Get a Quote
Get a Quote and Find Services to Fit Your Needs 50000+ Satisfied Clients
5000+ Licenses & Registration
15 Branches across India
75 Years + Combined experience
Corporate frauds are illegal practices committed by companies or their employees. They involve deceiving or misleading others by providing false information or manipulating financial data with the “goal” of gaining an unfair advantage that often results in personal or company profit at the expense of stakeholders.
India has witnessed several corporate frauds, from the Harshad Mehta Scam in 1992 to the more recent PNB Nirav Modi Scam 2018.
The Companies Act 2013 defines corporate fraud as “any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.”
Corporate fraud is a punishable offense. The individuals involved in it may be imprisoned or fined or both. The imprisonment for the company fraud ranges from a minimum of six months to ten months. The fine imposed is generally equal to the amount involved in the fraud. In case of large company frauds, the fine can be up to three times the amount involved in the fraud. The exact punishment depends on the severity of the fraud and the court’s decision.
There are various types of corporate frauds in India including:
Corruption is a well-known type of corporate fraud. It refers to a scenario wherein employees of a company misuse their authority within the company to influence business transactions for their personal benefit.
Corruption involves engaging in practices like bribery, kickbacks, or other unethical means to secure contracts or advantages. It essentially violates the duty of the employee(s) to the company and stakeholders for personal benefit.
Corruption is considered a serious form of corporate fraud where individuals leverage their authority for corrupt activities.
Corporate embezzlement is a white-collar crime that involves stealing assets of the company for personal benefit. This type of financial fraud can have serious consequences for a company.
A person must hold a role with access to the company’s funds, such as an accountant, cashier, or manager. Only then can they be considered an embezzler in a corporate fraud.
Money laundering involves hiding the illegal source of funds or assets acquired through unlawful means. This is typically done through a series of financial transactions that create the illusion of the money originating from a legitimate source.
A popular money laundering technique is using offshore accounts to conceal the actual ownership and location of the funds. The ultimate purpose of money laundering is making illegally obtained money usable in a legitimate context. For example, to make investments or purchases without raising suspicions.
Financial statement fraud is a type of corporate fraud that involves faking or changing the business financial data to suppress or inflate sales. The goal of financial fraud is to deceive stakeholders, such as tax authorities, lenders, investors, or regulators.
Financial statements fraud presents a company's financial status as better than it actually is. This helps to suppress the debt from its original existence, increase revenue, or demonstrate a higher value of the assets.
A company’s employee or representative commits bribery by offering or giving something valuable, such as money or gift vouchers, to an individual in a position of power within another company, government agency, or organization to influence decisions or actions in their favor.
This unethical and illegal practice has severe legal consequences.
Several corporate frauds in India have created awareness about how certain individuals misuse the financial system to mislead and manipulate others. Here are a few popular examples of corporate frauds in the country:
Stockbroker & Businessman Harshad Mehta was commonly referred to as the "Big Bull." Mehta organized a massive money scam in India. He discovered the flaws in the banking system to take advantage of the Bombay Stock Exchange's loopholes.
Mehta mainly did this by misappropriating bank receipts and engaging in unlawful "circular trading."
The Saradha scam came into light in 2009 when Ramalinga Raju, the founder and chairman of Satyam Computers, confessed to tampering in the company's accounts. He revealed a balance sheet accounting scam worth Rs. 7,000 crore.
Ramalinga Raju acknowledged and confessed to inflating the company's cash and bank balances in an email addressed to the Securities and Exchange Board of India (SEBI) and Stock Exchanges on January 7, 2009.
The Kingfisher airlines scam is one of the most popular financial frauds of all time. Due to its massive debt, the airline failed to repay its lending banks and vendors.
The Central Bureau of Investigation (CBI) launched a significant investigation against Vijay Mallya for loan defaults and money laundering after he allegedly defaulted on large loans obtained from various banks, primarily by falsifying financial statements and using fraudulent practices to secure funds.
This led to significant losses for the lenders and ultimately the collapse of Kingfisher Airlines.
If you’ve been a victim of corporate fraud, you should file a complaint against the company that conducted the fraud.
You can lodge a complaint online through the MCA portal by providing details, such as the fraud company’s name, nature of complaint and supporting documents as evidence.
Take the following steps to file a complaint against a company:
Collect all the relevant documents such as emails, financial statements, contracts and other documents that can support your complaint for corporate fraud.
Visit the official MCA portal.
Now, go to MCA services and then click on the complaint.
Now, depending on your complaint, you must choose between an investor complaint and a serious complaint.
In the complaint form, fill in all the required information such as personal details, company name, nature of the corporate fraud, and detailed description of the corporate fraud.
Attach all the relevant documents as evidence.
Submit the complaint online once the form has been completed. You can note down the reference number for future reference.
If the company isn’t registered with the ROC and the fraud occurred online, report the incident to the cybercrime cell immediately.
Corporate frauds are a serious threat to the companies, investors and other stakeholders. There are many types of corporate frauds prevailing in India such as corruption, embezzlement, money laundering, bribery and financial statement fraud. From time to time, the country has witnessed major corporate frauds like the Harshad Mehta Scam and the Kingfisher Airlines Scam.
To handle the corporate frauds better, stricter laws and better enforcement are a must. Individuals must stay alert and report any suspicious activities that they notice in the companies. To file a complaint against a company, you can visit the MCA portal and follow the instructions provided in this blog post.
Need help in business registration services or in ensuring compliance with the rules of the Ministry of Corporate Affairs (MCA)? Connect with MCA consultants at Registrationwala.
Want to know More ?
