New Delhi: The Serious Fraud Investigation Office, or SFIO, the apex investigative agency that deals with corporate crimes, may be recognized and given powers only in the revised Companies Bill.
SFIO may be a term that has entered popular lexicon in India in the wake of the events at Satyam that are being investigated by the agency, but it isn’t even mentioned in the existing Companies Act or the new Companies Bill likely to be introduced in the coming session of Parliament. The Companies Act regulates the functioning of corporations.
SFIO, part of the ministry of corporate affairs, or MCA, came into being in 2003 and is a multi-disciplinary body that investigates serious corporate frauds. For instance, the agency was called in to investigate the goings-on at Satyam Computer Services Ltd after the company’s founder-chairman B. Ramalinga Raju confessed in January to having fudged the firm’s books over the years to the tune of at least Rs7,136 crore. The agency submitted a 14,000-page report on the fraud to MCA a couple of months back.
Now, in an effort to institutionalize the functioning of the agency, MCA plans to specify its scope as well as investigating and prosecuting powers when the new Bill is sent to the parliamentary standing committee.
“The new Bill does not mention SFIO and its powers. The ministry is thinking of introducing various provisions regarding SFIO when the Bill is revised after it goes to the parliamentary standing committee,” said a senior MCA official who did not want to be identified.
Most new Bills introduced in Parliament are referred to a parliamentary standing committee comprising members of Parliament from various parties. Changes can be made in any Bill at this stage and the committee does suggest some.
While the new Companies Bill was introduced last year, it could not be referred to such a committee because Lok Sabha was dissolved early this year.
The MCA official also added that if provisions regarding SFIO are introduced in the Bill now, before it is referred to a parliamentary standing committee, then there would first need to be a consultative process on what the provisions would be, preventing MCA from reintroducing the Bill in the budget session.
“That would mean a delay of another one year in reintroduction of (the) Companies Bill, which we cannot afford,” he added.
Efforts to define SFIO’s powers are in keeping with what new minister of corporate affairs Salman Khursheed wants to do.
“SFIO needs to be strengthened. The ministry is exploring ways to do that,” Khursheed had earlier said.
The MCA official said SFIO would also be given prosecuting powers which it currently lacks.
“The Companies Act, 1956, however, states that the government can appoint inspectors to investigate the affairs of a company. So, officials working on particular cases are referred to as inspectors, and these officials in turn get powers to prosecute the guilty under the Companies Act,” he added.
Khursheed recently said SFIO should work on initiating prosecution in the Satyam case in coordination with the Central Bureau of Investigation, India’s federal investigative agency.
If SFIO is recognized as an investigating agency, it will have the power to prosecute, said the official.
More recently, a government-appointed committee has recommended a separate legislation for SFIO, and asked for the agency to be recognized under the Companies Act.
The Vepa Kamesam committee, set up in 2006 to review the functioning of an investigating agency, has also suggested having whistle-blower provisions in the proposed SFIO Act to detect corporate frauds at an early stage.
A whistle-blower is typically an individual in the company which is involved in the fraud, and who wants to share information on the fraud with an investigating agency.
On the basis of the committee’s recommendations, MCA is studying how to provide more teeth to SFIO, and plans to solicit the suggestions of professional bodies such as the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India (ICSI), according to the MCA official.
So far, SFIO has filed cases against 28 companies. It has started to look into cases related to stock market scams, vanishing companies and plantation companies which defrauded small investors in the early years of this decade.
ICSI president Preeti Malhotra welcomed the move to recognize SFIO under the Companies Act, but said that “since corporate frauds are also covered under other Acts such as the Indian Penal Code or the Income-tax Act, it has to be seen as to how (the) powers of SFIO are defined.”