As Serious Fraud Office gets ready to probe chit funds, some say it lacks teeth

Last Updated: Tue, Apr 30, 2013 05:23 hrs

The Serious Fraud Investigation Office (SFIO), which recently finalised its investigation report on the Reebok case, is again back in action as it starts probing the illegal money-pooling activities of various entities, mainly operating out of West Bengal, Odisha, Bihar and Assam.

The latest case, triggered by the controversy over the Kolkata-based Saradha Group allegedly duping investors, will have SFIO initially focus on 57 companies operating out of these states.

Officials said SFIO would start by seeking available data from the registrar of companies (RoC), which had already conducted an initial inquiry into such companies and had gathered a lot of alarming data. The agency will, then, further probe the operations of such companies.

Established in 2003 on the basis of the recommendations of the Naresh Chandra Committee on corporate governance and known best for its probe into the Satyam financial scam in 2009-10, the corporate fraud investigative wing of the ministry of corporate affairs (MCA) has so far dealt with many high-profile cases.

Apart from the alleged fraud of Rs 870 crore in Adidas AG's Indian subsidiary, Reebok India, Singapore-based SpeakAsiaOnline, and nine companies of the Radia group, including Vaishnavi Corporate Communications and Neucom Consulting, were referred to the agency by MCA after the RoC found alleged inconsistencies in their financial accounts.

According to Corporate Affairs Minister Sachin Pilot, as many as 64 cases were referred to SFIO in three financial years starting 2008-09. Of these, it has completed examination in 55, including Sesa Goa Industries', Ambuja Cements', UltraTech Cement's, and DSS Mobile Communications'.

However, SFIO's role is not limited to monitoring just companies. It also keeps an eye on money laundering and monetary misappropriation. This includes probe of investor fraud, disappearing companies and cartelisation by firms.

Since inception, it has probed several complex cases, including the Ketan Parekh scam. The agency was also a whistle-blower in the case of cartelisation by major cement firms, later referred to the Competition Commission of India for prosecution.

SFIO was set up following various stock market scams, irregularities in non-financial banking companies and vanishing plantation companies. The idea behind its inception was to tackle white-collar crime, especially those committed on a large scale or involving great complexity.

However, some feel the agency lacks teeth and adequate resources to intimidate companies. With an increase in economic activity in the country, such frauds are also likely to increase manifold and the government needs to improve the system by putting enough checks and balances to avoid as well as detect such crimes, says Pavan Kumar Vijay, managing director, Corporate Professionals, a capital markets consultancy firm.

According to Vijay, although SFIO with its multi-disciplinary team is capable of investigating cases such as chit funds, more power will enable it to execute these well and on time.

Although the Naresh Chandra committee had recommended a separate statute for SFIO, it continues to remain a body under the MCA. Currently, a non-statutory body, SFIO lacks legislative recognition. Experts suggest given the purview and scope of the required investigation, SFIO needs more power for its mandate. "During the Satyam scam, SFIO found it difficult to secure court approvals to interrogate suspects or carry out searches," said an expert.

Companies Bill boost
However, the government says the new Companies Bill, awaiting the Rajya Sabha's approval, will arm SFIO with various powers, enabling the agency to become more aggressive and effective in its functioning. Officials said the Bill would enable SFIO to seize property and assets and conduct investigations independently. It would also empower it to interrogate anyone outside the country.

Currently, the investigative agency takes up a case only when referred to it from the administrative ministry or from the judiciary. The new law would enable it to take up investigation on its own.


& Daewoo Motors: Was referred in 2003 for alleged financial mismanagement involving Rs 1,000 crore

& Mardia Chemicals: Probed in 2005 for diversion and siphoning of funds

& DSQ Software: The first company referred to SFIO in 2003, for its role in the securities scam

& Usha India: Referred in 2006 for siphoning funds, fudging accounts and diverting money via 250 front companies

& Classic Shares, Goldfish Computer, Panther Group, Nakshatra Software: Ketan Parekh group of companies involved in the stock market scam

& Morepen Laboratories: New Delhi-based antibiotics maker probed in 2006 for alleged mismanagement and financial irregularities

& Satyam Computer: Referred in 2009, for accounting fraud

& JVG Group: Probe into 13 companies like JVG Hotels Ltd, JVG Techno India, JVG Holdings, and JVG Publications. Since 2005, it is accused of defrauding thousands of investors of Rs 1,000 crore

& Sesa Goa: SFIO recommended prosecution against mines major Sesa Goa on nine grounds, including over- and under-invoicing of exports and imports, respectively, of Rs 1,000 crore

& Reebok: Referred in 2012, for alleged farud of Rs 870 crore

& Radia Group: Referred in July 2012. Probe into nine companies for alleged violation of various provisions of the Companies Act

& 64 Cases referred to Serious Fraud Investigation Office in three financial years starting 2008-09

& 55 Cases completed, including Sesa Goa Industries', Ambuja Cements', UltraTech Cement's & DSS Mobile Communications'

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