Introduction

While companies are a booming source of the nation’s economy they come with some great risks and challenges. The majority part of our economy is based around these industries and companies. This reliance on companies gives them great power. Such power needs to be regulated from time to time to ensure the well-being of the people who are associated with these companies either as consumers or as investors. The Companies Act provides a regulatory restriction on the acts of these companies and prevents them from reaching a state of arbitrariness because such supreme power would encourage and pave the way for them to misuse the power and exploit the general public.

The Serious Fraud Investigation Office is a statutory body set up under the Companies Act, 2013. This office under the Ministry of Corporate Affairs comprises multi-disciplinary members having immense knowledge and command over areas of accounting, forensics, banking, information technology, taxation and other corporate-related laws. An officer enrolled with the Serious Fraud Investigation Office is called the Serious Fraud Investigating Officer or the SFIO.

The Companies Act, 2013

This statutory provision governs and regulates the formation and functioning of companies in India. The corporate environment in our country has undergone tremendous changes through development and innovation. The Act has increased the number of independent directors in a company to 200 from 50. The current statute recognises a one-person company which was not present in the previous Act. There is an introduction of the Company Law Tribunal and Company Law Appellate Tribunal which are quasi-judicial bodies having powers similar to the High Courts. These tribunals have been established considering the burden on the traditional courts. The Act with resonance to the Reserve Bank of India recognises the cross-border mergers which have boosted the growth of innovation and development within the country.

The Serious Fraud Investigation Office (SFIO)

The Serious Fraud Investigation Office is a fraud investigation body that is directly set up by the government to investigate serious and large-scale corporate frauds and scams. They derive their authority and power directly from the Companies Act, 2013 which is strictly limited to investigation purposes. This body falls under the jurisdiction of the Ministry of Corporate Affairs or MCA and they coordinate with the Income Tax department and the Central Bureau of Investigation to tackle such large-scale corporate crimes.

The office was set up keeping in mind the stock market fraud and manipulation that occurred during the 2000-2002 time frame. The constant setting up and vanishing of companies saw the general funds of the public vanish bringing them huge financial losses. This office was set up under the Vajpayee government in the year 2003 based on the recommendation of the Naresh Chandra Committee to inculcate a sense of corporate governance.

The office has an organizational structure with the Directory of the Office at the topmost level followed by the data mining organisation, and the regional offices at Kolkata, Chennai, Mumbai and Hyderabad. They have the headquarters in Delhi under which they have the additional and joint directors of the respective fields. The lowest tier of the office comprises the deputy directors.

Powers of the Serious Fraud Investigation Office

Through the notification by the Ministry of Corporate Affairs passed in 2017, the Serious Fraud Investigation Office has the power to arrest. This power to arrest has been limited to the Director, Additional Director and Assistant Director. They can during the process of investigation upon reasonable belief and sufficient matter find the accused to have committed an offence strictly prohibited by the Companies Act to arrest that person. During an investigation of a foreign company if the director has reason to believe that a person has committed a crime then upon approval from the Central Government an arrest can be made.

When a person from a government company needs to be arrested, then the statute requires that the Managing Director of that company needs to be informed before making an arrest. Where the Managing Director is to be arrested then the secretary of that ministry needs to be informed before making the arrest. Upon completion of the investigation, a copy of the report shall be sent to the Central government and another copy may be delivered and bestowed upon anyone who demands the investigation report.

Relevant Cases investigated under the SFIO

The Satyam Scam:

SFIO investigated the Satyam scam and reported that the directors of the organisation were not involved in the accounting fraud in the company. The SFIO had a report submitted to the government, marking the end of a three-month-long investigation. SFIO investigated the directors and found out that the fraud was committed by the chairman and other top executives of the company. The Central Government after it was admitted by the chairman that there is a fraud of around seven thousand crores at the company, the SFIO was ordered into the scam. The independent directors became the subject of suspicion because Satyam had said that the proposal of taking over two firms was taken unanimously, though the independent directors made a statement before the SFIO that they did not know the same.

Conclusion

The SFIO has been at their feet with the Ministry of Corporate Affairs ordering them to investigate a hundred companies that have come under its scanner due to the suspicion of corporate frauds and serious white collar crimes that may be manipulating the stock market and affecting the naïve investors and general public. These companies include those of Mr. Nirav Modi and Mr. Mehul Choksi. SFIO has been like a go-to regulatory committee to investigate and keep corporate fraud under check. The SFIO is the guardian of the Companies Act and the corporate realm making sure that there is no misappropriation of funds by these large cap companies.