO reported that company had availed the loan from banks through sale of non convertible debentures. DCHL declared to be sick and lenders had taken action against them through Securitization Act.