SFIO chief pulls up independent directors for washing hands of corporate frauds

Serious Fraud Investigation Office Director Keshav Chandra on Thursday criticised independent directors for not being able to prevent corporate frauds.

He said reputable independent directors had been on boards of big companies where fraud happened, but they defended themselves, saying they were only independent directors and did not know what was happening in the company.

“This is a striking similarity in all these big fraud cases,” Chandra said while addressing a CII conference on corporate frauds. Comparing independent directors and professionals with Greek mythology creatures Myrmidons who were an army of soldiers ready to die at the command of Achilles, Chandra said, “Somebody plans the entire thing (fraud) and the whole army bends over backwards to somehow implement that in perpetuity. Myrmidons, where the corporate fraud takes place, are not just the employees of the company but also the independent directors, socalled professionals.”

He said frauds happen in companies, not just through promoters but a whole group of people who work to achieve the promoter's plan. He said there were several examples, in the world, and in India, where this unholy marriage of the professionals, and the unscrupulous corporate elements had taken place and vitiated or tainted the economy very badly. “There is no quick fix solution but some of the countries have come up with very innovative practices such as having two boards — management board and a supervisory board. Both work independently,” Chandra said.

SFIO is at present dealing with 199 cases of fraud and Chandra said the organisation was trying to reduce the time taken to complete an investigation which often crosses 18 months. “We are working day and night to cut it short,” he said.

The SFIO chief also questioned the standards of corporate governance and the structures of businesses. Quoting a report by the Reserve Bank of India, Chandra said the lag between the detection of fraud of more than ~100 crore is more than 57 months. “What it means is that somebody who perpetuates this fraud manages it for five years without impunity, and then all agencies come into action only after five years when almost everything’s been done most of the story goes into Panama Papers and what not.”

Chandra said the interplay of four elements of corporate governance could ensure the good health of the corporate sector. These include the board, management, stakeholders, and regulators. “If all these four functions independently at the same time, in tandem, then one can very safely assume that corporate health will be in a good state,” he said.