Serious Fraud Investigation Office (SFIO)
Serious Fraud Investigation Office (SFIO) was set up by the Government of India in the Ministry of corporate Affairs by way of a resolution dated 2nd July 2003 (Resolution No. 45011/16/2003-Adm-I) and was later given formal legal status vide Section 211 of the Companies Act, 2013. This office was set up to investigate corporate frauds of very serious and complex nature. SFIO is a multidisciplinary investigating agency, wherein experts from (i) banking; (ii) corporate affairs; (iii) taxation; (iv) forensic audit; (v) capital market; (vi) information technology; (vii) law; or (viii) such other fields as may be prescribed, work together to unravel a corporate fraud. The mandate of SFIO is limited to investigating frauds relating to a company under the Companies Act and its investigation is considered separate from other normal investigation into the affairs of the company.
As per the resolution of 2nd July 2003, SFIO is to take up only investigation of frauds characterized by:
- complexity, and having inter-departmental and multi-disciplinary ramifications:
- substantial involvement of public interest to be judged by size, either in terms of monetary misappropriation, or in terms of the persons affected, and
- the possibility of investigations leading to, or contributing towards, a clear improvement in systems, laws or procedures.
The Central Government may, by order, assign the investigation into the affairs of a company to the SFIO if it comes to that opinion based
- on receipt of a report of the Registrar or inspector under section 208 of the Companies Act, 2013;
- on intimation of a special resolution passed by a company that its affairs are required to be investigated;
- in the public interest; or
- on request from any Department of the Central Government or a State Government,
Thus, SFIO gets into the investigation only upon receiving an order from the central government in this regard. In other words, it cannot take up cases suo moto. Further, if any case has been assigned by the Central Government to the SFIO for investigation under Companies Act, 2013 no other investigating agency of the Central Government or any State Government can proceed with investigation in such cases and in case any such investigation has already been initiated, it cannot be proceeded further with, and the concerned agency have to transfer the relevant documents and records in respect of such offences to Serious Fraud Investigation Office.
SFIO was set up in the backdrop of stock market scams of 2000-02, failure of non financial banking companies, phenomena of vanishing companies and plantation companies. The Government approved setting up of this organization on 9th January 2003 on the basis of the recommendations made by the Naresh Chandra Committee which was set up by the government on 21st August 2002 on corporate governance. SFIO started functioning from 1st October 2003.
Pursuant to directions issued by the Government, the Serious Fraud Investigation Office had set up Market Research and Analysis Unit (MRAU) on 20.08.09 for collection of background information with a view to look for early signs of corporate fraud and to analyse and imbibe the best procedures and systems followed in other countries.
Initially SFIO did not enjoy a formal legal status. It carried out investigations in the alleged frauds within the existing legal framework under section 235 to 247 of the erstwhile Companies Act, 1956 - as an executive agency on behalf of the Central Government or a Court of competent jurisdiction. There is no reference of SFIO in the Companies Act, 1956, though various officers of SFIO have been authorized under Section 621 of the Companies Act, 1956 (as person authorized by Central Government) to file complaints against defaulting companies.
SFIO got statutory recognition once the new Companies Act, 2013 was enacted. In the new Companies Act, 2013, powers such as treating the investigation reports filed by SFIO officers as a report filed by a Police Officer, powers to arrest the suspected, powers to issue letter of requests (Letters Rogatory) in cases involving companies having business / interests outside the country etc. are granted. (The Companies Act 1956 did not have any provision for investigation/collection of evidence in the case of transactions and persons based outside India. Other investigating agencies like CBI and Enforcement Directorate have got these powers. Wherever required, the matter of international ramifications were referred to CBI and / or Enforcement Directorate and both these agencies were looking into the issue of defaulting companies abroad.)