Factors Leading to
Corporate Frauds and the Measures Taken by the Government to Check them
The Government has said that the reports appearing in a
section of media indicate that a Section 25 Company, “Thought Arbitrage Research
Institute” has published a study indicating inter alia occurrence of frauds in
companies due to factors like inadequate internal control procedures, diversion
of funds by promoters/ top management, failure of audit in detection of frauds,
etc. These factors are in any case widely recognised causes of frauds in
companies. Giving this information in written reply to a question in the Lok
Sabha, Shri Sachin Pilot, Minister of Corporate Affairs, said that the
Government have initiated a number of measures to prevent and deal with
occurrence of frauds in the companies. Attention may, in particular, be invited
to the following:
• Creation of “Fraud” as a substantive offence in the
recently passed Companies Bill, 2013;
• Stricter norms of Corporate
Governance and their implementation in the Companies Bill;
• Statutory
status to the Serious Fraud Investigation Office (SFIO);
• Amendments
in securities laws through Securities Laws (Amendments) Ordinance amending the
Securities and Exchange Board of India (SEBI) Act, the Securities Contracts
(Regulation) Act (SCRA) and the Depositories Act enabling SEBI to deal
effectively to violations of laws by companies and individuals including those
running Ponzi schemes;
• Increasing application of technology for early
detection of frauds though data mining and Forensic Audit, etc.
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