SFIO: Will hold you by your (White) Collar!

Insights – SFIO: Will hold you by your (White) Collar!


The opening up of the economy internationally has indeed made the world a small place to live in. We have witnessed remarkable rise of many corporates world over in a short span of time. However, not all such success stories are legitimate. Over the last few decades there has been unprecedented increase in corporate or white collared crimes. These seem to be the unwanted by-product of economic growth and prosperity.

How can crime be “white” collared?!

It was probably not the intention to classify crime like the caste system, race or religion. Generally crimes or frauds committed by person of respectability and high social status in the course of their occupation has come to be termed as “white collared” crimes – as there is no violence or physical force involved. However, there is loss of trust.

This has become a worldwide phenomenon. Globally, the Enron scandal rocked the world in 2001. This was followed by the scam of the Lehman brothers in 2008.

Back home, the Harshad Mehta scam in 1991-92 shook India out of its slumber as it resulted in investor loss of approximately Rs. 5,000 crores. This led to the complete collapse of stock markets and eventual arrest and ban of Mr. Mehta from stock broking.

More recently, India has witnessed a spate of unsavoury scams and corporate scandals with quite a few of them having political connections / ramifications.

(In) famous corporate scams in India

Insights – SFIO: Will hold you by your (White) Collar!

The birth of the SFIO

In the light of rising corporate frauds and scams, the government set up a Committee on Corporate Governance under the Chairmanship of Shri Naresh Chandra, former Cabinet Secretary. The Naresh Chandra Committee inter-alia recommended setting up of the Serious Fraud investigation Office (SFIO). The organisation has been established in 2003.

Key highlights of the SFIO

  1. A multi-disciplinary organisation established for detecting and prosecuting or recommending for prosecution white collar crimes/frauds.
  1. Under the jurisdiction of the Ministry of Corporate Affairs.
  1. Consists of experts in the field of accountancy, forensic auditing, banking, law, information technology, investigation, company law, capital market and taxation etc.
  1. Will investigate serious cases of fraud received from Department of Company Affairs. SFIO may also take up cases on its own at the discretion of the Director who is in the rank of Joint Secretary to the government of India.
  1. The SFIO would make investigations under the provisions of the Companies Act and forward the investigated reports on violations of the provisions of other acts to the concerned agencies for prosecution/appropriate action.
  1. The SFIO will normally take up for investigation only such cases, which are highly complex and have bearing on many legislations and department / agencies. Substantial public interest is at stake in such cases.
  1. Cases referred to SFIO shall be investigated only by it and not by any other investigating agency or department of the Government. Further action by other agencies can be taken only after the SFIO submits its report to the Central government.

Insights – SFIO: Will hold you by your (White) Collar!

Role of SFIO in some of the most high profile corporate frauds / scams

YearCorporate house ChargesThe SFIO Investigation
2012 - presentKingfisher groupMoney laundering; financial irregularities; wilful default on account of non-repayment of approximately Rs. 9,000 crores borrowed from a consortium of Banks. Investigating Kingfisher Airlines for financial irregularities and fund diversion since September 2015. It is also looking into Kingfisher Airlines' brand valuation on the basis of which loans may have been extended to the company.1
2010 - presentSahara groupSahara Group was accused of failing to refund over Rs. 20,000 crore to its more than 30 million small investors which it collected through two unlisted companies of Sahara.u00a0Such issue was not in compliance with the requirements applicable to the public offerings of securities.
2014 - presentSaradha Chit FundAround Rs. 200 to 300 billion from investors with a promise of high returns for their investments. The company which enjoyed strong political backings collapsed in April 2013. The amount investors lost is estimated to be between Rs. 2060 - 2400 crores.The SFIO investigation into 14 Saradha group firms concluded that the companies have been found to be running 'ponzi schemes' and would face prosecution for violation of several laws including the Chit Fund act, thee Companies Act, IPC etc.
2012Reebok IndiaCommercial irregularities to the tune of 870 crores came to light. The senior management was under the scanner for misappropriation of funds, inventory diversion and inflation of sales.The SFIO charge sheeted the senior management involved in the irregularities and also found dissatisfactory the investigation by the audit firm.
2009Satyam ComputersThe promoter admitted to inflating the company revenue, profit and profit margins for every single quarter over a period of 5 years, from 2003-2008. The amount embezzled was estimated to be around Rs. 7,200 crore.The SFIO completed its investigation with a record 3 months. The report submitted severely indicted the auditors and held that the independent auditors were mere spectators. This along with independent investigations carried out the CBI and the Enforcement Directorate resulted in conviction and arrest of the promoters.

Insights – SFIO: Will hold you by your (White) Collar!

The SFIO struggle

The SFIO was established as premier, one stop shop investigating agency of the government to detect, investigate and prevent frauds in the Indian corporate world. However, their track record of investigation can be far better than it currently is. While it investigated the above cases especially the Satyam case and the Reebok case at breakneck speed, there have been substantial delay in other cases. This is not very reassuring to the investor at a time when instances of insider trading, financial inflation and related frauds are on the rise. There seem to be many factors contributing to this oxymoron situation. The biggest challenge seems to be manpower. For a multi-disciplinary agency, recruitment of the credible professionals is a challenge. The Rules for such recruitments are not objectively defined.

Additionally, being under the jurisdiction of the Central Ministry the SFIO is dependent on the directions provided by the Department. The SFIO can investigate only when the MCA directs for an investigation and subsequent prosecution. Also the SFIO’s role is to detect fraud rather than prevent it. Therefore, it is essential to also device checks and balance to unearth a possible fraud at an earlier stage. Therefore, in an effort to identify fraudulent activities at an early stage, Market Research & Analysis Unit (MRAU) of SFIO has been established. This wing analyses information in public domain as well as inputs received from various other sources. In house forensic labs of MRAU have been set up to investigate digital data.

The end result

The basic human emotions of greed, power and intention lies at the bottom of these scams and scandals. The challenges have become manifold now with technology aiding such intentions. Agencies such as the SFIO have been created primarily to detect, investigate bring to book the perpetrators. However, a more resources and power have to be given to such agencies to perform to their maximum potential.


  1. Livemint
  2. Black’s Law Dictionary

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