Government to give SFIO more teeth

Last month, the US replaced a seven-year-old Corporate Fraud Task Force (CFTF) with an inter-agency Financial Fraud Enforcement Task Force (FFETF) to further strengthen its efforts in combating financial crimes.

The CFTF ensured nearly 1,300 corporate fraud convictions, including convictions of nearly 370 senior executives in the US.

India, too, has its corporate fraud investigation agency — the Serious Fraud Investigation Office (SFIO) — under the corporate affairs ministry. It was set up in 2003, but is yet to convict anyone. There are 22 cases under investigation and 767 ongoing court cases — the Satyam accounting fraud being the latest.

To rectify matters, a parliamentary panel is currently studying an amendment to the Company’s Bill to provide a comprehensive, inclusive definition defining the offence of fraud with regard to the affairs of a company; to provide an appropriate investigative, enforcement and penalty structure to address situations resulting from corporate fraud; to streamline the powers of the inspectors appointed under the Companies Act for being more effective in dealing with frauds in relation to affairs of companies; and strengthen the investigative powers of the SFIO and accord statutory recognition to the body in the Companies Act itself.

Experts, though, are not convinced. They insist that what India lacks is not adequate laws, but effective enforcement of its rules. "Indian governance rules are of the same or even better standards than many of the developing economies such as China. Enforcement of regulations is an issue here,” says Neville Dumasia executive director & head, Governance, Risk and Compliance services. Corporate Affairs ministry officials, too, assert that an elaborate regulatory framework is in place to prevent, to the extent possible, the occurrence of serious frauds. The government, for instance, has powers of inspection of the books of accounts of companies and also, to investigate into their state of affairs, if need be, under the Companies Act, 1956. The Act also provides for appointment of independent, statutory auditors to audit accounts and report to the shareholders.

However, Indian companies unlike their Western counterparts – even listed ones - are largely family-owned. “Despite the fact that most Indian companies have introduced corporate governance and set up committees, even today, not many would give independence to professionals,” points out Lav Goyal, partner BMR Advisors. The upside is that Indian promoters ‘have a long-term stake in the company. So, they take prudent decisions as against the West’. The imperative of corporate governance in India is therefore different,” he adds.