What is SFIO?
Serious Fraud Investigation Office ('SFIO') is a corporate fraud investigating agency set up by the Government of India. It was initially formed vide resolution dated 2nd July, 2003 and carried out investigations within the existing legal framework under Sections 235 to 247 of the erstwhile Companies Act, 1956. Thereafter, Section 211 of the Companies Act, 2013, accorded a statutory status to the SFIO.
SFIO is a multi-disciplinary investigating agency for investigations and prosecution of white collar crimes. SFIO have experts from financial sectors, forensic audit, banking, corporate affairs, capital market, taxation, law and information technology. It has its jurisdiction under the Ministry of Corporate Affairs, Government of India, and is primarily supervised by officers from the Indian Administrative Service, Indian Police Service, Indian Corporate Law Service, Indian Revenue Service and other Central Services.
The process for investigation by the SFIO is laid down under Section 212 of the Companies Act, 2013 (hereinafter refered to as "the Act"). When the Central Government:
Section 447 of the Act stipulates the punishment for fraud. The offence is cognizable and non-bailable in nature.
Section 447 - Punishment for fraud - Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud. Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
It further defines fraud in relation to affairs of a company or any body corporate, to include any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.
Section 448 - Punishment for false statement - Save as otherwise provided in this Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,-
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material, he shall be liable under Section 447.
The Act uses the term "person" which has not only extended the applicability of it to the directors, officers, employees but any other person who looks into the affairs of a company which can include consultants, advisors, auditors, independent directors or any key managerial person if the said acts are done within their knowledge.
On 24th August, 2017, the Central Government notified sub-sections (8), (9) and (10) of Section 212 of the Act, which conferred powers of arrest on the SFIO. The Central Government also notified the Companies (Arrests in connection with Investigation by Serious Fraud Investigation Office) Rules, 2017 under the Act on the same day.
Bail and its mandatory twin conditions
Section 212(6) of the Act states that apart from the Public Prosecutor being given an opportunity to oppose the bail application, the Accused shall not be enlarged on bail unless the court is satisfied that there are reasonable grounds for believing that the Accused is not guilty of such offence and that he or she is not likely to commit any offence while on bail. This is in addition to the limitations provided for under the Code of Criminal Procedure, 1973.
After completion of the investigation the SFIO shall submit its report to the Ministry of Corporate Affairs. Subsequent to examining the report, the Ministry of Corporate Affairs may direct the SFIO to prosecute the Directors and other employees of a company who are involved in the offence and provide sanction for the same. The Special Court shall not take cognizance of an offence except upon a complaint in writing made by:
The SFIO has its headquarter at Delhi and five regional offices in Mumbai, New Delhi, Chennai, Hyderabad and Kolkata. Despite the SFIO being conferred exclusive powers to investigate an offence of fraud under the Act, other investigating agencies, like the Central Bureau of Investigation (CBI) and/or the Directorate of Enforcement (ED), may also carry out parallel investigations in respect of the same facts and circumstances under relevant statues providing for offences like bribery, money laundering, etc as the case may be.
By - Lakshmi Raman & Shweta Varma