SFIO budget cut to impact investigations

Updated: May 01, 2012, 12:09 PM IST

Pankaj Sharma/ZRG

Efforts to usher in greater transparency in the way companies transact their business is likely to get adversely impacted due to the government decision to trim the budget for the Serious Fraud Investigation Office (SFIO) under the Corporate Affairs Ministry.

Budget allocation for the investigation arm of the ministry has been cut down by 15 percent, a move that earned criticism from the Parliamentary Standing Committee of the Finance Ministry in its report tabled in Parliament on April 24, 2012.

The 55th report of the Standing Committee on Finance headed by former finance minister and senior BJP leader Yashwant Sinha said, “The Committee is apprehensive that the reduced outlay for running such important attached office of the ministry (Ministry of Corporate Affairs) would hamper the investigation of complex corporate frauds, having inter-departmental and multi-disciplinary ramifications.”

The Corporate Affairs Ministry slashed SFIO budget from Rs 5.95 crore in 2011-12 to Rs 5.11 crore in 2012-13. The ministry, however, defended its decision on the ground that the Ministry of Finance had allocated it an amount of Rs 21,350 crore against the requisitioned demand of Rs 24,200 crore.

Endorsing the Sinha Committee view that performance of the serious fraud investigating agency would indeed get hit, Manoj Kumar, managing partner at corporate law firm Hammurabi & Solomon, said, “It has been noticed many times that the agency (SFIO) does not have proper resources to investigate. The agency needs to be better equipped in terms of infrastructure to deliver on its objectives.”

Pitching for a better equipped SFIO in terms of technology, Rohit Mahajan, partner and co-head, forensic at consulting firm KPMG said, “Since technology has played the biggest role in most of the corporate frauds that came to light in India, it wouldn’t be a good idea cutting down on budget allocation to SFIO. This (cut) might impact the investigations.”

SFIO, which started in 2003, is mandated to investigate corporate scams under the Companies Act, 1956. Since the inception of SFIO, it has been referred 89 cases for investigation. Out of the referred cases, investigation reports were submitted in 73 cases until 31st Dec 2011. Presently, the department is investigating 12 cases out of which seven cases were ordered for investigation this year.

The SFIO had earlier handled some big cases involving companies like Satyam, VN Parekh Securities, Classic Shares and Stock Broking Services Ltd.

Mahajan at KPMG asserted the need for better coordination among investigative agencies. “To get better and expeditious solution of fraud cases, multiple agencies currently investigating in India like ED, CBI, IB and SFIO need to work in a more cohesive manner,” he added.

Kumar at Hammurabi & Solomon appealed the government to learn from other countries to have more focused approach towards its corporate fraud investigative arm. He said, “Since corruption is growing at a very high pace in India, the government needs to empower agencies like SFIO to prevent scams like 2G, Satyam and Coalgate.”