Unearthing Corporate Frauds – the Ever-Increasing Role and Scope for Governance Professional*

UNEARTHING CORPORATE FRAUDS – THE EVER-INCREASING ROLE AND SCOPE FOR GOVERNANCE PROFESSIONAL*

INTRODUCTION The incidence of corporate frauds has a significant impact on the stakeholders and the economy. Corporate Frauds has acquired an inevitable existence in the life of common man which is a huge threat to the economy as a whole. Any corporate fraud is not only a spot on the name and business of the country but it also has adverse effect on the interests of the stakeholders, particularly the investors. Occurring of any corporate fraud in the country not only impact the employee, investors and creditors of the company but also the capital market. Moreover, such adverse impacts have also been witnessed on the existing as well as on the potential foreign investors, whose contribution is significant for the growth of a developing economy like India. This prompted our lawmakers to statutorily address the growing problem of corporate frauds by introducing stringent laws in order to protect the interest of innocent investors. DEFINITION OF FRAUD UNDER VARIOUS LEGISLATIONS As per Section 17 of Indian Contract Act, “Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent , with intent to deceive another party thereto of his agent, or to induce him to enter into the contract:— 1. the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; 2. the active concealment of a fact by one having knowledge or belief of the fact; 3. a promise made without any intention of performing it; 4. any other act fitted to deceive; 5. any such act or omission as the law specially declares to be fraudulent. Explanation - Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak , or unless his silence is, in itself, equivalent to speech.

* Directorate of Academics Views expressed in the Article may not express the views of the Institute.

STUDENT COMPANY SECRETARY | AUGUST 2021 1

Article 2

categories of frauds are three Thefraud. of types different many investigate to asked couldbe accountant forensic The TYPES FRAUD OF of meaning within fraud, the thefollowing have happened: should le is losing person the which to property of means unlawful by loss the mean to defined whichbeen has loss” “wrongful to Similarly, entitled. legally not property is gaining person of means unlawful by gain mean to defined been has gain’ ‘Wrongful the of, interests the injure to or wrongfulwrongful gain or from, advantage any is there not or whether undue person, other any or creditors its gain or shareholders its or company to deceive, to intent with any or person any by committed position of abuse or fact any of concealment omission, act, any includes corporate anybody or company fraud. committing for punishment the for provides 2013 Act, Companies of 447 Section

• • c) b) a)

ate o epoes n n raiain h aue hi po their of use Unauthorised abuse fraud. insider as known be also who can It activity. fraudulent through organisation an in employees or parties third involves fraud misappropriation Asset it. from steal organisation an of assets the Fraud Misappropriation Asset for responsible Authorities extent. some to reduced has hence Briberyinvestigating and C and corruption reduced has interface for human field, scope every certain in transparency with is there vested cash, is power scenario the now the However, changin citizens. slowly illiteracy, the question to income, officer public capita / Government per low bureaucracy, certain are there that revealed have t studiesfactors of number A gain. private for a occupying position, those by power entrusted of abuse is It bribery. involves typically it and Corruption ‘wrongful or gain’ ‘wrongful in loss’. resulted they not or whether fact the of irrespective mensrea h should position of abuse or fact of concealment omissions, acts, such omissions, concealmentshouldacts, ofposition facthave orplace; of taken abuse o o o o o o

Enforcement Directorate.Enforcement Lokpal (Central Level) and Level), Lok Ayuktaand (State Central Bureau and Anti of Investigation OfficeSerious Fraud (SFIO), Investigation Comptroller Generalof India, and Auditor (CVC),Central Vigilance Commission

hat contribute to corruption in India like high taxes, complicated legislations, complicated taxes, high like India in corruption to contribute hat in them;in and

Corruption is a form of dishonest or fraudulent conduct by those in power in those by conductfraudulent or dishonest formof a is Corruption g. Due to computerisation, demonetisation, restrictions of payment in in payment of restrictions demonetisation, computerisation, to Due g. –

loss.”

orruption are orruption

- As per this section “Fraud” in relation to affairs of a a of affairs to relation in “Fraud” section this per As

It happens when people who are entrusted to manage manage to entrusted are who people when happens It other person with the connivance in any manner, any in connivance the with person other

Corruption Bureau,Corruption AUGUST

eiiino ru n lo the also and fraud of definition

2021 gally entitled. Therefore, to fall fall to Therefore, entitled. gally

| STUDENT SECRETARY| COMPANY

sition to steal from it it from steal to sition

ave essence of essence ave

Article

disclosure disclosure of YES Bank the -

led led to the sharp

hey hiding the were

pping pointpping came when

businesses and facing some

reporting reporting the bad loans. They -

short short period of time, built an wastage wastage shown in books; High

,633 crore, its Rs and deposits were illion. The bank’s asset quality also led led Reliance group, DHFL and IL&FS. -

ntiated business model, with focus on

ion of financial reporting standards. largest private lender by market capitalization.

- either revenue or expenses, non h

– It It can include deliberate falsification of accounting •

- 2021

AUGUST include include Delay in finalization of accounts; Frequent changes in

KPMG Best Banks Annual Survey 2008. - enough enough capital given the loss of confidence in the market. The ti one of the bank’s independent directors Uttam Prakash citing issues. in 2020 January governance board Agarwal, resigned from the challenges challenges in their business like the Anil Ambani All this happened in companies performing hugewas in Yes Bank’s case, to add up and t Rana Kapoor’s tenure. The NPAs or misreporting the same. After the above exposure fiasco, Ravneet Gill took charge of Yes of loans Bank to but struggled such to revive bad as deposits kept depleting and he wasn’t able to raise 74,192 74,192 crore. Since then, the loan book has grown to nearly four times as much, at Rs 2.25 trillion as on September 30, 2019. While deposit growth failed to keep pace and increased at less than three times to worsened Rs 2.10 and tr it aggressively disregarding the risk limits came and also under under regulator were lending to corporates that were already in very risky RBI’s scanner. Yes bank was lending large large loans was centralised in his hands. He had the ambition largest private bank of the country. It was this ambition to which perhaps make downfall in fortunes of the bank, steeper than its banking industry. rise to an eminent position in the on bank’s was loan book 2014, The MarchRs 55 31, Business Today Whatto at a led Bank? has crisis YES Promoter of the bank, overwhelming Rana Kapoor image had, in industrialists over of the a country. the Most of the industry decision making on and key matters including had developed contacts with top YES Bank was once the country’s fift YES Bank was founded by Rana Kapoor and Ashok Kapoor in unexpected 2004. and sudden fall of Fraud YES Bank which led was emerging as to a good competition the to other private banks. The bank had technology, branches network, a retail loans etc. differe and was ranked number 1 bank in the investment in group companies; Profit not supported by practices trading Insider increased cash availability. Crisis Bank YES relevant relevant details from the the misapplicatfinancial or statements; financial statements, balances or disclosures Other from Indicators the accounting policies; Continuing losses; Over drawl of loans and advances; Higher cost per unit of production; High amount of losses or equipments, Fake Sales/Purchases, Inventory Shrinkage are some of the examples of fraud. asset misappropriation Financial Statement Fraud records; omission of transactions

• • STUDENT COMPANY STUDENT SECRETARY | UNDERSTANDING CORPORATE FRAUD WITH CASES RECENT OF HELP FRAUD SOME THE CORPORATE UNDERSTANDING Article 4

Letter of Undertaking (LOU) from Punjab National Bank was taken by Nirav Modi Modi issuedto illegal LOUs toNirav Modi by f Nirav by taken due started was mainly dispute The collaterals. Bank or limit credit sanctioned National a having without Punjab from (LOU) Undertaking of Letter f a six of for knowledge continued the with and years 2011 long year the in commenced forgery irregularities, and scam PNB The limelight. the into come has scam Bank National Punjab the in crores 11,300 the of one is Bank National Punjab Bank Case Punjab National crisis YES the bank behind of Several were: reasons iii. ii. b. a. Steps taken byRBI taken Steps against YES Bank d. c. i.

RBI announced a draft ‘Scheme of Reconstruction’ that entails SBI investing investing SBI entails that Reconstruction’ of acquirea49% restructured to the stake in capital lender. private ‘Scheme draft a announced RBI The has imposedamoratorium central onlender the Bankmanagement RBIYES over hastaken the September of end the at trillion 2.09 2019. Rs of book deposit a had bank The woes. its to added and sheet balance its burdened which deposits, of withdrawal steady Theb alonger over term. thebank depositors from in funds keeping withdrawals: Excessive scratch, was down asked tostep chiefJanuary 2019. as executivein the Kap Ranabank. the ofboard to governors, deputy former its of one Gandhi, R dispatch to RBI prompting 2018 In lender. deter citing quit Agarwal Prakash Uttam director independent 10, January On decline. issue Governance next 12 months. cent per 4.1 representing exposures, its of crore 10,000 the Rs 2019, about April classified In had 2019. bank September of as cent per 11.5 was DHFL and IL&FS to exposure total Services Bank’s YES (DHFL). Limited Financial Finance Housing Dewan & to extended Leasing Infrastructure of unravelling crisis NBFC April between NPAs gross 2019and September toRs17,134 crore. its in doubling dramatic capital a suffered its Bank address YES issues. to struggled subsequently bank The management. of change loans complete a impaired to led its that lapses in governance increase significant uncovered sharp and ratio a to led which 2018, and 2017 in reviews NPAs:

of its total loans under watch list, as potential non potential as list, watch under loans total its of oaig oprt gvrac sadrs n cmlac fiue t the at failure compliance and standards governance corporate iorating

E Bn rn no rul floig the following trouble into ran Bank YES Te rss n ni' shadow India's in crisis The : -

19, the bank under bank the 19,

: YES Bank faced several governance issues that led to its its to led that issues governance several faced Bank YES :

YES Bank’s financial condition dissuaded many many dissuaded condition financial Bank’s YES oor, who was instrumental in building YES Bank fromBank YES buildingin instrumental oor,was who largest public sector banks in India. The scam of Rs. Rs. of scam The India. in banks sector public largest wbnigofcas fPB I s cs where case a is It PNB. of officials banking ew

ew PNB banking officials. banking officials. ew PNB

- reported NPAs to the tune of Rs 3,277 crore, crore, 3,277 Rs of tune the to NPAs reported

AUGUST

- akn sae tre wt the with started space banking

2021

central bank's asset quality quality asset bank's central | STUDENT SECRETARY| COMPANY

- performing loans over the the over performingloans

(IL&FS) and then then and (IL&FS)

ank showed a isation

Article

CBI

ition before

f UK to take bailable bailable warrant

–

Nirav Modi in the Modi Nirav country.

– av Modi and Mehul Choskwi for

visions visions of PMLA based on the FIR

B r/w 420 of IPC, 1860 read with Section - umbai. and and cheating amounting to the tune Rs 11,300

Nirav Modi and his firm. and his firm. Modi Nirav

–

ence of the accused ence the accused of

billion from the house of Nirav Modi and his office

2021

AUGUST

rrested rrested in London by Scotland Yard Officers and produced before the

ernment of India sent a letter requesting the UK authorities to initiate Westminister Court. He applied for which was which applied was The Court. Westminister the He rejected by for accused Court. Nirav Modi was sent to March,2019 Her Majesty’s Prison (HMP), Wandsworth till 29th CBI CBI officials requested Interpol Manchester to detain presenceModi in the country. Nirav Modi about Nirav the pres UK authorities confirm In a British newspaper named as UK Daily Telegraph which published a report on Nirav Modi presence and incident roaming Enforcement in Directorate London streets. requested in the Modi UK Nirav court. action of proceeding on the extradition further After the knowing Government the o Government of UK took action on the request of the Government of India and the Westminister Court, London issued an arrest warrant against Nirav Modi Nirav Modi was a worth crores of money. of money. crores worth The Magistrate Court issued first bailable arrest warrant against Nirav Modi and Mehul Chowski. Enforcement Directorate on the same day filed a pet the Special Court, Mumbai for against the diamantaire (NBW) seeking issuance of a non Enforcement Directorate moves before the Special against Modi. Nirav proceeding Court to issue extradition Gov against Modi. proceeding Nirav extradition The Enforcement Directorate seized some movable assets like diamond, gold and movable some Enforcement seized assets gold Directorate The like diamond, jewellery worth Rs. 56.74 after an investigation into the matter arrested two employees of Punjab National Bank and detained one representation of Government of India Nirav suspended passport of Modi Nir Group. Simultaneously, PNB Scam. in the involvement the Subsequently, the Central Bureau of Investigation arrested the Officer Chief (CFO) Financial and two Senior Executives of Nirav Modi farmhouse at M Modi Alibaug, Nirav firm. It also sealed the CBI seized nine luxurious cars which belong to Nirav Modi and his firm which Punjab National Bank filed an FIR against Nirav Modi, Mehul Chowskhi an FIR againstPunjab Nirav filed Bank other and Modi, National Mehul Chowskhi charged with criminal conspiracy Crores Central Bureau of Investigation (CBI) was handed over the investigation into the matter The Enforcement Directorate (ED) had against Nirav Modi registered and others under a the pro money laundering registered by CBI under case Sections 120 PC Act, with of 1988 read 13(1)(d) 13(2)

o o o o o o o o o o o o o The The chronological dates on which the events and transaction concerning the scam took place as under: is briefed

STUDENT COMPANY STUDENT SECRETARY | Article 6

Infrastructure LeasingInfrastructure &Financial Limited Services (IL&FS) Case ofPNBFrau detection Action taken byRBI after o o o o

opne dfutd n eamns f aiu sot n long and short inter various of repayments in group certain defaulted Also, companies (SIDBI). India of Bank Development Industries Small short from a repay to unable subsidiaries was the Group of IL&FS one 2018, September early in Further, bonds. its on due repayments making in difficulty facing was IL&FS of arm road the 2018, July In and inter IL&F of was subsidiaries debt, the of two in 2018, September and crores 2018 July 91,000 Between crisis. liquidity Rs. severe a over facing approximately had which Group, IL&FS compan FinancialTransportation, Services. group of number a has large IL&FS companies). such in investment an holding (and companies group its to advances and loans giving of business the in engaged is and India of Bank IL& immediately. real a on accounts Nostro in transactions reconcile to banks the all ordered also RBI for India. imports into credits trade for FLCs LOUs/ of practice the discontinued India of Bank Reserve is he where from London, in Prison fighting for charges. extradition Wandsworth in currently is Modi Nirav ,2018.Act Offender Fugitive the under Court Mumbai the by Offender Fugitive as M Nirav Directorate, Enforcement by made plea the After the fixed hearing dates for 29th of further thematter.( ,2019) March offender r Court Westminister The the Central Government.the Central of petition the allowed 2019, 1, January dated judgment its vide NCLT The years. account of books the re seeking Act, Companies the of 130 NCLT, Section the under Bench before Mumbai petition dated a report filed interim Government SFIO Central the the 2018, and 30, ICAI November of findings facie prima the of view In restrained and the suspended membersfrom management as their personal alienating and members board IL&FS suspended NCLT The of cases the with deals 241 andoppressionmismanagement by company’s management. Section Tribunal). law Company (National NCLT before 2013 Act, Companies the of 242 and 241 Sections under application an move to Government Central the led market a financial the of in possibility effect contagion imminent the and debt its service to continuously failed IL&FS Si sseial motn oe netetCmaywt h Reserve the with Company Investment Core important systemically a is FS - ie ai s ta urcre ad lea tascin cn e i be can transactions illegal and unrecorded that so basis time - corporate deposits, – -

corporate deposits to banks/lenders.corporate to deposits Nirav Modi on the ground that he may not appear before the Court on on Court the before appear not may he that ground the on Modi Nirav

of IL&FS and its group companies for the past five financial five past the for companies group its and IL&FS of

Gop eotd aig rul i pyn bc loans back paying in trouble having reported Group S

and commercial papers. jce te al eiin f h acsd /fugitive accused the of petition bail the ejected

e ars vros etr sc a Energy, as such sectors various across ies

AUGUST - term loan of Rs. 1,000 crore taken taken crore 1,000 Rs. of loan term d

2021

| STUDENT SECRETARY| COMPANY

sets. sets. odi has been declared been has odi

- em deposits, term

- opening of opening dentified the

Article

- - 7 of

BSR and

warnings.

of the IL&FSof firms.

leveraged, besides failing to report Haskins Haskins and Sells as well as -

ctly regulated NBFCs. The IL&FS crisis has BFC, "Unscrupulous, negligent and dormant seeking seeking a vacation of the stay imposed by the

allowed the SFIO to reopen and recast accounts of

without its prior permission. its prior without

2021

and and their former auditors, under Section 140(5) of the

AUGUST ng into the rival contention of the parties, made it clear that due to the Supreme Court

S. The Ministry sought debarment of these audit firms and their audit payment of dues by IL&FS or its entities including the ‘Amber Companies’, - nitiate the recovery process debit and money. nitiate the recovery Wherever Wherever necessary, RBI is making deep dive numbers. sheet other and into their books, their balance The The auditors did not highlight the Reserve report, Bank which of India’s had (RBI’s) labelled inspection IFIN and key financial adverse negative ratios. cash flows as over RBI or any other entity did not stri the entities. concerns over management such raised of to prevent shocks. NBFC’s systemic is constantlyRBI monitoring RBI is monitoring top 50 NBFCs more closely. These 50 NBFCs represent 75% the sector. Supreme Court through its order passed on April passed through 29. itsSupreme order Court IL&FS hadn’t disclosed bad loans on its books for years despite a big part of its soured. having loan book As it was the shadow bank cause of failure. the main root were management decisions or N Poor fund management and controls as IL&FS lent projects. troubled and funds to insolvent entities to failed as they the auditors issue “Deficientby audit” conspiracy and misreporting the financial misreporting statements and conspiracy MCA moved against the auditors, Deloitte Associates LLP Companies Act, for their role in “perpetuating the fraud” at IFIN, a subsidiary of IL&F partners. It also sought interim attachment of their properties, lockers. accounts and including bank On June 4, IL&FS and two of its subsidiary companies for the last five years. The MCA had approached the Supreme Court without without goi non no financial institution will declare the accounts of IL&FS or its entities as Non (NPA) Assets Performing By its order dated May 2, 2019, NCLAT performing allowed assets the banks the to accounts declare as of non IL&FS defaulted on and payments. its However, group the companies tribunal clarified that i that have the banks cannot On May 30, 2019 SFIO submitted a chargesheet against 30 parties, including two auditor firms, for concealing information by not flagging the alleged criminal Upon an application filed by PTC India Financial Services Ltd, the NCLAT has,

Steps taken by RBI Reasons for Failure

STUDENT COMPANY STUDENT SECRETARY | Article 8

aedd n uut 06, rvnin f oe Ludrn At 02 Lka ad Lok and Lokpal 2002, Act Laundering Money of Prevention 2016), August in (amendedAct (Prohibition) Transactions Benami The (PCA); 1988 Act Corruption of Prevention anti of number a frauds, a become now have agencies enforcement the and years few past during unearthed were scams Many GOVERNMENT OF ROLE INCOMBATTING AGENCIES CORPORATE FRAUD

Reasons for failure: for Reasons Mr. India. across cities Founder Kumar isthe of Wadhawan Rajesh DHFL. major in branches with Mumbai in headquartered (DHF company, Limited Corporation Finance Housing Dewan DHFL Case • • • • • • • • • • • lert and proactive in monitoring instances of Corporate Fraud. To monitor various monitor To Fraud. Corporate of instances monitoring in proactive and lert

RBI lending bank hasallowed toregisteredfor NBFCs on policies. scrutiny deviation from oracomplete thecorporate security governance shows The diversion toshell of act promotors ofloanamounts in is case failureDHFL absolute ofCorporate Governance. providers Adjudicating to and Application Authority rules, 2019. (Insolven Bankruptcy and Insolvency the under Company the of resolution of process the initiated has RBI (RBI) superseded Indiadebt theboard of of Bank Reserve the concerns, Governance Corporate poor to Due acquire themsel assets. directors to their or loans companies the dubious since these used ring completely were associates which assets personal their and promoters The be assets. would loans dubious such of the recovery since impossible the that ensured DHFL of act The syphon to used then funds. These loansturned non outbe to were which firms, promoter to loans issue to their used were repaid already had who borrowers of using names branch, the one at established were accounts dummy lacs 6 Approximately DHFL.hidden ofthelender thename i.e. have companies shell repay the of and most that loan ensured also of They statements. terms financial the the disclosed adequately and not has collateral DHFL or security any without provided proceeds wereby for utilized creation. asset private were loans said The o thousands incorporated shellcompanies. to amounting Loan hassanctionedDHFL and funds paid and unsecured dubious in loans.

- corruption legislations have been enacted in India which includes includes which India in enacted been have legislations corruption

companies or their directors themselves do not own any any own not do themselves directors their or companies cy and Liquidation Proceedings of Finance Service Service Finance of Proceedings Liquidation and cy - laden DHFL.

coe o rpe wr gvn o newly to given were rupees of crores f

- AUGUST

recoverable end. the in

- fenced from the recovery process process recovery the from fenced

2021 ) s laig osn finance housing leading a is L) ves do not own any of these these of any own not do ves

| STUDENT SECRETARY| COMPANY

- lending toagriculture.

on. hs accounts These loans. company without

et n the in ment

1988 1988

Article

to deter economic

ts himself before the

rn toto India the face e sell and the properties.

from Indian courts has several deleterious stamps, dishonoring of cheques, benami oyees of the banks. There have been several hibition hibition of Benami Property transaction Act,

is person a against whom a warrant for arrest

to holdout against him from bygoing abroad the

en a rise in the number of banking frauds. The

ment of bank loans thereby worsening the financial f good times’ before he got into the controversies

repay - uled offense, which is above the value of 100 Crores, and 2021

economic economic offender AUGUST under the act primarily includes offenses listed under various Indian

He was once known as ‘the king starting right o from 2012 when his giant airline company closed down due to insolvency and subsequently failure to pay of banks approachedConsortium the SC the salaries of its employees. By March 2016, the offense offense must be over 100 Crore. In total counterfeiting this act lists currency out 55 and offenses which etc. insider trading laundering, money property, tax evasion, includes government relevant offenders caseEconomic and laws businessman of and Parliament. Indian a Vittal former Member an Vijay is Mallya had had been issued for any sched left India criminal a person had so as to avoid such prosecution. Scheduled offense statues (IPC, Negotiable Instrument Act, Pro Prevention of corruption Act, Companies Act, SEBI Act etc.) provided the value of the offenders offenders to the country. The act facilitates the recovery of by offenders empowering the investigative agenciesdues to confiscat from these economic It has come as a ray of hope for the offences. such of victims banks and financial institutions who are primary As per the act fugitive of of Indian courts, Parliament Act, 2018Offenders to economic that fugitive ensure retu offenders enacted a legislation, action namely, in accordance the with law. Fugitive The Economic said Prevention Act will of also Money facilitate the Laundering functioning Act, of the 2002. former will come to an end as The soon as the economic offender submi proceedings commenced under the jurisdiction of the Indian Courts. Thus, this is an act, to bring back the economic economic offences involve non health of the banking sector in India. The existing civil and criminal provisions in law are the problem. of inadequate the severity with to deal In order to address offenders thefrom evading the process said of Indian law by problem remaining outside the andjurisdiction lay down measures instances instances of economic offenders fleeing the jurisdiction of Indian courts anticipating the commencement of criminal proceedings or proceedings. sometimes The absence during of such offenders the pendency of consequences, such such as, it obstructs investigation in time criminal of courts and cases, it undermines it the rule of wastes law in India. precious Further, most of such cases of Fugitive Economic Offenders Act, Offenders 2018 Economic Fugitive Over the past few years, India has reason se behind the fraud can be attributed to various factors suchauthorities, as negligence of absence the of due corruption among the hierarchy of the empl diligence while giving out loans as well as rampant

STUDENT COMPANY STUDENT SECRETARY | 1. Ayukta Ayukta Act 2013, Foreign Contribution Regulation Act 2010 (FCRA) (amended in 2016), The Black Money (Undisclosed) Foreign Income Companies and Act, Assets 2013, Right and to Imposition Information Act of 2005 malpractices SEBI etc. by to curb framed Regulations market invarious the securities (RTI), Tax Indian Act Penal 201 Code 1860 (IPC), Article 10

3. 2.

clean its in aggressivelySEBI the by up taken were which examples few a are etc. Jet Spice and members; board Pharma Futures Group;Sun of Biyani Aptech;Kishore in tradingInsider However decade. a nearly in lowest its anddown isat rigginghas gone price suggest by SEBI share investigations that 2016 in 34 high The inception. its since years previous the of any in SEBI by detected cases of number the than higher is which 2018 (FY) year financial of detection to comes it When problems related toInsider severely Trading andreduced alsohas loopholes. of range wide a with deals it as appreciated much is 2015 Regulations, Trading Insider confid the build practices to trading insider and address the curb To to initiatives integrity. several taken market has SEBI affects concerns, these and confidence, investor erodes trading Insider by possession its Trading and Information (UPSI) Sensitive Insider Price Unpublished around curbing revolves probe trading in insider SEBI’s India of Board Exchange Practices and Securities of Role a mechanism not prejudicially affecteduse. onaccount ofsuch such uses who person a vigilance of interests functional the and that ensure adequate to and an mechanism has company the that ensure and ascertain also must They fraud. suspected or actual about concerns report shall directors Independent Audit appropriate cas Committeein the of Chairperson the to access direct for provision make shall It mechanism. such use who persons of victimization against safeguards adequate for provide shall mechanism emp and directors for vigilance a mechanism establish shall company listed Audit every company. that the monitor of to required auditor is the committee or board the to reported be shall fraud Immaterial mate report shall Auditors Go investigated by thelatter and vice versa. being case Central a regarding possess they the information share shall SFIO to company. the against report a prosecution initiate to submit SFIO direct may Government Central shall investigation. of conclusion SFIO possession. in the on material based guilty is he that believe to reason has it if individuals arrest to power has SFIO The SFIO. to assigned been has case the once Act, the under offence any of respect a in investigation with proceed shall agency investigating other No companies. to relating frauds investigate to (SFIO) Office Investigation Fraud Serious called office an establish to Government Central the empowers 2013, Act, Companies the of 211 Section (SFIO) InvestigationSerious Office Fraud FEO new the under offender 2018Act, economic fugitive first the became He India. left he time, - up drive.

- 7 wih a jme t 7 i 2018 in 70 to jumped has which 17,

ne f h ivsos h ae netn i te nin market. Indian the in investing are who investors the of ence - 9 n 2019 and 19

est number of insider trading cases which SEBI detected was was detected SEBI which cases trading insider of number est , insider trading is on the rise. Among others, detection of detection others, Among rise. the on is trading insider , rial fraud to the Central Government within 30 days. days. 30 within Government Central the to fraud rial niis ht ae rdd n h sok n ter linkages. their and stock the in traded have that entities

insider trading cases, in the two years including the the including years two the in cases, trading insider es. es. oes o eot eun cnen. h vigilance The concerns. genuine report to loyees

- 0 SB dtce 19 ae o isdr trading, insider of cases 119 detected SEBI 20,

AUGUST

- 9 n 4 i 2019 in 49 and 19

2021

| STUDENT SECRETARY| COMPANY

- 20. Trends in in Trends 20. enet on vernment

case in case

re re

Article

11 n nt ill, ting

active fraud

Independent Independent Director

f India (SEBI) for listed

tities, there is additional fencing by

otion plans, unpublished price sensitive information,

active measures of risk mitigation. of risk active measures - that the company has an adequate and functional vigil 2021

conduct or ethicsconduct or policy;

AUGUST Executive Executive Director who does not have a material or pecuniary relationship with t function of the board and improve its effectiveness. An - Not disclose confidential information, including commercial secrets, technologies, advertising and sales prom or law. required by the Board by approved is disclosure expressly unless such Report Report about unethical behavior, actual of code company’s or suspected fraud or violation Act of the within his authority, itsand employees; company, shareholders assist in protecting the legitimate interests of the Ascertain and ensure mechanism and the interests of such on account use; affected of a person who uses such mechanism are not

xplicitly, ignorance of the parameters of either will no longer be a defense. no longer either the parameters will xplicitly, of of ignorance information information for use as evidence in court. A Forensic Audit can be conducted in order to prosecute a party for fraud, embezzlement or other financial claims. has Forensic taken audi an important role in both private and public organizations since the dawn of the 21st century especially in the advance economies. The catastrophe of some formerly prominent public companies such as Enron and WorldCom incidence of (MCI frauds taken Inc.) place in and the corporates the including PNB, rece IL&FS etc. have fueled 4. frauds Unearthing Audit in Role of Forensic Forensic Audit is an examination and evaluation of a firm’s or individual’s financial 2. 3. Duties of independent director for prevention of fraud preventionDuties directorof independent for Director should:Independent 1. experience, independence and knowledge of the corporate and assigned with the task to monitor and guide credibility the and accountability and also play a significant Board role by acting as a watchdog in i various risk committees constituted by the management, company to ensure good Corporate thereby Governance image company enhancing or inand the the corporate business world. improving corporate The The Satyam case has brought out the failure of the corporate governance structure that hinges on the Independent Directors, oversigh who are supposed to bring is a Non objectivity to the company, fees, except but sitting is one who is appropriate with enriched balance of sk The The provisions of the Companies Act, 2013 require companies to have risk pro management policies. safeguards against The fraud and Act reminds Objections them must of requires be their documented, and whistleblowing independent now responsibilities. e that the directors Act defines to fraud and safeguards increase 2013 2013 and the regulations of the Securities companies where key emphasis Exchange is given to the frauds by Board recognizing it as a o key risk and has placed the accountability of the effective risk management on the Board of directors and the senior management. In the case of listed en ‘Audit Committee’ where independent pro take and checks necessary directors on the board of directors to have Role of Independent Director and Audit Committee Director Role of Independent The corporate governance norms have been strengthened by the new Companies Act,

STUDENT COMPANY STUDENT SECRETARY | 2. ROLE OF GOVERNANCE PROFESSIONALS IN UNEARTHING CORPORATE FRAUDS IN UNEARTHING CORPORATE PROFESSIONALS ROLE OF GOVERNANCE 1. Article 12

7. 6. 5. 4. 3.

detect errors and frauds, and to safeguard the organisation’s resources. These controls These resources. organisation’s the safeguard to and frauds, and errors detect organi an in controls internal The systemInternal control by theorganisation. with dealt be will it how and fraud, of prevention and detection for measures the fraud, base the as act also lo will will policy one The where and employees the for programs training frauds. organisational the all for document corporate with dealing in organisation organi Every fraud for policy Formal prevention theirand measures order preventive employeesin in the todiscourage modus operandi. balances and checks the of care financial take may which of committee, monitoring fieldfraud separate in are which companies some in but Committee, Audit the by of care taken be may aspects related fraud the Although that structure MonitoringFraud Committee governance the and framework, compliance supports it. and Corporation’s the management Corporation, the risk of appetite risk the to regard with responsibilities oversight its fulfilling in Directors of Board the assist will Committee Management Risk t oversee to directors of board by formed committee the is Committee Management Risk for Risk Committee Management hotline dedicated hotline whistleblower a a with theirfraudstrategy. integratedrisk management have today companies Adopting Many fraud. of instances information. or of probab of kind any report to use can confidentiality employees the which whistleblowers the to and whistleblowers maintain the protect to place in be should policy whistleblower strong A those of attention the bring to a who charge arein investigate to order in etc. frauds, wrongdoing, suspected illegal or of information activity of passing or disclosure a makes consultant, or employee an like a when used is ‘whistleblowing’ term The Good of principles premier Whistleblowing mechanism rationalize to corporates the Governance. the in for Audit Forensic of time significance board the on contemporary realizes take This they record. track people their the on that blotches sure make to companies multinational and Indian prompting as are stakes searches increasing and leadership norms governance top corporate for stringent frequent increasingly becoming is It scams. Penalization and and frauds Regulation Prevention, the the in of aiding health financial through ensuring companies times, contemporary the in tool apt an audit Forensic fraud,and operational and discovery adherence central to assets, hidden regulations. of fi mostly target procedures auditing Forensic economy. of growth inclusive corporates and the of growth directed the ensuring for auditing forensic of importance the he risk management policy and global risk management frameworkhe risk policy management and management thebusiness. global risk of ok for what to do in a given situation. It is a comprehensive document that defines that document comprehensive a is It situation. given a in do to what for ok

sation has to put in place a policy that will define how the philosophy of the the of philosophy the how define will that policy a place in put to has sation

nd resolve same. the sation attempt to detect any kind of wrongdoings, wrongdoings, of kind any detect to attempt sation

person, mostly an insider of an organization an of insider an mostly person,

AUGUST evcs tee a b ne o the of need be may there services,

2021

| STUDENT SECRETARY| COMPANY

le wrongdoing le

of financial financial of ae no have nancial nancial

Article

nd nd -

are - 2018/ -

- - act - guilty

- Fraud - indian how AML.pdf - - -

e fraud. The role of offenders

- study - /satyam

case

Recognizing

governance - - - economic policy - -

Fraud - corporate fugitive

- - .

learn

***

gement.

law/lesson -

2021

- content/uploads/2021/05/ILFS - standard.com/article/economy - AUGUST

icai.org/images/material/Types -

directors - perspective.html KR.pdf - -

basis which gives a true and unbiased opinion on the existing internal control

ic can only be estimated, as many crimes go unreported. It is truly said that independent - 109011201009_1.html#:~:text=The%20Satyam%20episode%20has%20brought,board %20and%20improve%20its%20effectiveness https://allindialegalforum.in/2020/07/02/the http://www.lawstreetindia.com/experts/column?sid=488 https://grm.institute/wp https://taxguru.in/corporate corporates https://www.business the https://www.wirc Indicators https://shodhganga.inflibnet.ac.in/handle/10603/330129 http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=17890 audit audit of control mechanisms, butperiodic an independent audit should will fraud. prevent potential of any mechanism which chances be conducted on a should should be dynamic which evolves and adapt to the changes in the business mana to fraud effectively respond in order to A comprehensive review of risks strengthen the has internal to control systems. be Though made most organisations by have the an internal management in order to

o o o o o o o o STUDENT COMPANY STUDENT SECRETARY | all employees of the professionals organization is also in equally important. order The duty to of the Secretarial Auditor is combat auditor to provide a either true and fair picture Financial of the the company and Auditor detect the default or corporat in the company. fraud and REFERENCES and and the publ ‘Necessity is the mother of Invention’. Increasing number of corporate frauds has alarmed the Government to follow strict implementation effective of role of laws, investigating agencies. Apart proper from the investigation role of government procedure and investigating agencies, effort must a concerted be exerted by the management, by and the external auditors, a CONCLUSION Corproate Frauds have increased considerably over the last ten years. The cost to business