Fraud
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The document outlines the provisions of the Companies Act, 2013 related to fraud, emphasizing that fraud is defined as gaining unjust advantages or inflicting loss unlawfully, which can lead to severe penalties. It details various fraudulent acts, such as misrepresentation in company documents, false statements during incorporation, and the responsibilities of company officers in these cases, as well as the statutory penalties, including imprisonment and fines. Recommendations are made for improving fraud detection through education, internal controls, and audit practices.
Fraud
- 1. BlueLotus Strategy Consulting © BlueLotus Strategy Consulting © FRAUD CURBING ECONOMIC CRIMES AS PER NEW COMPANIES ACT , 2013
- 2. BlueLotus Strategy Consulting © Section 447- FRAUD Wrongful gain “Gain by unlawful means to which gainer is not entitled” Wrongful loss “Loss by unlawful means to which loser is legally entitled” Any act/omission/concealment of any fact or Abuse of position Committed by any person or other person with connivance with intent to • Deceive/gain undue advantage • Injure interest of • Company • Shareholders • Creditors • Third party Whether or not there is wrongful gain or loss
- 3. BlueLotus Strategy Consulting © Section 448- PUNISHMENT FOR FRAUD PROTECTING PUBLIC INTEREST “If the fraud involves public interest the penalty shall not be less than 3 years of imprisonment” Statutory body for reporting Fraud: Serious Fraud Investigation Office Criminal Liability- Imprisonment Minimum- 6 months Maximum- 10 years and Civil Liability- Fine Minimum- Amount of Fraud Maximum- 3 times of amount involved in Fraud It should be noted herewith that penalty is non compoundable
- 4. BlueLotus Strategy Consulting © OBJECTIVE BEHIND INTRODUCTION OF FRAUD To curb the following: Corrupt Practices Deceit Conflicts of Interest Bribery
- 5. BlueLotus Strategy Consulting © ACTS AMOUNTING TO FRAUD Incorporation of Company with charitable object- Section 8(11) If affairs of the company are conducted fraudulently Every officer in default is liable Incorporation of Company –Section 7(5) & (6) At the time of incorporation Furnishing false or incorrect information After the incorporation Any false statement is submitted by promoters/first directors/person making declaration, comes into notice Every person making such declaration is liable
- 6. BlueLotus Strategy Consulting © ACTS AMOUNTING TO FRAUD For fraudulently inducing any person to invest money- Section 36 If any person is making statement or promise to another person to induce him into an agreement for: Underwriting of securities Earning profits by fluctuation of value of securities Obtaining credit facility from bank or public financial institution Such person is liable for the penal actions under section 448 Misrepresentation in prospectus- Section 34 If prospectus carrying any untrue or misleading statement or context Every person who is authorized for issue of prospectus Exception If the officer in default proves that such statement or omission was immaterial
- 7. BlueLotus Strategy Consulting © ACTS AMOUNTING TO FRAUD Issue of Certificate of shares- Section 46(5) Issue of duplicate shares by company with intent to Defraud Deceive Every officer of the company who is in default is liable For Personation for acquisition of securities- Section 38(1) The person shall be liable for: Making an application in fictitious name for acquisition of securities Making multiple application in different fictitious names for acquisition of securities Induce a company to allot or transfer securities in the name of other person which is fictitious
- 8. BlueLotus Strategy Consulting © ACTS AMOUNTING TO FRAUD Reduction of Share Capital- Section 66(10) Knowingly concealment of name of any creditor Knowingly misrepresent the amount of claim of any creditor Every officer of the company who is in default shall be liable under fraud Transfer and Transmission of Securities- Section 56(7) If Depositor and Depository Participants transfer any shares with intent to Defraud Deceive any person Every such Depository and Depository Participant is liable under fraud
- 9. BlueLotus Strategy Consulting © ACTS AMOUNTING TO FRAUD Furnishing of false statement, multilation, destruction of documents-Section 229 Furnishing any false statement Destruction/tempering of any document Concealment of any facts During investigation proceedings Every officer of the company who is in default shall be liable under fraud Repayments of Deposits- Section 75(1) Company fails to repay deposit and interest thereon within specified time period Deposits had been accepted with intent to defraud depositor Every officer in default is liable without any limitation of liability as prescribed under section 448
- 10. BlueLotus Strategy Consulting © ACTS AMOUNTING TO FRAUD Removal, Resignation and Furnishing special notice to Auditors- Section 140(5) Tribunal either suo moto or an application by central government or any other person, satisfied that the auditor has acted fraudulently, it can direct the company to change its auditors Tribunal can pass the order for change of auditor within 15days of receipt of such application Auditor against whom final order has been passed shall not be eligible for appointment as an auditor in any company for a period of 5 years from the date of order and liable under section 447. Investigation into company’s affairs Section 213 (provisio) if after investigation it has been proved that Business is being conducted to defraud its creditors, members or any other person Any person concerned in formation of company or management of its affairs have been guilty of any fraud Every officer in default and persons concerned for incorporation or management of affairs is liable
- 11. BlueLotus Strategy Consulting © On the basis of this we can say that there is a need •educate and train independent directors and audit committees •set up robust internal controls to identify, prevent and report fraud •use of information technology for monitoring •use of internal audit to strengthen internal control systems •Specifying strong code of conduct and ethics policies for all KMP and employees
- 12. BlueLotus Strategy Consulting © www.bluelotusstrategy.com