The Serious Frauds Investigation Office (SFIO), a multi-disciplinary organization under the Ministry of Corporate Affairs, recently made headlines when it arrested the alleged mastermind behind an extensive racket involving the creation of shell companies with Chinese connections. This operation also involved using placeholder directors. The SFIO had been tasked by the government to probe Jillian Consultants India Pvt Ltd and 32 other firms.
Understanding Shell Companies
A shell company is a business entity that, despite being formally registered and incorporated, does not engage in any actual operations within the economy. These companies are occasionally used for unscrupulous activities, such as hiding business ownership from law enforcement agencies or the public.
The Role and Reach of SFIO
The SFIO comprises experts from various fields including accountancy, forensic auditing, law, information technology, investigation, company law, capital market, and taxation. Their main task is to detect and either prosecute or recommend for prosecution white-collar crimes and frauds.
The SFIO’s primary office is in New Delhi. It also has a Computer Forensic and Data Mining Laboratory (CFDML) established in 2013, which provides investigative support and services to SFIO officers. The agency is headed by a Director, who holds the joint secretary rank to the Government of India.
The SFIO was initially formed by the Government of India through a resolution dated 2nd July, 2003. At inception, the SFIO did not enjoy formal legal status.
Statutory Status and Functions of SFIO
According to Section 211 of the Companies Act, 2013, the SFIO has been given statutory status. This provision also grants the agency powers to arrest individuals for violations of the Company law.
The Central Government can initiate an investigation into a company’s affairs and delegate this responsibility to the SFIO under certain conditions. These include receiving a report from the Registrar or inspector under section 208 (Report on Inspection made) of the Companies Act, 2013; following the passage of a special resolution by a company stating the need for an investigation of its affairs; protecting public interest; or receiving a request from any Department of the Central Government or a State Government.
