Govt to finally define fraud in Companies Bill

Fifty-three years after enacting the Companies Act and six years after forming the Serious Fraud Investigation Office,the government is finally contemplating defining ‘fraud’ in the new Companies Bill 2009. Sources told The Indian Express that the corporate affairs ministry is working on incorporating the definition of ‘fraud’ in the new bill,which was re-introduced in the Lok Sabha and is being examined by the Parliamentary Standing Committee of Finance.

A meeting of the Standing Committee is to take place in the coming week and the issue,along with other proposed changes in the Companies Bill,is likely to be discussed,sources said. The Vepa Kamesam Committee,which was formed in 2006 to look into legislative reforms in the SFIO and submitted its report early this year,has also recommended a definition for ‘fraud’. According to the recommendation,“a comprehensive,inclusive definition,defining the offence of fraud with regard to affairs of the company,may be included in the Companies Act,1956. Such definition should draw upon the structure provided for an analogous definition in the UK Fraud Act,2006”.

At present,legislations like the Companies Act or the Indian Penal Code do not have any particular definition of fraud. Section 420 of the IPC,which is used for punishing the guilty for fraudulent activities also pertains to “cheating and dishonesty” and not fraud per se. As regard the Companies Act,though there are various kinds of frauds mentioned like misinformation in prospectus and misconduct by directors,there is no one definition laying down various kinds of deception. On the government’s move,Prime Database managing director Prithvi Haldia said,“This [not having a definition of fraud has been a handicap as in its absence there is no definition of offence and penalty thereto. This will certainly clear and cover all other misdeeds not covered under the present laws”.