Ministry of Corporate Affairs drops proposed early warning system to detect corporate frauds

NEW DELHI: The Ministry of Corporate Affairs has shelved a proposed early warning system to detect frauds at companies following "unsatisfactory results" and continues to analyse filings to check for non-compliance.

"The Ministry had tested an early warning system, developed in-house, during the year 2013-14. This system was dropped on account of unsatisfactory results," Corporate Affairs Minister Arun Jaitley said in a written reply to the Lok Sabha.

To keep a tab on entities violating Companies Act, the Ministry is analysing various filings made by corporates.

In the last three financial years and period till February 23, 2015, the Ministry ordered SFIO probe with respect of 184 companies for alleged frauds.

"Non-compliance with the provisions of Companies Act are identified through analysis of certain statements and returns filed by the companies and/or complaints received in the Ministry/ Serious Fraud Investigation Office, by the concerned Registrars of Companies and SFIO," the Minister said.

Besides, SFIO has submitted probe reports with respect to 102 companies during the last three years and current year.

This fiscal, till February 23, SFIO was asked to probe 47 companies.

It investigated 13 companies in 2011-12, 42 firms in 2012-13 and 82 entities last financial year.

"The Ministry has ordered filing of prosecutions against companies/directors/officers in default, as required. The relevant reports, wherever indicated, have also been shared with respective investigating agencies," he noted.

The Companies Act, 2013, mandates enhanced disclosure regime to ensure that investors get all relevant information. The new law has provided a definition for the term 'fraud'.

Besides, SFIO has been granted statutory status with adequate powers and provisions have been put in place for attachment and disgorgement of assets in the Act.