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Updated: Jan 9, 2022

Author: Avantika Ahirwar, Pursuing LL.M. (constitution and administrative law) from BabaSaheb Bhimrao Ambedkar Central University, Lucknow

The Scope of Indian Corporate Laws

In a democracy, the legal system is the sole mechanism for a wrongdoer to be punished for their actions while simultaneously deterring crimes and impunity. In many jurisdictions, legal remedies are accessible for effective handling of issues, which includes corporate maladies. In terms of corporate fraud, the Indian legal situation is such that it has a multi-dimensional strategy with confronting mechanisms ranging from confiscating proceeds to forfeiting company assets, as well as punishment in the form of imprisonment and penalties.

The following are a few of these pieces of legislation:

Companies Act,2013

The Indian business law has been in effect since 1956, with the most recent modifications being in 2013. The establishment of statutory conformity to the country's Corporate Social Responsibility (hereafter referred to as 'CSR') was one of the most notable characteristics of the amendment. Mandating a specified threshold for all Indian enterprises and international corporations with branches in India with a net worth greater than five thousand crores, a revenue bigger than five crore rupees, or net profit proceeds greater than five crores. All companies that belong under the aforementioned umbrella are obligated to engage in CSR activities that are listed in the Act's extensive list.

The CSR Board, comprising of at least three directors of the company is required to draft a policy and the same is approved adequately. However, this provision is used as an instrument for tax evasions and embezzlement of CSR funds since the policy lacks enforceability with merely a civil liability.An Amendment in 2019 provides for the non-compliance to such provisions to entail civil liability and hefty fines, along with the allocation of unspent CSR funds to be contributed towards a designated Car account which can be spent within the next three years, without would otherwise go towards the statutory fund.

The Act also makes it illegal to commit fraud by inducing others to invest money, stating that anyone who makes a false, deceptive, misleading, or concealing statement, promise, or forecast, and who induces or offers another person to enter into or make an offering in such direction by entering into certain agreements is liable under Section 447 of the Act, regardless of their intent.

Section 36 defines three types of agreements: first, agreements involving securities, which include acquisition, disposition, subscription, and underwriting; second, agreements involving services other than securities, which include acquisition, disposition, subscription, and underwriting; and third, agreements involving services other than securities, which include acquisition, disposition.

Second, an arrangement that ostensibly gives profitability to one purchasing securities concerning their fluctuations, and third, an agreement that ostensibly provides credit facilities from banks and financial authorities to the person engaging in such an agreement. These fraudulent activities are punishable by imprisonment ranging from six months to 10 years, with a minimum of three years in prison and a fine of three times the amount of the fraud. The Central Government is given statutory authority to investigate crimes through the Serious Frauds Investigation Office. This office is led by a director and includes professionals in banking, corporate affairs, taxation, forensic audit, market, information technology, legal research, and other subjects.

It was formed in 2003 and has its headquarters in New Delhi. Other agencies are prohibited from investigating major frauds as defined by this provision, and only the central government can assign and direct prosecution for serious frauds as defined by this Act. Any impediment to the inspection, investigation, or inquiry process by any person, officer, or employee of a company in terms of statements for inspection or steps in the investigation, such as concealment, tampering, or removal of documents, or making of false entry or explanation concerning the corporation, would be punishable as a fraudulent act under Section 447.

The presence of independent directors in corporations, which is set at one-third and for public companies as determined by the Central Government, helps to prevent corporate fraud by allowing an outsider to participate in decision-making.

Accounting standards set by the Institute of Chartered Accountants of India, an autonomous body, would be notified under the Companies Act, and all companies will be expected to follow them. Furthermore, businesses must appropriately disclose their financial statements and describe the state of their affairs in their financial records.

A critical assessment denotes a four-cornered defence against fraudulent conduct in a company's corporate affairs, but impunity traces flaws, particularly in the insolvency and bankruptcy code.

Securities Exchange Board of India

The Securities Exchange Board of India, or "SEBI," was established in 1988 to regulate the securities market in India, and the SEBI Act was passed in 1992 to provide it statutory legitimacy. This Act has played a critical role in reducing corporate fraud by adding provisions such as effective regulatory procedures for company takeovers, the Depositories Act, which updated paperwork to electronic form, and insider trading prevention, to name a few. The regulatory regulations require promoters to provide and disclose complete and correct information. Despite the extensive legal regulations, SEBI lacks the authority to manage the markets that are governed by the Ministry of Finance of the Government of India.

The inevitable interference of the government in policy problems through recommendations, rather than advancing the Act's ultimate goal, introduces procedural and substantive shortcomings. Substantive breaches expose the Board to legal culpability if it pursues a prosecution without the Government's approval.

In terms of procedural restraint, the board is not independent of government involvement because all of its members are appointed from various government ministries and bodies in one way or another, raising questions about proper regulation for which judicial intervention was sought in 2011, but no recourse has yet been observed.

The Reserve Bank of India is the only financial agency in the country that ensures the viability of the banking system by providing affordable banking services and protecting depositors. The Foreign Exchange Management Act (hence referred to as "FEMA") is also important in India's foreign exchange regulation.

Despite the presence of all of these bodies, internal management remains unchecked, as evidenced by recent cases of corporate fraud in which employees are involved for a small share of illicit profits, unaware of the cost of their recklessness and contributing to a disastrous historical corporate fatality. The judiciary has also attempted to reduce the problem of corporate fraud by developing principles and doctrines based on precedents.


1. Companies Act, 2013, S. 135.

2. Panchall Guha, “Why comply with an unenforced policy? The case of mandated corporate social responsibility in India” (2019) 3 "Policy Design and Practice” <> accessed 8 May 2021

3. About SFIO History, Serious Fraud Investigation Office, Government of India < about_history_sfio> accessed 8 May 2021

4. Madhu Bala, ‘Corporate Frauds and Legal Mechanism in India’ (2018) 7(5) International Journal of Current Advanced Research <> accessed 6 May 2021 48 Editor, ‘PIL alleges nexus in Sebi appointments’ (Times of India, November 5,2011) <https:// 10612161.cms> accessed 7 May 2021

5. Reserve Bank of India Act, 1934

6. The Foreign Exchange Management Act, 1999

7. Romita Datta, ‘Saradha Chairman Sudipta Sen sentenced to three years in jail’ (LiveMint, 2 February 2014) < sentenced-to-3-years-in-jail.html> accessed 7 May 2021”

8. Sayan Ghosh, ‘Bad Boy Billionaires: India’ review: Arestrained tale of unbridled debauchery’ (The Hindu, October 15. 2020) < article32860969.ece> accessed 14 February2021”

9.“U.S. News &World Report, ‘7 of the Biggest Corporate Frauds in History’ (WTopNews, 14 July 2020) <> accessed 16 March2021”


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