The pro­ce­dure & ac­tion against the cul­prits

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1 RBI has is­sued a mas­ter cir­cu­lar Frauds – clas­si­fi­ca­tion and re­port­ing, dates July 1, 2015. This cir­cu­lar cov­ers clas­si­fi­ca­tion, mon­i­tor­ing, pro­vi­sion and clo­sure of fraud cases

Clas­si­fi­ca­tion of frauds

In or­der to have uni­for­mity in re­port­ing, RBI has pro­vided guide­lines for clas­si­fi­ca­tion of frauds. There are 7 clas­si­fi­ca­tions in­clud­ing a resid­ual cat­e­gory. The clas­si­fi­ca­tion in­clude (a) Unau­tho­rised credit fa­cil­i­ties ex­tended for re­ward or for il­le­gal grat­i­fi­ca­tion and (b) Cheat­ing and forgery

Re­port­ing of frauds to RBI

The cir­cu­lar pre­scribes norms for re­port­ing of frauds to Re­serve bank of In­dia as well to in­ter­nal man­age­ment. It also sug­gest quar­terly and an­nual re­port­ing and mon­i­tor­ing of out­stand­ing frauds. Ad­di­tional in­for­ma­tion as re­gards to un­scrupu­lous bor­row­ers is also re­quired to be fur­nished to Re­serve Bank of In­dia. The cir­cu­lar also sug­gest that a sub­com­mit­tee of the board should be formed to pro­vide fo­cused at­ten­tion and to avoid de­lays in de­tec­tion, re­port­ing and mon­i­tor­ing of high value frauds.

Pro­vi­sion­ing Per­tain­ing to Fraud Ac­counts

To en­sure uni­form pro­vi­sion­ing norm in re­spect of all cases of fraud, it is pre­scribed that The en­tire amount due to the bank (ir­re­spec­tive of the quan­tum of se­cu­rity held against such as­sets), or for which the bank is li­able (in­clud­ing in case of de­posit ac­counts), is to be pro­vided for over a pe­riod not ex­ceed­ing four quar­ters com­menc­ing with the quar­ter in which the fraud has been de­tected.

1. Com­pa­nies Act, 2013 (re­ferred to as Act)

Re­port­ing re­spon­si­bil­ity on au­di­tor as per sec­tion 143 (12) of Act Au­di­tors has a rea­son to be­lieve that an of­fence of fraud in­volv­ing amount of Rs.1 crore and more, is be­ing or has been com­mit­ted in the com­pany by its of­fi­cers or em­ploy­ees, the au­di­tor shall re­port the mat­ter to the Cen­tral Gov­ern­ment / RBI as well as to the Board of Di­rec­tors / Au­dit Com­mit­tee within the pre­scribed time frame and in the pre­scribed man­ner

Penalty un­der the Act

As per sec­tion 447 of the Act, in case the fraud in ques­tion in­volves pub­lic in­ter­est, the term of im­pris­on­ment shall not be less than three years but which may ex­tend to ten years and shall also be li­able to fine which shall not be less than the amount in­volved in the fraud, but which may ex­tend to three times the amount in­volved in the fraud

Se­ri­ous Fraud In­ves­ti­ga­tion Of­fice (SFIO)

As per sec­tion 212 of Act, The Cen­tral Gov­ern­ment may in pub­lic in­ter­est or­der an in­ves­ti­ga­tion by SFIO. All the of­fi­cers and em­ploy­ees are re­spon­si­ble to pro­vide all the de­tails to the in­ves­ti­gat­ing of­fi­cer. The in­ves­ti­gat­ing of­fice has wide pow­ers in in­spect­ing the mat­ter.

2. Gen­eral

The bor­row­ers and all those who have con­nived would be sub­ject to penalty and crim­i­nal pros­e­cu­tion as laid down in the In­dian Pe­nal Code

SAN­DEEP SHAH, Partners of N A Shah As­so­ciates LLP.

Views by: MI­LAN MODY

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