Expert Panel Moots Special Probe Cell For Bank Frauds

The expert committee on legal aspects of bank frauds has recommended the setting up of a separate investigation bureau to look into all serious fraud cases. It has defined serious financial frauds where amounts involve Rs 10 crore and above and cause national publicity and wide public concern.

The committee headed by N L Mitra stated in its report the need for legislative attention to seriously deal with financial frauds. The committee recommended the constitution of a special court to try such cases investigated by the bureau, where and appeal against the decision of the court can be made only to the Supreme Court. Appointment of special public prosecutors by the government for carrying on prosecution in major fraud cases has been suggested.

 

The committee prescribed that banks, institutions and intermediaries be required to develop best practice code within a time frame and submit the same to the regulator. The committee further emphasised that the growth in non-performing assets had to be linked with the degree of supervisory control and regulation and be related inversely with the use of discretionary powers accorded to officials.

The report says that the definition attributed to 'scam' by the media and the public at large needs to be recognised by the legislature. The media defines scams as acts of defrauding the public, where public funds are involved.

It has given the technical definition of a serious financial fraud as that which involves an amount singly or in totality with series of transactions, Rs 10 crore or more or causing national publicity and wide public concern. It also said that investigation and prosecution of such frauds are likely to require highly specialised knowledge of financial market conditions or where cases require legal, financial, investment and investigative skills.

While seeking establishment of a separate investigation bureau, which would be headed by a director, to investigate all serious financial fraud cases, the committee has also called for setting up a Statutory Fraud Committee under the chairmanship of the nominee of the Reserve Bank of India governor and one nominee each from the capital markets and insurance regulators to make preliminary inquiries into allegations of frauds so as to advise the bureau whether such an act amounts to serious financial fraud or to deal with such incidence of contractual or tortuous fraud.

The committee said the bureau should have sufficient number of investigators to be assisted by financial and information technology experts. The investigators of the bureau shall have powers subject to the permission of the court to search, seize and attach any fund, account or properties acquired with such funds. The Special Court may confiscate such properties and restore them to the defrauded institutions.

The right on the restoration shall be date ante, that is, as if the fraud has not taken place. However, a purchaser or seller in good faith shall obtain compensation.