Serious Fraud Investigation Office

Some company frauds are too complex for one kind of investigator. They mix many things at once. There may be forged accounts, money moved through many banks, linked companies, tax issues and share price rigging.

The Serious Fraud Investigation Office (SFIO) exists for those cases. It sits under the Ministry of Corporate Affairs. It is a multi-disciplinary body. That means its staff come from many fields:

• accountancy and forensic auditing;
• banking and law;
• information technology and investigation;
• company law and the capital market;
• taxation.

Its job is to detect white-collar crimes and frauds. It then prosecutes them, or recommends that they be prosecuted.

The SFIO grew out of the Naresh Chandra Committee on Corporate Governance. That committee asked for a serious fraud office for companies. It did so after stock market scams and the collapse of non-banking companies.

History, in the workbook's dates.

Which cases (the charter). It normally takes up cases characterised by complexity with inter-departmental and multi-disciplinary ramifications; substantial public interest, judged by size; and the possibility of the investigation improving systems, laws or procedures. Whether to take up a case is decided by the Director, SFIO, who records reasons in writing, subject to review by a coordination committee.

Organisation. Headed by a Director in the rank of Joint Secretary, with headquarters in New Delhi and five regional offices — Mumbai, New Delhi, Chennai, Hyderabad and Kolkata.

Procedure under section 212 of the Companies Act, 2013.

1. The Central Government may assign an investigation to the SFIO (a) on a report of the Registrar or inspector under section 208; (b) on intimation of a special resolution passed by a company asking for an investigation into its affairs; (c) in the public interest; or (d) on request of any Central or State Government department.
2. The Director designates inspectors; the investigating officer has the powers of an inspector under section 217.
3. The company, its officers and past and present employees must provide all information, explanation, documents and assistance.
4. An interim report if the Central Government directs, and on completion the investigation report to the Central Government.

The CFDML is notified as Examiner of Electronic Evidence under section 79A of the IT Act, 2000.

Illustrative figures. A listed infrastructure company's new board finds that Rs 1,150 crore raised through NCDs was moved through 23 group companies and cannot be traced.

Getting the case to the SFIO. The board passes a special resolution asking for an investigation into the company's affairs and intimates the Central Government — route 212(1)(b). Separately, the ROC has already sent a report under section 208 — route (a). Either is enough.

Why the SFIO rather than someone else. The case needs forensic accountants for the ledgers, bankers for the fund trail, company lawyers for the 23 entities, capital market specialists for the NCD issue and IT experts for deleted servers — complexity with multi-disciplinary ramifications, and public interest measured by a Rs 1,150 crore loss to debenture holders.

The investigation. The Director, SFIO designates inspectors; the investigating officer uses section 217 powers. Former finance staff who left two years ago are still bound to give documents and explanations. The CFDML — notified as Examiner of Electronic Evidence under section 79A of the IT Act — works on the deleted e-mails.

The Central Government asks for an interim report after six months. On completion, the investigation report goes to the Central Government — and findings on violations of other laws are forwarded to the agencies concerned.

Chapter 2.3.3 (Serious Fraud Investigation Office). This is a dates-and-numbers section: 9 January 2003, 2 July 2003, 21 August 2003, 21 July 2015, five regional offices, Joint Secretary rank, and the four routes under section 212(1). Expect a question on who recommended it (Naresh Chandra Committee) and who reviewed it (Vepa Kamesam).

• Naresh Chandra recommended it; Vepa Kamesam reviewed it. Two committees, two roles.
• Cabinet decision 2003; statutory notification 21 July 2015. The 2015 date is the establishment by notification, not the first decision.
• SFIO is under the Ministry of Corporate Affairs — not the Ministry of Finance and not the CBI.
• Assignment is by the Central Government under section 212(1) — a company's own special resolution is one of the four routes.
• The Director decides whether to take up a case and records reasons, subject to a coordination committee's review.
• Five regional offices — Mumbai, New Delhi, Chennai, Hyderabad, Kolkata. Headquarters is New Delhi.