INDIACSR News Network
NEW DELHI: The Serious Fraud Investigation Office (SFIO) is a multi-disciplinary organization under the Ministry of Corporate Affairs, consisting of experts in the field of accountancy, forensic auditing, law, information technology, investigation, company law, capital market and taxation for detecting and prosecuting or recommending for prosecution white-collar crimes/frauds. The SFIO normally takes up for investigation only such cases, which are characterized by:
Complexity and having inter-departmental and multi-disciplinary ramifications ;
Substantial involvement of public interest to be judged by size, either in terms of monetary misappropriation or in terms of persons affected; and
The possibility of investigation leading to or contributing towards a clear improvement in systems, laws or procedures.
Now, the Government has proposed to grant statutory status to SFIO and accordingly has incorporated enabling provisions in Clause 211 of the Companies Bill, 2012. In addition to according statutory status, the following are some of the other important provisions relating to the functioning of SFIO proposed in the Companies Bill, 2012:
‘Fraud’ defined and made cognizable;
Coordination mechanism between SFIO and other investigating agencies statutorily recognized;
Investigation Report of SFIO shall be treated at par with investigation report filed in the court by a Police Officer under Criminal Procedure Code; and
Powers of arrest for certain offences.
During the last 3 years (2010-11, 2011-12 and 2012-13), 64 cases were referred to SFIO. During this period, investigations have been completed in 55 cases. Out of these 55 cases in which investigations were ordered by the Ministry, 26 were ordered on the basis of directions of various High Courts for investigations. In most of the cases referred by High Courts, specific issues were referred for investigation and action taken was limited to filing of investigation report to the courts. It is the prerogative of the High Courts to take action on the investigation reports. However, the Ministry also issues instructions on the findings in these reports if there are violations of law.
In cases referred by the Ministry under Section 235 of the Companies Act, sanctions are given for prosecution whenever necessary. In 20 cases, 79 complaints have been filed under the Companies Act and 6 complaints have been filed under the Indian Penal Code (IPC), 1860.
Now it is under active consideration of the Ministry of Corporate Affairs to develop a “Fraud Prediction Model” in SFIO for generating early warning signals for prediction of fraud and malfeasance in the corporate sector. A High-powered Steering Committee has been set up with technical experts in various fields to design a comprehensive framework for a fraud prediction model. The terms of reference, include drawing up of a detailed plan for implementation including timeline for testing a pilot.
The Steering Committee has submitted its draft report to SFIO which is under consideration. It is expected that the pilot testing of the model will be done within the current financial year (2013-14). Model development being a highly iterative process, the pilot would start as “Fraud Propensity Model” to be fine tuned over time into a predictive model.