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Corporate Law Fraud

All about corporate fraud

January 27, 2024  1853  0

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This article is written by Minhaj Nazeer. It talks about the concept of corporate
fraud in India. This article aims to provide an overview of the nature, causes and
consequences of corporate fraud in India, as well as the relevant legislation and
regulations, namely, the Prevention of Money Laundering Act, 2002, the Securities
and Exchange Board of India, Act 1992 and the Companies Act, 2013 that deal with
corporate fraud. The writer also mentioned the investigation and mitigation of
corporate fraud, followed by the relevant case laws and some FAQs.

Introduction
In the corporate world, corporate fraud is a persuasive and complex scenario that
builds a shadow over the integrity of business worldwide. The web of illegal financial
transactions poses a significant threat to corporations and stakeholders. This
ultimately kills shareholder’s trust, depletes investment money and harms the
company’s brand name. This article discusses corporate fraud in detail. It mainly
focuses on all the nuances of corporate fraud in India, essentially concentrating on
the evolution, types, indicators, categories, etc. The concept of corporate fraud has
been discussed with past popular examples of fraud that occurred in India and
changes in regulations with respect to the same.

What is fraud
Under Section 17 of the Indian Contract Act, 1872 the term fraud is defined as any
act by an individual who is a party to a contract, or any kind of willingness to allow
any third person like agents, to trick the other person into entering into the
contract. One of the criteria is to promise without any intention of performing it or
any behaviour that the law defines as fraudulent, etc. To come under fraud the
essential elements are like a false representation, or made without any knowledge
of its truthfulness. According to Section 19 of the Act, the legal effect of fraud in a
contract whose consent is obtained through fraudulent means is that it is voidable
with the permission of the other party. If a party enters into the contract through
fraud, the contract is considered voidable under Section 19 of the Contract Act. It
was held in the case of Dr. Vimla v. Delhi Administration (1962) that the idea of
deceit is a necessary ingredient of fraud, but it does not exhaust it. The expression
‘defraud’ involves two elements namely, deceit and injury to the person deceived.
In this case, the injury is explained as anything which can be movable or
immovable or anything which involves money.

What is corporate fraud

Corporate fraud is the illicit and deceptive practices committed within a company.
These practices jeopardise the trust of stakeholders and the integrity of financial
markets. Corporate fraud can be classified into two, it can be criminal or civil law
violations. The Punjab National Bank Scam is one of the most massive as well as
recent scams which is considered as a crime. The fraud involved a lump sum
amount of 15,000 crores. The fraud which has less amount involved is considered
as civil law violation. The violations are namely employee fraud, investment scams,
misappropriation of assets, corruption etc. Individuals commit fraud for personal
benefits or for the benefit of the company. Sometimes corporate frauds go beyond
the purview of employees and badly impact the economy and the business.

Financial statement fraud is the most common mode of corporate fraud. Companies
falsify accounting in order to mislead the financial figures. Pumping schemes which
artificially raise stock prices before they reach the markets, are a kind of market
manipulation. Corporate entities also make fraud disclosures to investors and fail to
declare their income to lower tax liability.

Evolution and development of corporate fraud

During independence, corporate fraud grew at a slower rate due to restrictions in
the economy and less globalisation. Later, with economic liberalisation in the late
1990s, fraud began to surge. The growth in technology and development further
fueled fraudulent activities in the corporate world, companies started to use
regulatory loopholes. In India, most of the corporate frauds are based on financial
statement manipulations (false account statements), insider trading (an employee
trading with public information before it is published), etc. The Satyam scandal in
early 2000 has projected the technical drawbacks leading to a surge in fraud.

Harshad Mehta scam, 1992

This scam cost more than four thousand rupees for the country. Harshad Mehta
committed the fraud by exploiting the loopholes of the Indian stock market. He
utilised the advantage of poor coordination of the stock market and bank. The
banks involved were premium banks like the State Bank of India and the National
Housing Bank. After this scam, the Securities and Exchange Board of India (SEBI)
expanded its jurisdiction over Foreign institutional investments, credit rating
agencies, etc. Mehta and his associates syphoned off the funds from bank
transactions and bought shares in different segments; this paved the way for a
surge of price in the Bombay Stock Exchange (BSE). After getting caught the bank
started asking for the money back. Harshad Mehta and his brother were arrested
for misappropriating more than 28 lakh shares and around 90 companies by forging
share transfer forms. The total amount of misappropriation was approximately 250
crores. Later he was acquitted from the case. There was a drastic fall in share prices
and the market causing a breakdown in institutions like the Reserve Bank of India
(RBI) and other commercial banks. The first reformation was introducing the Nation
Stock Exchange (NSE) and a committee headed by Kumar Mangalam Bajaj and
Narayana Murthy which is overseen by the Securities and Exchange Board of India
(SEBI). The main structural change with respect to the scam was recording all the
transactions related to the purchase of investments and subsidiary general ledger
as a prevention to the scamsters.

Ketan Parekh scam, 2001

This scam resulted in a loss of 2000 crore. Like Mehta, the fraud was due to another
loophole in the stock market. The fraudster took advantage of the gap in the
banking system with the stock market in the country. After this fraud, the
SEBI(Amendment) Act, 2002 was passed which brought some major changes in the
prevalent legislation. That included Section 11A of SEBI (Amendment) Act, 2002 in
which the issuing of prospectus, offer documents and advertisements asking for
investments were introduced. The board regulated and started prohibiting the issue
of prospectus, offer documents, and advertisements which solicit money for the
issue of securities, this was a collective investment scheme. Ketan Parekh was a
Chartered Accountant (CA) and was also part of the institutional brokerage business
inherited from his father. He used to pick up substantial stakes from promoters at
large discounts and shifted focus to institutional investors. There was an irregularity
in shares which was bought by him and led to a 176 point loss in the market on that
trading day. SEBI banned short sales and rumours started spreading in the
exchange. Later on, the Bank of India filed a criminal case against Ketan Parekh for
his involvement in the pay order scam of Madhapuva Mercantile Cooperative Bank
and got arrested. Thereafter, SEBI prohibited his broking and merchant banking
firms from starting a new business. This was the second largest scam and after this
SEBI introduced Clause 49 to the Listing agreement to ensure that businesses are
behaving in the best interests of the market by following all the corporate
governance guidelines.

National Spot Exchange scam, 2013

This was another big scam that questioned the authorities and brokers’ intention
towards investor protection. This showed that the government was not capable of
overlooking the proper functioning of the companies which have public money. Post
this scam, SEBI started an investigation against broking firms and regulated their
functions. NSEL(National Spot Exchange Limited) was incorporated in the early
2000s, to establish a single market across the country for both manufactured and
agricultural procedures. NSEL became the first ever electronic commodity exchange
for spot delivery of contracts including agricultural products. This exchange took
around 25 days to settle a contract while the permitted time was only half of it.
Later on, the regulator Forward Market Commission (FMC) intervened and asked to
settle the payment defaults. When investors were claiming commodities of their
money, borrowers were not in a position to provide them because there was a
goods shortage in warehouses. Eventually, large brokers and financial players came
under investigation. The allegation was regarding the false promises to the clients.
The brokers allowed the clients to execute trades even though they had less
balance in their accounts. The team of officers from SEBI investigated and
submitted the report. The investigation team suggested banning the brokers from
commodities derivatives trading and also initiating prosecution for the
misappropriation.

Indicators of corporate fraud

There should be multiple indicators to have a scope of fraudulent activity. There are
several indicators such as unusual financial patterns, changes in employee
behaviour, and lack of control inside the company, etc. To understand unusual
financial patterns, usually sudden unaccountable fluctuations can be found in the
revenue, profits or expenses. Unusual lifestyle changes and resistance to audits are
indicators of change in employee behaviour. It is very empirical that the indicators
should be considered collectively and not independently to make sure about the
fraudulent activity.

Reasons behind increased corporate fraud

cases
The major reason behind a surge in corporate fraud cases is high expectations from
the business. Crucial reasons are economic pressure, competition in the market and
lack of protection for whistleblowers in the organisations.

Let’s discuss them.

Economic Pressure
India’s economy is revolving rapidly because of intense competition and profit-
driven businesses. This led the business to opt for an easy way to make more
business by doing fraudulent activities so that they could cope with the economic
conditions. Also, companies under financial strain may resort to unethical practices
to achieve targets, increase investors and other factors such as securing loans.

Competition in the market

Most of the time, companies engage in fraudulent practices to match their
advantage with other competitors. The pressure to outperform the peers leads to
breaking the legalities. This leads to the manipulation of financial statements,
securing contracts in an unethical manner and much more.

Less protection for whistleblowers

The lack of a whistleblower protection mechanism impacts the reporting of
fraudulent activities. The fear of snitching and lack of confidence to reveal the
wrongdoing of the colleague is the major issue in whistleblowing. This essentially
allows the fraudulent practices to persist and remain undetected for a long period of
time.

Categories of corporate fraud

Asset misappropriation
This is a theft or misuse of the company’s assets which belong to the company. It
can be committed by any individual who ranks from directors to employees who are
entrusted with the company’s assets. For example, this fraud wherein the
perpetrator employs tricks to steal or misuse the company’s assets. Assets can be
tangible and intangible, modus operandi of fraud will be fictitious sales, false
inventory, falsifying asset requisition and transfer.

Bribery and corruption

This is a heinous crime when compared to other frauds because this essentially
affects the company’s economic development. The act of bribery involves offering,
giving or receiving anything which can hamper the official act of the company.
While corruption is more heinous than bribery, it includes illegal gratification,
bribery and economic extortion. Employees use their power improperly for business
transactions by this the employee gains an advantage for themselves or for a third
person.

Financial statements
This involves acts wherein the company’s financial statements of the company are
misrepresented. This damages the company internally and externally. The forms of
fraud are manipulating accounts, overstating revenue assets and investments,
understating liabilities and non-disclosure of financial information.

Corporate Espionage
Due to high innovation and competition in the market, the companies use high-tech
methods to collect information from other companies. For this, a bogus company is
made for the purpose of manipulation and hides their details regarding the business
transactions.

Money Laundering
This is an illegal process of making lump sum money that is generated by crimes
such as drug trafficking or terrorist funding which is coming from a legitimate
source. Most financial companies have anti-money laundering policies to scrutinise
and prevent this activity.

Ponzi Scheme

This is an investment fraud that pays investors an amount by collecting money from
new investors. Essentially, in Ponzi schemes, the organisers encourage investors by
promising high returns with little risk. The fraudsters take a small portion of the
newly invested money before paying the former investors, that’s how they keep
moving forward.

Accounting misappropriation
In accounting fraud, the company manipulates financial statements to create
impressive corporate financial stability. This can be committed by employees,
accountants, or by the whole organisation misleading the stakeholders. It can be
done by overstating its revenue, not recording expenses, etc.

Legislations which govern corporate fraud in

India

Companies Act, 2013

The Companies Act, 2013 provides laws for punishment related to an individual who
commits fraud against the company. Section 447 states that any individual who is
guilty of fraud will be punished with imprisonment up to 10 years or the fine as
decided according to the value of the fraud, it should be less than the fraud
amount, it may extend to three times the amount of fraud involved.

Securities and Exchange Board of India Act, 1992

The Securities Exchange Board of India (SEBI) acts as a regulatory organisation to
constantly monitor fraud. The SEBI was constituted as a non-statutory body on
April 12 1988 through a resolution of the Government of India and the provisions
came into force on January 30, 1992. The Corporation Finance Investigation
Department (CFID) carries out detailed scrutiny on irregularities such as fraud,
diversion, material misstatement, fraudulent related party transactions, non-
compliance with the issue of IPO and suspected diversion of funds, etc. Key
functions of SEBI include safeguarding the interests of Indian investors while
educating them about securities markets and respected intermediaries. Also, SEBI
facilitates the development and seamless functioning of the securities market.
Regulating the business operations within the securities market is also one of the
main functions of SEBI.

Section 12A – Prohibition of manipulative and deceptive devices, insider trading and
acquisition of securities or control. This section prohibits manipulative and deceptive
devices and insider trading to any person directly or indirectly to commit it. It says
that no person shall directly or indirectly indulge in employing devices that are
manipulative in nature or engaging in insider trading etc.

Section 15 E – Penalty for failure to observe rules and regulations by an asset

management company. The section explains that where any asset management
company of a mutual fund registered under this Act, fails to comply with any of the
restrictions on the activities of asset management, then such company shall be
liable for penalty. The penalty can be not less than one lakh rupees but which
extends to a maximum of one crore rupees. Under this section, the SEBI provides
penalties in cases of insider trading, nondisclosure of shares, failure to refund to the
investors and other fraudulent and unfair trade practices.

Prevention of Money Laundering Act, 2002

Under the Prevention of Money Laundering Act (PMLA), corporate fraud is a
predicate offence When any type of money laundering or other similar fraud to is
committed to conceal or any benefits from the offence. If any person commits any
fraud related to the acquisition, possession or any act that proceeds to money
laundering that will be also considered as a money laundering offence. The
provisions of PMLA protect against corporate frauds occurring in India. Section 3
talks about the offence of money laundering, it says whosoever directly or indirectly
attempts to indulge or assist a party or actually involved in any process or
connected with the proceeds of crime including its concealment, possession,
acquisition shall be guilty of the offence of money laundering. Section 4 of the act
talks about the punishment for money laundering. The punishment is rigorous
imprisonment for a term which shall not be less than three years, it can also extend
to seven years and a fine.

Corporate fraud provisions under Companies

Act, 2013
Section 447: Punishment for Fraud
This section provides punishment for an individual who committed fraud against the
company. It explains that any individual who is guilty of fraud shall be punished
with a fine and imprisonment with a maximum period of 10 years. The fine should
be not more than three times the amount involved in fraud. But in certain
conditions, the fine may extend up to three times the amount of fraud involved.

Section 447A: Punishment for False Statement

Section 447A says that if any individual makes a false allegation in any return,
report, or any other document which is related to the registrar will be punished with
imprisonment for a maximum of three years or a fine of five thousand rupees or
both.

Sections 448, 449 and 450: Punishment for forgery

Section 448 deals with the forgery offences against the company. Any individual
who is considered guilty of forgery, when either a new forged document is created
or existing documents of the company that are false and misleading statements
with respect to the company. Then the person shall be punished with imprisonment
which may extend up to 7 years and can be along with a fine of five thousand
rupees or in certain cases the amount maybe three times the amount involved in
fraud.

Section 542: Liability for fraudulent conduct of business

While winding up of a company, the persons who are carrying the business are
personally liable for all the fraudulent conduct of business, and also if the company
has any debts or other liabilities.

Non-compoundable fraud
Usually, the punishment for fraud is imprisonment and fine as provided under
Section 447, it is considered a non-compoundable offence. The Act of fraud has
recently become a more heinous offence after introducing regulations. The Act has
mentioned the punishments under Section 447 and several sections as mentioned
below have explained the fraud by directors, managers, and other officers of the
company. The new laws go beyond the ambit of professional liability and include
personal liability.

The table below explains the relevant sections under the Companies Act, 2013 of
fraud and who will be accounted (defaulter) for the same

Section Fraud Defaulter

False information or material

7(5) Individual
suppression

8 Fraud in company affairs Officer

Individual who authorises the issue

34 False statements in prospectus
of prospectus

36 Fraudulently inducing to invest Individual

Personation of securities,
38 Individual
acquisition etc

46(5) Duplicate certificate of shares Officer

75(1) Default of deposits/ interests Officer of the company

206 Fraudulent business Officer

The individual who required to

False statement or destroying
229 provide information regarding the
evidence during investigation
case

Investigation of corporate fraud

The investigation method is comprehensive, combining legal procedures and cutting
edge technology to detect financial irregularities. SEBI, PMLA, and the Companies
Act are examples of such regulations. The legislation empowers the regulatory body
to investigate, scrutinise and enforce law proceedings if the companies or
businesses are suspected of engaging or are found engaging in fraudulent activities
like insider trading, misleading the financial statements, etc.

Serious Fraud Investigation Office

This is a multifunctional agency consisting of experts to detect fraudulent activities.
The agency investigates cases of companies involved in financial fraud. The central
government will investigate these companies. The agency can arrest in cases where
an individual is found guilty of an offence under the Companies Act. The agency is
established under Section 211 of the Companies Act, 2013. The investigating team
consists of experts from different sectors like capital markets, banking sector,
forensic audit, information technology and taxation. The agency has also had the
power to arrest any person found guilty of committing fraud under the act. The
agency takes up only complex matters and has interdepartmental ramifications,
multidisciplinary aspects, etc. The Satyam scandal was one of the cases that was
taken by this agency and submitted the report.

National Company Law Tribunal

This quasi-judicial authority handles corporate disputes, it has powers to provide
relief for class action suits, mismanagement, etc. The tribunal is not bound by the
procedural rules, it also decides cases by the principle of natural justice. This
authority is also established under the Companies Act, 2013. NCLT has the power to
award pecuniary damages and penalties for the wrong or offence committed by the
officers of the company. The tribunal is not bound to any strict procedures rather
the matter can be decided following the principles of natural justice.

How does lifting of corporate veil help with

mitigation of corporate fraud
The corporate veil is a legal concept that separates a company’s actions from those
of its shareholders. This is to safeguard stockholders from liability for the company’s
conduct. Lifting of the corporate veil helps to reveal the individuals who committed
the fraud behind the corporate entities. By piercing the corporate veil, the intent of
the abuse of corporate structures should be proven. The corporate veil protects the
shareholders and members from the defects occurring in the name of the company.
For example, when the director of the company defaults when he is part of the
company, the liability to the company is not to the director of the company.
Essentially, the concept of a corporate veil protects the members of the company by
shielding them from the repercussions of wrong doings in the name of the
company.

Infamous corporate fraud cases

M/S Satyam Computers Services vs. Directorate of Enforcement

(2011).
This case was the first major fraud India faced and resulted in stringent regulations,
reporting and governance mechanisms. In this case, the company was reflecting
large bank balances in the financial statements constantly but was inconsistent with
other companies which were involved in the same business model. Apparently, a
separate team was working on the scam. In order to convince the auditors during
the closure of financials, they issued fake bank confirmations and statements as
evidence. The approximate amount involved was around USD 1 billion. At the same
time Satyam was receiving awards for good corporate governance and the promoter
of the company acquired respect in the industry.

Satyam had a good business model and portfolio with a good number of
international clients. The government took the initiative to revamp the company,
initially, the government dismissed all the board of directors and appointed
professionals. Later, the company was sold to Mahindra Group and currently, it is a
major part of the successful technology business of the group.

Kingfisher Airlines Ltd vs. Union of India (2015).

In this case, the Kingfisher Airlines scam was another corporate fraud, in the airline
industry, which led to the fall of the Kingfisher empire. The kingfisher is tagged as
the king of good times, owned by the great businessman of the country, Vijay
Mallya. Kingfisher was famous for its beverages, later over a short time period, the
company established the most luxurious aeroplanes in the country. The service of
the aircraft was of high quality and the company was the second highest in market
share after Jet Airways. The company had bad debts, and Vijay Mallya had to sell
his personal properties and beer business to liquidate the borrowings. A consortium
of banks published an approx of INR 9000 crores as debt. This case is more of a
business failure due to bad debts than a corporate fraud.

The table below shows the amount of loans taken by Vijay Mallya

Serial No. Name of the Bank Loan Amount

1 Axis bank 50 crores

2 Punjab and Sind bank 60 crores

3 Federal bank 90 crores

4 Indian Overseas bank 140 crores

5 United bank of India 430 crores

6 Bank of baroda 550 crores

7 Punjab National Bank 800 crores

8 State bank of India 1600 crores

Punjab National Bank vs. Union of India (2022).

This is a case of major banking fraud in the nation, which is INR 15000 crores. The
fraud was committed by the proficient jewellers of the country, Nirav Modi and
Mehul Choksi. They both engaged in exporting polished diamond business. They had
strong retail chains of diamond business in India and other international
destinations. The question of funding arose after some point. Apparently, the
company was defrauding Punjab National Bank and other banks. They transacted
large amounts of money without any underlying assistance from junior-level
banking officials. The estimated amount involved was more than around INR 16000
rupees. RBI issued red alerts to all banks, advising the banks to have right system
deficiencies. After this scam in 2018, the government approved the Fugitive
Economic Offenders Bill to deter economic offenders from evading the process of
Indian law by giving powers to the government to confiscate the assets of fugitives,
including the Benami assets of absconding loan defaulters. The bill covers a wide
range of economic offenders including loan defaulters, fraudsters, individuals who
violate the laws governing taxes, black money, Benami properties, financial sector
and corruption.

Union of India vs. Infrastructure Leasing & Financial Services Ltd

(2022).
This is the case of the largest fraud in the country, as the company Infrastructure
Leasing & Financial Services (ILFS) played a key role in infrastructure development
in India. The company was backed by large shoulders like LIC and SBI and had
representatives on the board. The debt amount was a sum of INR 91000 crores
including the PF and pension funds. The fraud happened mainly as a result of the
diversion of borrowed money associated with entities by some members of the
senior management team among other factors. The company had a high credit
rating and this made most of the asset management, and insurance companies
invest large sums in its debt issuance. The rating agencies did not downgrade the
rating of the company even when they had clear financial stress signals due to its
high reputation. Even if the rating agencies had hints the actual rating was changed
abruptly to the lowest from the highest after defaulting on repayment obligations.
The company had a reputed top management, and no one challenged the decisions
of the directors.

Subrata Chattoraj vs. Union of India (2014).

This case was a Ponzi scheme scam, the scheme was started by the Saradha Group.
They collected money from investors by issuing bonds which are redeemable,
debentures and promised high profits from investments. The agents were hired
from throughout West Bengal with high salaries to expand quickly. This made the
scheme get investments from around 200 companies. The company used a nexus of
companies to avoid regulatory bodies. Later, in 2013, the scheme collapsed,
incurring a loss of around 200 billion to the depositors and agents. The Securities
Exchange Board of India barred the group from the securities market till the
company was shut down.

How to prevent corporate fraud

Good corporate governance practices will essentially help to prevent the risk of
fraud and corruption. To have good corporate governance the company would have
intact written policies, procedures and protocols to ensure the expectations of the
individuals of the company especially regarding financial reporting and compliance.
Good governance provides transparency and accountability within the organisation
which also helps to detect any irregularities in the activities. Through good
corporate governance, the roles of the board will be divided equally, this will also
help in balancing the accountability of the board members. This also provides
intense robust internal controls and helps to detect the defaults in the company
rapidly.

Role of technology
The technology offers several tools to prevent corporate fraud and increase good
governance. Data analytics and artificial intelligence are key factors where the
algorithms can learn from past data to understand fraud especially in financial
frauds and also in other business operations. The decentralised mechanism of
blockchain technology helps to identify patterns and anomalies which indicate fraud.
Blockchain minimises fraud by creating fool-proof data for financial transactions.
Digital identity verification technology facilitates a digital identity process to reduce
impersonation. Cybersecurity measures like regular security audits and training on
cybersecurity help to create a robust system against cyber threats. There is fraud
detection software to identify irregularities and unusual behaviours that may give
hints of fraudulent activities.

Recent developments in corporate fraud in

India
The Securities Exchange Board of India introduced new provisions in Listing
Obligations and Disclosure Requirements Regulations, 2015 (LODR Regulations,
2015) for occasions when a forensic audit is initiated, listed companies should
mandatorily disclose certain information to stock exchanges. The company should
inform the public that a forensic audit has taken place, the identity of the
organisation and other justifications. Also, the company should submit a final
forensic audit report with receipts of listed companies.

LODR (Second Amendment)Regulations, 2021

The amendments seek to enforce higher disclosure and standards of corporate
governance in public listed companies. The main change in this amendment was the
disclosure of fraud, default and arrests. The listed entities are now obligated to
disclose any fraud or defaults by the company or subsidiary and any fraudulent
activity, default, or arrest of its promoter, director, key managers or any senior
management of the listed entity which has happened in India or outside India. The
newly introduced compliance mandate is to increase international security
requirements.

As per Regulation 30(6), a listed entity has to disclose to the exchange all the
material information at the earliest and should not take more than 24 hours from
the occurrence of the event or information. In case failure to disclose information or
the information is made after 24 hours from the event occurred, the listed company
should give an explanation for the delay along with such disclosures. These
disclosures should be made within the specific timelines. The disclosure should be
made as soon as possible within specific timeframes, the time period depends on
the nature and origin of the event. The specified time frames are as mentioned
below;

Within 30 minutes the decision from the board of directors meeting with respect
to the event should be disclosed.

Within the next 12 hours after the event or information occurred should disclose
from which listed entity it originated.

Within 24 hours from the occurrence of the event, in cases when it did not
originate from within the listed company.

Conclusion
Corporate fraud is a breach of trust which hampers the business culture and
extends beyond financial malfeasance. It damages the very texture of businesses,
destroys the trust of stakeholders and tarnishes the reputation of the organisations.
The reason behind the surge in fraud cases is mainly due to the intense competition
in the market creating an environment for unethical practices. The legislation
governing fraud in India, like the SEBI Act, PMLA and Companies Act are acting
rigorously to prevent malpractice. Frequently Asked Questions (FAQs)

What are specific legislative guidelines provided in

SEBI, PMLA, and Companies Act regarding
corporate fraud?
These legislations collectively try to prevent Corporate fraud by empowering
regulatory bodies to monitor, penalise and prosecute, etc. for fraudulent activities
ensuring a comprehensive approach by sustaining corporate integrity.

What is the lifting of the corporate veil?

The concept of corporate veil is a legal concept which separates the actions of a
company from the actions of the shareholder. This is to protect the shareholders
from being liable for the actions of the company. This also helps the court to
determine whether they hold shareholders liable or not for the actions of the
company.

How can technology help in easing the identification

and prevention of corporate fraud?
Advancing data analytics and machine learning play a major role in identifying
fraudulent companies which helps in investigations. These technologies will help to
detect anomalies in corporate transactions.

Reference
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