Serious Fraud Investigation Office

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.

SFIO Investigations
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:

  1. On receipt of a report by the Registrar or inspector under Section 208 of the Companies Act, 2013;
  2. On intimation of a special resolution passed by a company that its affairs are required to be investigated into;
  3. In public interest;
  4. On request from any department of Central and State Government;
is 'of the opinion' that investigation into the affairs of a company is necessary to be conducted by the SFIO, it may, by order, assign the investigation of the said company to the SFIO. It is imperative that the Central Government in its order record the necessity for the investigation to be conducted by the SFIO. On receipt of such order, the Director, SFIO, may designate such number of inspectors as he may consider necessary for the purpose of investigation, and they shall have powers as prescribed under Section 217 of the Act.

It is pertinent to note that under this Act, an inspector may examine under oath, all officers and other employees and agents including the former officers, employees and agents of a company which is under investigation. The statement of such examination shall be taken down in writing and shall be read over to and signed by the person examined and may thereafter be used in evidence against him. Section 227 of the Act states that a legal advisor will not be required to disclose to an inspector, any privileged communication made to him or her in that capacity, except as respects the name and address of his or her client.

Upon assignment of a case to the SFIO, no other investigative agency can proceed with an investigation for any offence under the Act.

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.

  • The Director, Additional Director or Assistant Director of the SFIO on the basis of material in his possession can arrest any person in case he has reason to believe (the reason for such belief to be recorded in writing) that the person is guilty of an offence punishable under Section 447 of the Act.
  • In case of foreign companies and government companies, prior written approval of the Central Government for arrest would be required.
  • The SFIO is required to maintain an arrest register with relevant details of the arrestee, the date and time of arrest, and various other particulars.
  • The Director, Additional Director or Assistant Director shall forward a copy of the arrest order along with the material in his possession and all the other documents including personal search memo to the office of Director, SFIO in a sealed envelope with a forwarding letter after signing on each page of these documents, so as to reach the office of the Director, SFIO within twenty four hours.
  • The provisions of the Code of Criminal Procedure, 1973 relating to arrest shall be applicable.
  • The arrested Accused should be produced before the Judicial Magistrate or a Metropolitan Magistrate, as the case may be, within twenty four hours of the arrest, excluding the duration of travel from the place of the arrest to the Magistrate's court.

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:

  1. The Director, Serious Fraud Investigation Office; or
  2. Any officer of the Central Government authorized, by a general or special order in writing in this behalf by that Government.
  3. The complaint along with the investigation report is filed with the Special Court and shall be deemed to be a report filed by a police officer under Section 173 of the Code of Criminal Procedure, 1973.

    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