Companies Act 2013
The Companies Act, 2013 which replaced the Companies Act 1956 has several measures to deal with corporate frauds
1. Formation of a financial reporting body called the “National Financial Reporting Authority (NFRA)” for better monitoring of Corporate Financial Management
- It has Quasi judicial powers to order investigation, levy penalty and bar professionals from practice in case of their
indulgence in professional or other misconduct - Has mandate to ensure scrutiny and compliance of Accounting and Auditing Standards
- It ascertains the quality of service of professionals associated with compliance
2. The new Act provides more fangs to Serious Frauds Investigation office (SFIO)
- The SFIO is a multi-disciplinary organization under the Ministry of Corporate Affairs
- By designating SFIO as the exclusive agency responsible for investigating corporate fraud, the Act has streamlined enforcement, ensuring more efficient and focused legal proceedings. This centralized approach strengthens the regulatory framework and enhances the effectiveness of fraud detection and prosecution in corporate India
- Clause 49 of the Listing Agreement by Securities and Exchange Board of India (SEBI), requires the CEO and CFO of a company, in their certification, to confirm that there are, to the best of their knowledge and belief, no fraudulent / illegal transactions entered into by the company during the year
- As per Companies (Auditor’s Report) Order (CARO) 2003, the auditor has to report whether any fraud by or on the company was noticed or reported along with its nature and amount
Some important provisions for combatting fraud under the Companies Act are as follows:
Sec 34
Criminal Liability for misstatement in prospectus
Sec 36
Punishment for fraudulently inducing a person to invest money
Sec 76A
Punishment for contravention of provisions relating to Acceptance of Deposits
Sec 86
Punishment for provisions relating to contravention for Registration of Charges
Sec 185
Loans to Directors in relation to contravention of provisions
Sec 184
Failure to disclose interest by Directors in contracts in which they are interested
Sec 182
Contribution to Political parties in contravention of provisions
sec 186
Loans & Investment by Companies in contravention of provisions
Sec 188
Contravention of provisions relating Related Party Transactions as contained
Sec 209 and 211
Deviation of accounting standards and financial statements
Secs 269 and 309
Contravention of provisions governing remuneration to directors
Sec 628
Penalty for false statements
Sec 447
Companies Act 2013 is the section that provides for punishment for Corporate Frauds by way of prosecution