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BW Businessworld

Why SFIO Isn’t Serious Enough

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 The constant efforts of the Ministry of Corporate Affairs (MCA) to make the Serious Fraud Investigation Office (SFIO) redundant, or reduce it to a tool for arm-twisting, are unfortunate. The SFIO has been called a baby of corporate compulsion, and a look at its records proves this true. BW is in possession of documents to establish that, since March 2007, of the 17 reports that the SFIO has submitted, the MCA has cleared only three cases, including the infamous one of Satyam Computer Services. 

Also, during these 19 months, 22 fresh cases were referred to the SFIO, and none of them is suo moto. In reply to a question in Parliament, the minister for corporate affairs, Salman Khurshid, said the SFIO has inquired into 70 cases in the last seven years. A small figure, considering that the number of registered companies in India is close to 8.5 million.
Also in BW’s possession is the list of cases that Khurshid’s predecessor, Prem Chand Gupta, tabled in Parliament on 14 March 2007. The number of cases pending with the SFIO then was 48, out of which enquiry had been completed and prosecution commenced into 30 cases.
Waiting for the ministry’s approval slows everybody down. “Any investigation is the job of an investigation officer (IO),” says an SFIO official. “Let the court decide on these findings.” He adds that the delay in prosecution can also discourage the IOs. Another former SFIO official, who has been repatriated to his home cadre, says, “First, we have to fight the system to complete the investigation and then, after framing the charges, we have to find some way to achieve prosecution.”
As one senior SFIO official says: “It is unfortunate; but given the resources we have, we believe we have done a good job. Our job is to complete the enquiry, which we have done. Now, the onus rests on the officials at the ministry. They have to take the call.”
The SFIO official explains that experts from the Indian Police Service, the Civil Services and revenue and income tax services conduct these enquiries, in consultation with each other. Supporters of the SFIO say it is doing a fair job, but political pressure induced by corporates stalls prosecution: “They [corporates] tried to pressurise us in several cases. I am sure they would have also done the same with the offices of the political and bureaucratic bosses in the ministry. Sometimes, people do succumb to it [such pressures],” says the SFIO official.
The government’s decision to retain the power to issue the notification required to constitute a special court for SFIO-related cases is a political one, says a former SFIO official. He adds that several recommendations have been sent to the government.
When the CBI (Central Bureau of Investigation) and the Enforcement Directorate have the power to prosecute, then the SFIO, the sole organisation that inquires into violations of the company law, also deserves such authority. However, the corporate affairs secretary, R. Bandhopadhyay, rubbishes this idea and says that there is no need for a separate court as the SFIO deals with far too few cases. “Who will bear the expenses [of an SFIO court]?” he asks. “I believe that a single court for economic offences is enough.” He adds that the SFIO has been given several informal powers, which might be legalised in the proposed amendments to the Companies Bill of 2009. 
Always blamed for under-performance, the SFIO is a toothless tiger that does not have the right to seize, search and arrest offenders, nor does it possess many of the other powers an investigating agency requires. Its discouraging conviction rate, SFIO officials say, results from having to approach the local courts as just another complaint.
(This story was published in Businessworld Issue Dated 18-01-2010)