Authored By: Agnishikha (BBA LL.B.), Student at Banasthali Vidyapith , Tonk, Rajasthan, India, Research Writer at Law Audience®,
Edited By: Mr. Varun Kumar, Advocate, Himachal, Punjab & Haryana and Founder at Law Audience.
I. INTRODUCTION:
“In today’s operative mechanism of business morality and corporal-civic interaction, deviance has sharpened its edge beyond secrecy and violation; it has become a weapon against public health and a crisis on national administration presenting pressing alarms at us collectively like a challenging mockery rather than a question of judicial precedent, at least not solely such.[1] With legal prudence hovering on the topic of co-operational pretence and public faith as third parties we have hit some considerable hedges on constitutional conformity (or condonations) to business functions in the country, penalizational process and classified crimes being checked as crisis statutes which have led to both constitutive harms and ideological/zemiological abuses. Across the world corporate frauds have been identified as the vague gap between what firms state objectively and fail to reveal on assessments. The arising considerations in the form of damages with the construct of an aware and ill-intented vendetta in between the stage of pretence and the consequence of assessment is regarded as corporate fraud[2].
This shift from pretense to revealence has led to representational violations, fiduciary falsehoods and financial remediational litigations with markets crashing and unequated public wealth being bingoed and drained in pockets of wealthy tycoons, here traces of evidential considerations price discussions over breach of negligent acts.[3] Indian context takes this lens to a broader scope from facilitating sophisticated offenses as eliminative or isolated acts to a prerogative of preventive policy monitoring and mourning. The concern has shifted from capital losses to systemic administrative failure; surprisingly such a system has ever since existed”.
II. WHAT ARE CORPORATE FRAUDS? DEFINITIVE SCOPES AND CONTEXTUAL MEANINGS:
While with perspective variations, including the nature and classification of legal recognition of offence and the litigative subjects intending to sue for the same, the term “fraud’’ cannot be captured holistically in one legally suiting method.[4] The etymological origin of “corporate frauds” literally translates to ‘arising deceit’ by the means of pretense which at its core holds as subjective violation and is associated with causing casualties or harm.[5] Here, the roots of harm of corporal occurrence is technically or wholly absent but the objective violation outlasts the institutional and procedural viability of legislative burden itself. It simply states that when a company deceits, manipulates records or necessary expressions or deviates to create a make belief of its identity and nature or any other details as otherwise to what the distinctive status of the firm reveals on its final declaration to or against an insider, association, individual or the public at large as a third party the same shall be sufficiently regarded as corporate fraud.
A more constructive pragmatic take taken by modern thinkers has been that fraud must not simply be regarded or gestured to be proven such that in principle it must be a consumptive damage of loss caused out of a vendetta in faith done to any other individual or association against and by the firm in plight of being the violator. This strengthens the bandwidth of what the base line of white-collar crimes generally apologizes over: a practical gesture of constructive damage must be quantifiable not symbolic. This raises the theories of punitive or penal consideration equalizing divergent crimes for the same resultant from a sophisticated gesture of the offense to the brunt of purely the crime’s nature.
Hence, the status of fraudulence is both:
- Subjective to decline in capacity to cause monitoring by maintaining regulation.
- As much as it is a result of the delineation of duty associated in finding the complexity of such cases as deceitful
III. PROCEDURAL STATUSES AND JUDICIAL DECISIONS:
Arising out of public agitation or a pure frustration on the lapse of principle of equity, as the reader raises the emotive scope of considering ethical dilemmas away from legislative pronouncements it is not preventive to do so. Courts over the years and with many considerable monetary losses burdened on the public have raised scrutiny over regulatory pardon or plight. How fat cash cow companies, associations and firms favour their legal identity as a potential instrument of causing influence on people. Following are the dilemmas that the courts dealt with while delimiting criminals since simply and solely to survey and study the nature of offices in their most villainous status while also eliminating a classification in crime and occupational offenses as a recognizable valve being immune to such legal identities.
III.I SATYAM COMPUTER SERVICES LTD. CASE (RAJU VS. UNION OF INDIA & RELATED PROCEEDINGS):
Ramalinga Raju was held guilty by trial court which sentenced him to seven years rigorous imprisonment with fine of Rs. 5 crores. The nation all over was shocked and scandalized with the scam. It is also known as India’s Enron. It was probably the biggest corporate scam from one of the largest IT Companies in India i.e., Satyam Computer Services Limited (M/s SCSL). The scam triggered the loss to investors to the tune of Rs. 8000 crores.[6] Ramalinga Raju confessed in his letter that he cooked books of accounts of the company and admitted that the accounting entries were wrongly inflated. He overstated the income nearly every quarter over the course of several years in order to meet investor’s expectations. Weak independent directors and negligence of auditors also contributed to the scam.
(Author’s Note: The courts conjured to intentionally not recognize the tact of occupational competency and recognize instead the confession as a purpose of self-incrimination of arising offence. The factum in validity of how rationalization of capital administration was at the ease and contact of stakeholders of the company was the first concern. Not any less in line was the failure of the systemic scrutiny of ED and of functioning bodies to evaluate the secret which was bordered with sufficient exposure. The legal status of corporate veil piercing over public concern with financial statement management was also stripped as a suggestion.)
III.II HARSHAD MEHTA SCAM:
In April 1992, the Indian Stock market crashed and Harshad Mehta who was considered as architect for Bull Run was blamed for the crash. It grabbed headlines for the notorious BSE security scam when veteran columnist Sucheta Dalal wrote an article in India’s national daily The Times of India. He manipulated the Indian banking system to siphon off the funds from the banking system and used liquidity to build large positions in a selected group of stocks. He diverted funds to the tune of Rs. 4000 crores from the banks to stockbrokers. He was later charged with multiple criminal offences.[7]
III.III ENRON SCANDAL:
With the Enron scandal, The United States of America witnessed the biggest corporate collapse in its corporate history in the early days of December 2001, which sent shock waves across the whole business world. Enron, until the collapse, was held in high esteem by well-known corporate observers, analysts and corporate rating agencies in the United States of America. Many executives of Enron were indicted and charged for several fraudulent activities, ranging from insider trading, corrupt business practices, money laundering, falsification of accounting records, financial misappropriation etc. They were processed in courts and several of them were then sentenced to prison. As a consequence of the Enron Scandal, the US enacted new regulations and legislation to increase the relevant business rules to ensure accuracy of financial reporting for public companies, one of them being the Sarbanes-Oxley Act, 2002.[8] These touch the surface of cooperatively crafted asymmetries and in turn negative violation in form or organizations and ultimately crimes. Sufficiently making the suffix of shifting major unidentifiable legislation becoming remedial laws. Almost all of these cases re-crafted the legislative reconfiguration from the prerogative of rights and indemnities of companies to the negative violation they seek to give and gain the potential from.
IV. NATURE OF OFFENSE: LEGISLATIVE RECOGNITION AND EXECUTIVE CONTRADICTION:
Corporate fraud also involves securities fraud as securities are dealt with by the corporates irrespective of being public or private. This creates a firm confusion in a shared liability of which part of submission in the offense has to be made once and ultimately as an end to its detention, punitive, registrational or conditional nature. In criminal science as discussed in the regulatory and procedural nature of how law regards fraud as a negative enforcement to the prestige of white-collar crimes, it is suggestive of a suspicious and fishy society based on the classificatory compatibility of the institutional records alone. The problem in the nature of offense is selectively about experience of high status not involving the society at large as a whole. Here the concern is simply not about the natural deficiency of how deceit and fraud was conducted, it is rather the encouraging will to fail that raises presumption of criminal prosecution.
Security and Exchange Board of India (SEBI) has been a regulator for the securities market and is empowered to remedy the mischief sought to be prevented. Certain sections under SEBI Act 199211 empower SEBI to take measures against fraudulent and unfair trade practice and insider trading. SEBI is one of the most powerful regulatory authorities for securities fraud. They confine ethical stances being maintained without stronger nexus and legal burdens being placed on either of the parties. Besides legislative assessment including asset liabilities and criminal burden shaping the subject of tension whose conduct is yet to be remedial than precautionary.
Reference of statutory details are as follows, both applicable in pre-trial and post-trial stages:
- Indian Penal Code, 1860[9] – Punishes cheating, criminal breach of trust, forgery, and conspiracy involved in corporate fraud.
- Companies Act, 2013[10] – Section 447 criminalises corporate fraud and prescribes stringent punishment for fraudulent conduct by companies and officers.
- SEBI Act, 1992 & SEBI Regulations – Regulate and penalise fraudulent and unfair trade practices in securities markets.
- Prevention of Money Laundering Act, 2002[11] – Targets laundering of proceeds generated from corporate fraud through attachment and prosecution.
- Fugitive Economic Offenders Act, 2018 – Enables confiscation of assets of corporate offenders who evade Indian jurisdiction.
- Banking Regulation Act, 1949 & RBI Guidelines – Govern detection and reporting of banking and loan-related corporate frauds.
- Negotiable Instruments Act, 1881[12] – Imposes criminal liability on companies for cheque dishonour arising from fraudulent transactions.
- Income Tax Act, 1961 – Penalises tax evasion and false disclosures arising from corporate fraud.
- Benami Transactions (Prohibition) Act, 1988[13] – Prohibits concealment of fraud proceeds through benami properties.
- Indian Contract Act, 1872 – Declares contracts induced by fraud voidable at the option of the aggrieved party.
V. CONCLUSION:
Calculable offences, while selective in practice, have shaped an ugly weight on the minds of the bodies regulating their investigation and the ones creating judicial prejudices. It would require more than just recognizing the nature of conduct of such offences subjected to institutional working in deficiency, with follow-up patterns being traced. It would also take more than regaining consequential liability and promised political compliance that audits and enforcement policies create, re-instating corrupt faults in their taking due assessments. At best, evaluation can be preliminary steps. In India and across the world, the analogy of how these malfunctions happen has one golden rule:
Re-instatement must confirm prevention of offences that target mass losses in the presence of institutional records that now look at causing more punitive harm than tactical “mistakes’’ of CEOs.
It is in the better view of the author that rather than promising reformation beyond expectations it will be better to find expressive legal defenses in expressions lacking answers and institutions grabbed on political hold.
Footnotes:
[1] Jennifer Arlen & Reinier Kraakman, Controlling Corporate Misconduct: An Analysis of Corporate Liability Regimes, 72 NYU L Rev 687 (1997).
[2] United Nations Office on Drugs and Crime (UNODC), Fraud and Economic Crime (UNODC, 2016).
[3] Securities and Exchange Board of India, Report on Corporate Governance Failures in India (SEBI, 2019).
[4] Ratanlal & Dhirajlal, The Indian Penal Code (LexisNexis, 36th edn., 2020).
[5] Bryan A. Garner (ed.), Black’s Law Dictionary (11th edn., Thomson Reuters, 2019) “Fraud”.
[6] Ministry of Corporate Affairs, Satyam Scam Investigation Report (Government of India, 2009).
[7] CBI v. Harshad S. Mehta, (2001) 8 SCC 257.
[8] William C. Powers Jr., Report of Investigation by the Special Investigative Committee of the Board of Directors of Enron Corp. (2002).
[9] Indian Penal Code, 1860, ss 405, 415, 463, 120B.
[10] Companies Act, 2013, s 447.
[11] Prevention of Money Laundering Act, 2002
[12] Negotiable Instruments Act, 1881, s 138.
[13] Prohibition of Benami Property Transactions Act, 1988.
