Introduction

The Ministry of Corporate Affairs has notified the Companies (Arrests in connection with Investigation by Serious Fraud Investigation Office) Rules, 2017, vide notification G.S.R. 1062(E) dated August 24th, 2017 (hereinafter referred to as the “Rules”.

The Central Government enforced the Rules, in exercise of the powers conferred under sub-Section (1) of Section 469 read along with Section 212 of Companies Act, 2013.

  • Section 469(1) – It grants power to Central Government to make rules for carrying out provisions of the Companies Act, 2013.
  • Section 212 – it deals with Investigation into affairs of Companies by SFIO. SFIO at instances, by order of Central Government make such investigation.

What is Serious Fraud Investigation Office (SFIO)?

As per the Companies Act, 2013, Serious Fraud Investigation Office (hereinafter referred to as “SFIO”) was established through the Government of India vide Notification NO. S.O.2005(E) dated July 21, 2015.

SFIO is a multi-disciplinary organization/team under Ministry of Corporate Affairs, consisting of experts in the field of accountancy, forensic auditing, information technology, law, investigation, company law, capital market and taxation for detecting and prosecuting or recommending for prosecution white-collar crimes/frauds. SFIO is headed by a Director, which is further assisted by Additional Directors, Joint Directors, Deputy Directors, Senior Assistant Directors, Assistant Directors Prosecutors and other secretarial staff. The headquarter being located a New Delhi, with 5 other Regional Offices at Chennai, Hyderabad, Mumbai, New Delhi & Kolkata

SFIO investigates serious cases of fraud as per the provisions of Companies Act, 2013, and forwards the investigated report to the concerned agencies for prosecution or appropriate action to be taken.

 Provisions of “The Rules”

  • As per the Rules, the Director, Additional Director or Assistant Director may arrest any person, if while investigation they have reason to believe on basis of material in possession that such person has been guilty of any offence punishable. Prior written consent of the Director shall be obtained in case the arrest is being made by Additional Director or Assistant Director, as the Director is the apex authority for all decisions made.[1]
  • Prior written approval of Central Government shall be obtained where an arrest is to be made in connection with a Government Company or a Foreign Company, and the intimation of such arrest shall be given to the Managing Director or the person in charge of affairs of the Government Company, or to the Secretary of the administrative ministry if the arrested person is the Managing Director or the person in charge of affairs of the Government Company itself.[2]
  • At the time of arrest, an arrest order is made with the particulars of the arrest made such as details of arrestee, offence etc., and a personal search memo is sent to the address of the person arrested
  • The Director, Additional Director or Assistant Director shall sign the arrest order along with personal search memo and serve it to the arrestee and obtain written acknowledgment.[3]
  • A copy of the arrest order, personal search memo, along with material in possession and other documents shall be forwarded within twenty four (24) hours to the office of Director, SFIO.[4]
  • Particulars of arrestee, date and time of arrest and other relevant information pertaining to the arrest are to be made in a register maintained at the office of Director.[5]
  • The office of Director, SFIO shall preserve the copy of arrest order together with supporting materials for a period of five (5) years from the date of judgement or final order of the Trial Court, or from the date of disposal of matter before final Appellate Order if the judgement or final order of trial court was impugned.[6]