The Companies Act 2013 (the Companies Act) changed the philosophy of corporate governance as traditionally understood in India. It brought in stringent standards and created a new offence of fraud (with a very broad and sweeping definition) that covers a variety of situations and extends liability to companies, their officers, key management persons (KMPs), auditors, directors, etc. Separately, more traditional offences relating to corporate conduct, such as bribery, money laundering, cheating, criminal breach of trust and criminal conspiracy, continue to apply.

The Serious Fraud Investigation Office (SFIO), the government's white-collar crime investigation agency, was established under the Companies Act to investigate corporate fraud. The relevant sectoral regulators, including the Securities and Exchange Board of India in relation to capital markets and the Competition Commission of India (CCI) in relation to competition matters, also hold investigative powers. However, these investigating agencies do not have the power to prosecute or assist a separate prosecution wing for prosecuting individuals and companies.

Under the Indian federal structure, the power to investigate vests with central and state agencies. Agencies such the Central Bureau of Investigation (CBI), the Enforcement Directorate (within the Ministry of Finance) (ED), the Anti-Corruption Bureau of the state governments, apart from the Economic Offences Wing of police departments, are also empowered to investigate and prosecute corporate conduct that may be implicated in offences.

Statutory powers of investigation and inspection of premises, including seizures of books, papers and documents, have been provided for under taxation laws and corporate laws to aid information gathering and to prevent destruction of documents and evidence by companies under investigation. Similarly, under the Competition Act 2002 (the Competition Act) the director general also has wide search and seizure powers in connection with the investigation of an offence by the CCI.

The powers of these investigating authorities, acting through an investigating officer, include the power to arrest an individual and carry out search and seizure of premises that are suspected of containing evidence of crime or proceeds of crime. The ED, investigating offences under the Prevention of Money Laundering Act 2002 (PMLA), has additional powers to provisionally attach 'proceeds of crime', which may be the property involved in the crime or any property into which the proceeds of crime have been converted.

In recognition of the need to instil complete transparency, the ombudsman under the Central Vigilance Commission has been given the power of superintendence over the CBI under the Central Vigilance Commission Act, 2003.

It is of utmost importance that any business under investigation fully cooperates with the authorities, of course, without needlessly compromising its rights. Failure to cooperate may have consequences, such as arrest, in the immediate term and, in the long run may affect defence. On balance, it is important to adopt some of the best practices, such as claiming legitimate privilege, confidentiality and right against self-incrimination. The KMPs and other officers of a business are required to appear personally before the investigating officer for interrogation, during which time, typically, constant access to lawyers is not allowed. An adversarial stand during investigation is risky from both commercial and individual points of view.


i Self-reporting

There is no express obligation per se on companies to self-report instances of internal wrongdoing or fraud. An external reporting mandate is imposed upon auditors, practising company secretaries performing a secretarial audit or upon a cost accountant who is performing a cost audit, each in accordance with the provisions of the Companies Act.

In terms of the Companies Act, the board of directors of a company is under an obligation to ensure that proper and sufficient care is taken for the maintenance of adequate accounting records, for safeguarding the assets of the company, and for preventing and detecting fraud. It is also under the obligation to ensure that the financial statements of the company reflect a 'true and fair view'. This includes a mandate to disclose all frauds reported to the audit committee or the board of directors in its financial statements. Also, where there is a finding of fraud or other internal wrongdoing that renders the financial statements untrue, the board of directors can, once every year, file restated financial statements with the prior approval of the National Company Law Tribunal,2 providing details of the reasons for doing so. A restatement would, of course, not absolve the company or the concerned persons from liability as per the law.

Further, in relation to listed companies, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR), inter alia, impose disclosure requirements on listed companies with respect to events that may materially affect the price of their securities, which include instances of fraud by promoters, KMPs or employees. These must be reported in line with the disclosure requirements under the LODR.

Separately, the management of scheduled commercial banks and non-banking financial companies are under an obligation to mandatorily report instances of fraud to the Reserve Bank of India.

Currently, there is nothing stipulated in the law in terms of leniency towards companies (and their officers and KMPs) that voluntarily report fraud and other instances of wrongdoing to the authorities. Accordingly, any leniency that is extended by the authorities will be strictly discretionary and will depend entirely on the facts and circumstances of the particular case.

However, an exception to this principle is under competition law. Section 46 of the Competition Act read with the CCI (Lesser Penalty) Regulations 2009 (the Regulations) allow the CCI to impose a lesser penalty in cases where a whistle-blower has made full and true disclosure regarding a cartel. The CCI has discretion to grant a reduction in the penalty of up to 100 per cent if the applicant is the first to make a vital disclosure by submitting evidence of a cartel, enabling the CCI to form a prima facie opinion or establishing the contravention in a matter under investigation. The CCI also has discretion to grant a reduction in the penalty of up to 50 per cent to the 'second in' applicant and up to 30 per cent to a 'third in' applicant that makes a disclosure by submitting evidence that provides significant added value. The CCI, for the first time in 2017, issued an order granting leniency to a first applicant enterprise and the responsible individual therein, reducing their sentence by 75 per cent. The order has laid down the requisite considerations for the grant of leniency, including the issue of the timing of the disclosure and the question of value that the applicant added to the evidence available with the CCI at the commencement of the investigation.

ii Internal investigations

Internal investigations are not regulated by legislation and are determined in terms of internal policies and procedures that each company follows. It is typical for larger organisations to have policies that set out the manner of conducting internal investigations that may be triggered on account of, say, a whistle-blower complaint.

Internal investigations may take a variety of forms depending on the nature and gravity of the allegation and may encompass, for example, witness interviews, disclosure of documents, appointment of external experts, forensic support. Typically, it is not very common for employees to engage lawyers to represent them. Given the cloak of privilege that is granted to communications between an attorney and his or her client, appropriate waivers would be necessary from the employee to enable release and use of the privileged information in connection with the internal investigation.

However, regardless of the allegation, as a best practice, it is always prudent to ensure that any internal investigation follows the principles of natural justice. Further, a show-cause notice must be issued to the concerned employee, followed by proper fact-finding and then cross-examination by both management and the employee, to ring-fence the internal investigation from being challenged later as having been partial or vindictive. Last, detailed reports and logs of the entire investigation process should be maintained as evidence for future reference and copies of the detailed order or findings should be made available to the employee prior to levy of any punishment in order to keep the process transparent. Having said that, under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013, specified employers need to establish an internal complaints committee to provide redress for grievances pertaining to sexual harassment in the workplace.

Currently, there is no legal mandate to voluntarily share the results of an internal investigation with the government, subject always to the reporting and disclosure requirements in terms of the LODR (applicable to listed companies). Further, where a formal inquiry follows an internal investigation, it would be expected that all internal records and documents would be made available, subject to privileged communications.

Data privacy aspects of internal investigations have assumed paramount importance since the promulgation of the Information Technology Act 2000 (the IT Act) and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the IT Rules). The IT Rules stipulate what constitutes sensitive personal data or information (these include sexual orientation, financial information, passwords, biometrics and medical records) and the manner in which the information is to be handled, the protection it must be accorded and circumstances where it may be released or transmitted to a third party. Extreme care must be taken to ensure that in the disclosure and processing of information in relation to an internal investigation, all sensitive and personal information is kept confidential and dealt with strictly in line with the legal mandate. Many companies engage independent third-party experts to assist with internal investigations. Once again, care must be taken to ensure that any sensitive or personal information is handled as per the IT Act and the IT Rules and appropriate prior permissions are sought before release or transfer of any sensitive or personal information.

The government has constituted a committee of experts under the chairmanship of former Supreme Court judge, Justice BN Srikrishna, to study various issues relating to data protection in India. The committee drafted a white paper and recommended a nuanced approach towards data protection, keeping in mind the delicate balance that needs to be struck to boost innovation while upholding the individual's right to privacy. The committee sought public comments on the white paper through public consultation meetings and online submission of responses to queries raised in the white paper.

In light of the Supreme Court's decision in Justice KS Puttaswamy (Retd) v. Union of India & Ors3 upholding the right to privacy as a fundamental right, and the white paper on the data protection framework for India, the government is set to overhaul the existing Indian data privacy and protection regime to bring it in line with international standards of data privacy and data protection. A proposed umbrella legislation is due to be rolled out soon in this regard.

Section 126 of the Evidence Act 1872 (the Evidence Act) renders any communication between attorneys and clients privileged and, accordingly, any communication, document or opinion given by them to the client cannot be disclosed to a third party unless there is specific consent by the client. This is, however, subject to certain exceptions, such as communication for any illegal purpose or the attorney coming to know that a fraud or crime has been committed by the client since the time that the attorney's services have been availed of.

The privilege under Section 126 of the Evidence Act does not extend to in-house lawyers, since the primary legislation governing lawyers and advocates in India – the Advocates Act, 1961 – states that an advocate must be one who is enrolled with the bar council of a particular state and cannot be one who is in full-time employment. Further, judicial decisions have not been consistent on whether communications with lawyers in full-time employment would be subject to the privilege under Section 126 of the Evidence Act. Accordingly, if a company engages external counsel to represent it in an internal investigation, all communication in that respect would be considered to be privileged. However, if a company deputes its in-house lawyers to act on its behalf in an internal investigation, it is likely that such communication and any work product generated by in-house lawyers may not be deemed privileged.

iii Whistle-blowers

India has enacted the Whistleblowers Protection Act 2014 but this only provides for the protection of whistle-blowers who have reported the wrongdoings of public servants. However, with regard to private organisations, the Companies Act and the LODR have provisions that require companies to put in place a vigil or whistle-blower mechanism.

The Companies Act requires certain categories of companies (on the basis of turnover, paid-up share capital, exposure to bank loans, etc.) to have a vigil mechanism that is to be overseen and headed by the chairman of the audit committee (who must be an independent director) such that directors and employees can use the vigil mechanism to report genuine concerns in a manner as may be prescribed. The Companies Act also provides for safeguards against victimisation to be established in the mechanism itself, including access to the chairman of the audit committee in appropriate cases. Further, under the Companies Act, independent directors are required to ensure that there is an adequate and functional vigil mechanism and that the rights of any person using the mechanism are not prejudiced. They are also required to report concerns about unethical behaviour or fraud to the board of directors.

Listed companies must have a whistle-blower mechanism to enable stakeholders to report unethical practices. The details of the working of that mechanism (including access to the chairman, the manner of making a complaint and maintaining anonymity) must be reflected in a whistle-blower policy, which is to be made available on the company's website.

In light of the above, while it is mandatory for companies to have a vigil mechanism, sufficient discretion is given to the company in relation to determining the manner of putting it into operation, subject only to the fact that the whistle-blower should not be victimised. Having said that, the law in this regard is still nascent and no other specific statutory safeguards are provided for. In view of this, investigations pursuant to a whistle-blower complaint would be carried out in line with the internal policies of the company subject only to principles of natural justice.


i Corporate liability

Principles of corporate liability are statutorily enshrined and statutes also provide for vicarious liability for the relevant offence. Where there is a direct charge against KMPs or other officers, any individuals who are responsible for the culpable conduct of the corporate entity can also be convicted and jailed.

Judicial decisions of the Supreme Court have established that corporations can be prosecuted for criminal acts, including those requiring mens rea, just like individuals, and would be held criminally liable when an offence is committed in relation to the business of the corporation by a person whose control over the affairs of the corporation is so intense and pervasive that a corporation effectively thinks and acts through that person.4 However, the actions of a corporation cannot be automatically attributed to its KMPs, directors or officers unless it is factually established that such persons exercised control over the business affairs of the corporation so as to deem them the alter ego of the corporation.5 Notwithstanding the foregoing, corporate criminal liability is continuously evolving and developing in India.

In relation to defence of corporate conduct where attribution is at play, and the inter se interests of the company and the concerned individuals are antagonistic, it is advisable that the company and the individuals are not represented by the same counsel. Typically, it is advantageous to engage independent counsel when the interests are opposite; however, when the positions are aligned, common counsel is advisable.

ii Penalties

The consequences of wrongful conduct by a company may have civil, administrative or criminal consequences. Civil liability and penalties include fines, blacklisting, debarment from future tenders, accessing capital markets, administrative encashment of bank guarantees and damages, and to the extent that such conduct has criminal implications, the corporation stands to face appropriate criminal indictment as well, including attachment of property under criminal law. Further, there have been instances of exemplary penalties, such as the cancellation of mining leases of coal mines (granted as far back as 1993) by the Supreme Court6 (Coal scam) and cancellation of 2G telecom licences by the Supreme Court7 (Spectrum scam), both on allegations of bribery and wrongdoing by businesses in connection with the granting of such licences.

The Companies Act prescribes both civil and criminal penalties for misconduct. Civil penalties include fines payable by the company or the officers of the company for offences such as non-maintenance of a register of members, default in holding meetings and non-payment of dividends. A criminal penalty entails imprisonment either of the director or the officer in default for not maintaining proper books of account, for not issuing proper prospectus or for fraudulent conduct of business, for instance. The government can also penalise erring government contractors by suspension or debarment of the business. The SFIO, a specialised investigative agency, was established under the Companies Act to investigate corporate fraud. It has the power to arrest and to carry out search and seizure operations.

The range of potential sanctions against companies do not vary according to the authorities bringing the sanction, but is determined by the law.

iii Compliance programmes

Given corporate criminal liability, the question of defence assumes importance. Typically, Indian laws do not explicitly recognise compliance programmes as a defence per se to criminal charges or a mitigating factor. Traditional defences under criminal law do not offer sufficient guidance either. Investigations for corporate fraud are on the rise and to what extent compliance programmes would be considered a good defence is not clear at present. The Supreme Court may be called upon to settle the issue. However, a robust compliance programme certainly helps to delineate the roles and functions within a company and therefore has the effect of avoiding KMPs, who otherwise would not be directly responsible for the culpable conduct, from being needlessly dragged into an investigation.

Typically, for individuals who may be vicariously liable, due diligence, lack of knowledge and remoteness of role and responsibility are good defences. For corporate entities, robust outcome-oriented compliance programmes, including routine audits, timely detection and reporting, may be considered as a defence. In this regard, it may be pertinent to note that in line with the UK Bribery Act 2010, the Prevention of Corruption Act 1988 (POCA), which is the primary Indian anti-corruption statute, may be amended to create a safe harbour and defence if the corporation is able to prove that it has put in place adequate procedures designed to prevent bribery and other offences punishable under the POCA.

The elements of a corporate compliance programme will vary depending on the risk assessments, taking into account factors such as the nature of the business, the countries in which it operates and the employee strength of the company. However, it is advisable that compliance programmes should have certain vital elements, for example a written code of compliance. The programme must apply to all the employees of the company, including senior management, and provide an anonymous hotline for complaints, whistle-blower protection, regular training and so on. There must be a periodic audit of the company operations to ensure that employees are complying with the programme.

iv Prosecution of individuals

In the event that only employees or officers of the corporation are being prosecuted, the question of managing employee relations is more a function of the peculiar facts of a particular case.

There is no prohibition on a company paying the legal fees of an employee who is being investigated or prosecuted. The relevant contractual arrangement with the employee will have a bearing on the decision of the employee's legal representation, engagement with lawyers or payment of legal fees. If the employee, for instance, is acting in the course of his or her employment, performing the duties prescribed and for benefit of the company, payment of legal fees would be an obligation and disciplinary action against the employee in this situation would seem unfair. On the other hand, if the conduct of the employee is egregious and outside the scope of his or her duty, determination of his or her contract would not be considered improper. Further, Indian companies typically purchase directors' and officers' liability insurance to insulate them from liability incurred during the course of their employment. The Companies Act specifically recognises this right and further, while under the old company law directors could not be indemnified by their company for breach of duty or negligence, there is no restriction under the Companies Act, especially where there is no fault on the part of the concerned director or KMP.


i Extraterritorial jurisdiction

Currently, the POCA deals with bribing of and the abetment of bribery of public officials in India and has an extraterritorial application towards all Indian citizens outside India. In other words, where an offence is committed by a citizen beyond the borders of India, the POCA will be applicable to that offence and be tried as such. Separately, the Foreign Exchange Management Act 1999 (and the subordinate legislation framed thereunder), which is the foremost exchange control regulation, applies to all offices, branches and agencies outside India owned or controlled by a person resident in India and to any contravention committed outside India. Further, the Competition Act empowers the CCI to enquire into any agreement or abuse of dominant position or combinations, anywhere outside India, to the extent that such acts are likely to have an appreciably adverse effect on competition in the relevant market in India, and pass such orders as it may deem fit. In furtherance of this, the Competition Act permits the CCI to enter into any arrangement with a foreign government.

Separately, India has ratified the United Nations Convention against Corruption and, in order to meet its obligations under the convention, the Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill 2011 was introduced in Parliament. This was to deal with the bribery of and by foreign officials and officials of international organisations, penalising both. However, this Bill subsequently lapsed and no fresh Bill in this regard has yet been introduced in Parliament.

ii International cooperation

The extradition of a fugitive from India to a foreign country or vice versa is governed by the provisions of the Indian Extradition Act 1962 (the Extradition Act) and the basis of extradition could be a treaty between India and a foreign country. Under Section 3 of the Extradition Act, a notification must be issued by the government, extending the provisions of the Extradition Act to the country or countries notified. The Ministry of External Affairs is the central authority for all incoming and outgoing requests for extradition. India has currently signed extradition treaties with 37 countries and has extradition arrangements with eight others.

The Extradition Act specifies that any conduct of a person in India or in a foreign state that is mentioned in the list of extradition offences and is punishable with a minimum of one year's imprisonment qualifies for an extradition request. In the case of countries with which India does not have such a treaty, the central government can, by notified order, treat any convention to which India and the foreign country is a party as the extradition treaty providing for extradition, with respect to the offences specified in that convention.

India has also entered into mutual legal assistance treaties with 39 countries wherein both countries agree to exchange information to enforce criminal laws. Further, India is a party to the 1997 International Convention for the Suppression of Terrorist Bombings. This provides for extradition in terror crimes. Furthermore, India is one of the oldest members of Interpol and the CBI acts as the liaising agency with Interpol.

For matters and information pertaining to taxation, India is a party to a number of tax information exchange agreements with various countries (including several perceived tax havens such as the British Virgin Islands), which provide for transparent exchange of information between the countries in taxation matters. Finally, in matters of securities regulation, India is member of the International Organization of Securities Commissions and has signed the multilateral memorandum of understanding that represents a common understanding on the manner of consultation, cooperation and exchange of information for the purpose of regulatory enforcement regarding securities markets.

In terms of cross-border cooperation, the PMLA authorises central government to enter into an agreement with another government to permit the exchange of information for the prevention of an offence. Also, as noted above, the Competition Act empowers the CCI to enter into arrangements with foreign governments in connection with enquiries into acts outside India that have an appreciably adverse effect within the relevant markets in India. Similar powers are provided to the government under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 for gathering information in relation to evasion or avoidance of tax or undisclosed foreign income.

iii Local law considerations

India has strict laws relating to data privacy and attorney–client privilege, as discussed above. Breach of any of these lead to stipulated punishments. Having said that, there are exceptions when the disclosure and release of sensitive or personal information may be permitted without the consent of the concerned person by an order under the law currently in force.

Indian law also recognises bank secrecy and there are a number of provisions in law that stipulate that transactions between a bank and its client shall be secret. Among these, the Bankers' Book Evidence Act 1891 states that a banker cannot be compelled to produce the contents of its books and is permitted to maintain the secrecy of such transactions in a matter in which the bank has not been made a party. Such production can be forced only upon issuance of a court order from a judge with special cause. Under this legislation, the banks have a right to give notice of their intention to show cause against an order made by a court or a judge requiring disclosure.

Further, the Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act 1983 and the Banking (Regulation) Act 1949 contain provisions dealing with privacy principles and secrecy that must be accorded to the affairs of banks' clients. The principles of banker–client secrecy are respected and upheld and only in exceptional circumstances can those principles be overridden and confidential information be permitted to be disclosed. Compliance with the law and public interest would be instances when disclosure would be deemed permissible. Having said that, an order by the appropriate government or a court would be necessary to effect the disclosure of confidential information overriding the statutory granting of secrecy and confidentiality of such information.


India has witnessed a number of large scams during the past few years, which have brought issues of corporate governance, transparency and the role played by KMPs into the limelight. During the past year in particular, scams in the banking sector have brought to the forefront the malpractices that were being adopted by banks as a means of showing increased profits. One of these – the PNB-Nirav Modi scam – is considered to be one of the biggest corporate scams to date in India. In addition to the Alere Inc scam and CDM Smith declination, a number of other foreign companies have been investigated by the US Department of Justice for alleged violations of the US Foreign Corrupt Practices Act (FCPA). These investigations have been swiftly followed by other investigations and inquiries by Indian agencies, again underscoring transnational inter-agency cooperation.

i PNB–Nirav Modi fraud

This was a bank fraud to the tune of 144.5 billion rupees involving diamond merchants Nirav Modi and Mehul Choksi and their respective companies. On 29 January 2018, an official of the PNB from Mumbai filed a criminal complaint with the CBI against three companies and four people, including Nirav Modi and Mehul Choksi, the managing director of Gitanjali Gems Limited, alleging that they had defrauded the bank and caused a loss of US$43.8 million. It came to light subsequently that the company, in connivance with retired employees of PNB, got at least 150 letters of undertaking (LOUs) issued in their favour. The fake LOUs were recycled by the diamond jewellery group and illegally issued to other banks for borrowing money, allowing the Nirav Modi Group to defraud the bank and many other banks who gave loans to Nirav Modi. In addition to the 114.5 billion rupee PNB fraud, Modi also defrauded 17 other banks of 30 billion rupees. The matter is currently being heard by Indian courts.

ii Alere Inc

Alere committed various accounting violations, including the mischaracterising in its books and records of payments made to government officials by Alere Colombia and Alere India. Alere Colombia made payments of approximately US$275,000 during the course of several years to a management level employee at an entity involved in Colombia's healthcare system, whereas Alere India paid its India distributor an increased commission intended for local government officials in order to increase sales of its products there by 400 per cent. Alere retained approximately US$150,000 in profits from the increased contracts even after new management discovered the commissions and ended the practice. On 28 September 2017, the SEC ordered Alere to cease and desist violations of the FCPA and other securities provisions, and further ordered the company to pay a civil penalty of US$9.2 million, disgorgement of US$3,328,689 and prejudgment interest of US$495,196.

iii Pilot programme declination – CDM Smith

On 29 June 2017, the Department of Justice (DOJ) reached a declination letter agreement with Boston-based engineering and construction firm CDM Smith Inc. According to the letter agreement, between 2011 and 2015, employees and agents of CDM Smith and its India subsidiary paid US$1.18 million to government officials at the National Highways Authority of India and to officials in Goa for a water project contract. CDM Smith voluntarily disclosed the payments to DOJ. As part of the declination letter agreement, CDM Smith agreed to disgorge just over US$4 million in profits from the tainted contracts and admitted to the DOJ's brief statement of facts.

iv Sterling Biotech Limited scam

The ED arrested a former Andhra Bank director for his alleged role in the conspiracy by Gujarat-based Sterling Biotech Limited and others to cheat public sector banks of 53.83 billion rupees. The director was suspected of having received more than 15 million rupees from the Sterling Biotech group and is charged under the PMLA. The company's directors had obtained large-scale loans from Andhra Bank and others by showing falsified records of production, turnover and investments in capital assets. This was done by the company directors in connivance with the in-house chartered accountant of the company, who has also been charged with fraud.

v Deccan Chronicle Holdings Limited

A case under the PMLA was initiated against Deccan Chronicle Holdings Limited (DCHL), its management and others for causing wrongful loss of 3.577 billion rupees to Canara Bank. The CBI also registered five more First Information Reports in respect of loss caused to five public sector banks against DCHL, its management and others for causing wrongful loss of a total of 11.62 billion rupees to six public sector banks. An investigation conducted by the ED revealed that DCHL had obtained loans for working capital, the purchase of capital goods and short-term loans by overstating the receivables, understating huge loan liabilities by furnishing fabricated financial statements and not disclosing the loans taken from other banks and non-banking financial companies.


While India has a multitude of laws that seek to instil high levels of corporate governance and adequate safeguards in both the public and private sectors, it is the lack of enforcement and the general apathy of government authorities that has led to an significant rise in the incidence of scams during the past few years. While the number of scams involving government departments has reduced during the tenure of the current government, crimes in the private sector have continued unabated.

To counter and eliminate fraudulent collective-investment schemes designed to cheat members of the public, the government intends to introduce a new bill, the Banning of Unregulated Deposit Schemes and Protection of Depositors' Interests Bill (the Bill), which will be based on Britain's Financial Services Act 2012 and will provide for harsh penalties to deter companies and persons from implementing any collective investment schemes without obtaining due permissions. The Bill also proposes the creation of special courts in every state to handle cases of fraudulent deposit schemes. Should such a law be implemented, it may prove to be a deterrent for such crimes going forward.

Additionally, the SFIO, which comes under the Ministry of Corporate Affairs, is developing a new system for early detection of corporate fraud and to safeguard gullible investors from fly-by-night operators. The new system would also trawl social media platforms for leads on any possible fraud in the making. The SFIO floated a tender for selection of a managed service provider to develop this 'early warning system' (EWS), The idea of developing an EWS was first floated in 2009 after the Satyam fraud came to light. This new system would generate the data that helps to raise red flags and alerts using business intelligence and analytics capabilities. It would help with protecting investors from being exploited by deceitful companies or persons, and in identifying companies for further examination, scrutiny or detailed investigation by the Registrar of Companies, other offices within the Ministry of Corporate Affairs, or by the SFIO. The system would safeguard against disruption caused by incidents of corporate fraud, by proactively monitoring the operations of the companies through the statutory reporting mechanisms and other data that is in the public domain.

With Indian industry calling for adoption of hi-tech control systems to check financial frauds, some of the Indian banks have started deploying artificial intelligence, big data and blockchain technologies to better regulate their operations. The blockchain technology can be used to prevent scams like the one unearthed in Punjab National Bank. Blockchain technology allows entrepreneurs to incorporate their businesses into a digital distributed ledger, removing intermediaries in traditional processes and reducing friction. The Indian government has sounded an alarm likening cryptocurrencies to Ponzi schemes designed to dupe gullible investors. However, experts advise that the technology underlying such cryptocurrencies can be put to good use. The benefits of blockchain for users include those of data unmutability, verifiability, security and privacy. The PNB–Nirav Modi case (cited above) showcased an instance where PNB officials misused their access to PNB's Society for Worldwide Interbank Financial Telecommunications (SWIFT) (the electronic messaging system) used for overseas funds transfers without registering the fraudulent transactions with the bank's internal transaction messaging system (the Core Banking Solution), enabling the fraud to remain undetected for a long time. While standard encryption is applied to messages sent via SWIFT, the system is not infallible and is vulnerable to hacking. The idea of using blockchain technology here would be to track every step of the process so that such actions do not remain undetected for long periods.

To conclude, while scams involving the government or their agencies appear to have reduced during the past couple of years, corruption in the private sector continues unabated. The current outlook suggests better enforcement of legislative provisions to curb instances of white-collar crime and more involvement by the government in ensuring a reduction of such crimes.


1 Anand Mehta, Susmit Pushkar and Vinay Joy are partners, and Supratim Chakraborty is an associate partner at Khaitan & Co.

2 The government has notified the constitution of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) in terms of the Companies Act. Accordingly, the NCLT and the NCLAT have replaced the Company Law Board, which has been dissolved.

3 Writ Petition (Civil) No. 494 of 2012.

4 Iridium India Telecom Ltd. v. Motorola, Inc. (2011) 1 SCC 74.

5 Sunil Mittal v. CBI (AIR 2015 SC 923).

6 Manohar Lal Sharma v. The Principal Secretary & Ors (2014) 9 SCC 614.

7 Centre for Public Interest Litigation and others v. Union of India and others (2012) 3 SCC 1.