Serious Fraud Investigation Office (SFIO) - Section 211 & 212 Of Companies Act 2013

What is the Serious Fraud Investigation Office (SFIO)?

The Serious Fraud Investigation Office (SFIO) is an Indian statutory corporate fraud investigation authority. Originally, it was established by a resolution passed by the Government of India on 2 July 2003, and it conducted investigations within the existing legal framework established by Sections 235 to 247 of the former Companies Act, 1956. Eventually, Section 211 of the Companies Act of 2013 provided legislative status to the Serious Fraud Investigation Office (SFIO).

It is overseen largely by members of the Indian Administrative Service, Indian Police Service, Indian Corporate Law Service, Indian Revenue Service, and other central government agencies under the jurisdiction of the Ministry of Corporate Affairs, Government of India. The SFIO is a fraud investigation agency established under the Companies Act of 2013 which has the principal occupation of investigating severe, sophisticated frauds committed by persons and/or entities. It is a regulatory agency particularly tasked with resolving and prosecuting white-collar crimes.

Responsibilities of Serious Fraud Investigation Office

(a) Detecting and prosecuting or recommending for prosecution white-collar crimes/corporate frauds

(b) The SFIO will normally take up for investigation only such cases, which are 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 persons affected, and;

- the possibility of investigation leading to or contributing towards a clear improvement in systems, laws, or procedures. The SFIO shall investigate serious cases of fraud received from the Department of Company Affairs.

Establishment of Serious Fraud Investigation Office

Section 211 of the Companies Act 2013

Section 211 of the Companies Act 2013 deals with the Establishment of the Serious Fraud Investigation Office. The Central Government shall establish an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a company: The SFIO shall be headed by a Director and consist of such number of experts from the following fields to be appointed by the Central Government

(a) Banking,

(b) Corporate Affairs,

(c) Taxation,

(d) Forensic audit

(e) Capital Market,

(f) Information Technology,

(g) Law, or

(h) Other fields.

The Central Government shall appoint a Director in the Serious Fraud Investigation Office, who shall be an officer not below the rank of a Joint Secretary to the Government of India having knowledge and experience in dealing with matters relating to corporate affairs.

Investigation into the affairs of the company by SFIO

Section 212 of the Companies Act 2013

Section 212 of the Companies Act 2013 deals with the investigation into the affairs of the company by SFIO The Central Government may by order assign an investigation into the affairs of a company –

(a) On receipt of a report of the Registrar or inspector under Section 208;

(b) On intimation of a Special Resolution passed by a company that its affairs are required to be investigated;

(c) In the public interest, or

(d) On request from any department of Central Government or State Government.

If a case has been assigned to the Serious Fraud Investigation Office for investigation, the case shall not be investigated by any other department of Central Government or State Government and all existing investigations shall also be transferred to the Serious Fraud Investigation Office.

Under Section 212(3), if the Central Government has directed the SFIO to investigate the affairs of a corporation, the SFIO must undertake the inquiry and submit its findings within the time frame provided in the Central Government order.

The SFIO, on the other hand, has no time constraint under the 2013 Act for completing the investigation and submitting the investigation report. This brings up the question of whether the SFIO’s mandate would be terminated if the investigation report is not submitted within the timeframe set in the Central Government decree. It is determined that the period mentioned in the order is merely advisory and not necessary. The authority to investigate shall not be terminated when the time limit provided by the Central Government has expired. According to the Companies Act, 2013, the SFIO shall submit an “interim” report if necessary, or a report “on completion of the investigation” to the Central Government.

Section 212(14) provides that upon receipt and after reviewing the investigation report, the Central Government may instruct the SFIO to start prosecution against the corporation and its executives or employees, provided that there is sufficient reason to sustain a charge. The investigation report filed with the Special Court for framing charges must be assumed to be a report filed by a police officer under Section 173 of the Criminal Procedure Code (“CrPC”) which is often referred to as the “charge sheet”.