CJK_Presentation_Corporate Frauds - Chambers of Jain & Kumar

What is a corporate fraud

‘Fraus Omnia Vitiate’ – Fraud vitiates everything
Corporate fraud occurs when a corporation provides dishonest information with the intent of concealing the truth and deceiving the recipient of the data in order to gain an advantage.

Why corporate frauds ?

Companies commit such frauds for a variety of reasons like:-

Making more falsified money
Creating a false image of the company for the market scenario
Misguiding Governmental authorities for tax evasion.
The desire or perceived need to attract or retain investors
Problems or defects with a company’s products.

Types of frauds

There are many types of frauds like Fraudulent Financial Statements, Employee Fraud, Vendor Fraud, Customer Fraud, Investment Scams and
Bankruptcy frauds and miscellaneous frauds

COMMON TYPES OF FRAUD

Financial frauds

Manipulation of accounting
records
Misrepresentation or
omission of amounts
Misapplication of accounting
principles
Misleading or omitted
disclosures

Misappropriation of Assets

Theft of tangible assets by
internal or external parties
Sale of proprietary
information
Causing improper payments.

Corruption

Making or receiving
improper payments
Offering bribes to
public or private
officials,
Aiding and abetting
fraud by others

Laws covering corporate fraud in India

Companies Act 2013 (CA 2013)
Indian Penal Code 1860 (IPC)
Income-tax Act 1961
Central Goods and Services Tax Act 2017
Insolvency and Bankruptcy Code 2016
SEBI PFUTP (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003
SEBI LODR (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Reserve Bank of India (Frauds classification and reporting by commercial banks and select FIs) directions, 2016.

Who can be prosecuted ?

Depends upon the type of offence, however, few persons who can be prosecuted are as follows:

Every officer of the company in default
Persons in charge of management of the company
Every person who authorizes the act of fraud
Directors
Past and current employees involved in the fraud
Auditors
Any other person found to be involved

Authorities Involved

Powers of the authorities :

What are the sanctions for participating in corporate fraud?

Right to bail: No one accused of an offence of corporate fraud under CA 2013 can be released on bail unless the public prosecutor has been given an opportunity to oppose the application for such release; and where the public prosecutor opposes the
application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail. Penalties: The sanctions for offences under the CA2013 depend on the quantum or amount involved in fraud

Safeguards:

Protection against arrest and detention
Right to free legal aid
Protection against miscarriage of justice
Compounding of offences
Appeals
Judicial Review
Bails
Remedy against improper investigation
Right against self-incrimination
Protection against coercion by the police
Quashing of FIRs/ Complaints (Section 482 CrPC)

Case Study 1:

Mr. Harry Kane was appointed as a director in Tottenham Hotspurs Pvt. Ltd. on 31 March 2017. The Income-tax department, sends a notice to him for prosecution as the company has failed to pay TDS for the financial Year 2014-15.
Can Mr. Kane be prosecuted in this case ?

Case Study 2:

Mr. Eric Cantona resigned from the directorship of Manchester United Pvt. Ltd. on 31 March 2017. The Company failed to deposit GST collected by them in account of the government for the financial year 2017-18. Can Mr. Cantona be prosecuted in this case ?

Case Study 3:

Mr. Sergio ‘Kun’ Aguero was appointed as the Chief Financial Officer of Manchester City Pvt. Ltd. on 31 March 2017. As a CFO, Mr. Aguero is authorized to sign financials of the company. The Company submitted false accounts before the Ministry of Corporate Affairs for Financial Year 2018-19. Can Mr. Aguero be prosecuted in this case ?

Case Study 4:

Mr. Mohammad Salah was appointed by the State Bank of Liverpool as the assistant branch manager for the Stamford bridge branch in Pune for the year 2016-17. As a part of his duties, Mr. Salah was authorized to issue letter of undertaking (LoUs) to other banks for issuing a line of credit to its customers. Mr. Salah, bypassed SLB’s core system to issue fake LOUs to overseas branches of other Indian Banks to issue funds to M/s.
HeereJawahrat Pvt. Ltd., a regular customer of SBL in Pune. The fake LoUs were issued as a part of larger scheme between the owners of Heere Jawahrat and Mr. Salah. Can Mr. Salah be prosecuted in this case ?