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The new Companies Act is ushering in a fresh approach to tackling fraud. Yogesh Chande and Manendra Singh of Economic Laws Practice summarize the changes and discuss what they mean for companies in India

The Companies Act, 2013, has introduced several provisions aimed at battling fraud. One key change is that the Serious Fraud Investigation Office (SFIO), a body that was established in 2003 by the Ministry of Corporate Affairs following the Satyam debacle, has been granted statutory powers. As such, it can make arrests and order the seizure of documents, books and accounts.

The act has also reformed the manner in which the inspection, investigation and inquiry into potential fraud will be carried out.

Defining ‘corporate fraud’

The previous Companies Act, which came into law in 1956, was silent on the definition of “fraud”. Instead it detailed the circumstances under which penalties could be imposed for acts of fraud; for example, misstatements in a prospectus (section 63) or fraud committed during the winding up of a company (section 540). The term “fraud” is actually defined under the Indian Penal Code, 1860, and as such, perpetrators of such crimes would ordinarily have been prosecuted under this code. However, a successful prosecution under the Indian Penal Code was difficult and required proof of elements of the crime; in other words proof of intention as well as action in furtherance of the intention.

14Section 447 of the new Companies Act provides a comprehensive definition of fraud. It is defined as follows: “Any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss”.

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Yogesh Chande is an associate partner at Economic Laws Practice in Mumbai, where Manendra Singh is an associate. This article is intended for informational purposes and does not constitute a legal opinion or advice.

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YogeshChande@elp-in.com
ManendraSingh@elp-in.com

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