Prosecution Of Corporate Fraud And White-Collar Crime
Introduction
Corporate fraud and white-collar crime refer to non-violent offenses committed for financial gain, typically involving deceit, concealment, or a breach of trust. These crimes are often complex and involve large-scale financial transactions. Prosecution of such crimes can be challenging due to their sophisticated nature, the involvement of high-ranking individuals, and the need for in-depth financial and forensic analysis.
White-collar crimes can include:
Accounting fraud
Insider trading
Embezzlement
Tax evasion
Bribery and corruption
Money laundering
Let’s delve into the legal mechanisms for prosecution and then study detailed case laws illustrating how such crimes are pursued and punished.
Legal Framework for Prosecution in India
Indian Penal Code, 1860 (IPC) – For general offenses like cheating (Section 420), criminal breach of trust (Section 406), and forgery (Sections 463–471).
Companies Act, 2013 – Contains provisions for fraud (Section 447), misstatement in prospectus, etc.
Prevention of Corruption Act, 1988
Prevention of Money Laundering Act (PMLA), 2002
Securities and Exchange Board of India (SEBI) Act, 1992 – Regulates securities fraud and insider trading.
Income Tax Act, 1961 – Covers tax evasion.
Information Technology Act, 2000 – Covers cyber-enabled financial crimes.
Case Laws – Detailed Explanations
1. Satyam Computers Scam (Ramalinga Raju Case)
Facts: In 2009, B. Ramalinga Raju, chairman of Satyam Computers, confessed to inflating the company’s revenue and profits for several years. He admitted to falsifying accounts to the tune of ₹7,000 crore. Auditors were also complicit.
Charges:
Cheating (Sec. 420 IPC)
Forgery (Sec. 468, 471 IPC)
Criminal conspiracy (Sec. 120B IPC)
Under Companies Act and SEBI regulations
Outcome:
Raju and nine others were convicted by a special CBI court in 2015.
Sentenced to 7 years in jail.
PwC (auditors) were barred by SEBI from auditing listed companies for two years.
Significance: It exposed regulatory gaps and led to stricter corporate governance norms under the Companies Act, 2013.
2. Harshad Mehta Securities Scam (1992)
Facts: Harshad Mehta, a stockbroker, manipulated the Bombay Stock Exchange by exploiting loopholes in the banking system. He used fake bank receipts and siphoned off over ₹4,000 crore to inflate stock prices.
Legal Action:
Charged under IPC, SEBI Act, and the Banking Regulation Act.
Investigated by CBI and SEBI.
Multiple cases were filed.
Outcome:
Mehta was arrested in 1992, released on bail, but re-arrested in 1998.
He died in custody in 2001.
His assets were liquidated to recover investors' money.
SEBI imposed stricter surveillance on broker operations.
Significance: Led to major reforms in Indian capital markets, including formation of the National Stock Exchange (NSE), online trading, and enhanced role of SEBI.
3. Nirav Modi & Punjab National Bank (PNB) Scam (2018)
Facts: Jeweler Nirav Modi and his uncle Mehul Choksi fraudulently obtained LoUs (Letters of Undertaking) from PNB using collusion with bank officials. Estimated fraud was over ₹13,000 crore.
Charges:
Criminal conspiracy
Cheating
Money laundering under PMLA
Charges under IPC and Prevention of Corruption Act
Outcome:
Nirav Modi fled the country; later arrested in the UK and is contesting extradition.
Enforcement Directorate (ED) seized assets worth thousands of crores.
PNB faced severe reputational and financial damage.
Multiple officials arrested and prosecuted.
Significance: Highlighted the need for tighter internal controls in banking and stricter regulatory checks.
4. Vijay Mallya – Kingfisher Airlines Case
Facts: Vijay Mallya, promoter of Kingfisher Airlines, took loans from several public sector banks and defaulted. Allegations include diversion of funds and willful default of over ₹9,000 crore.
Charges:
Money laundering
Cheating
Criminal conspiracy
Under PMLA, IPC, and Companies Act
Outcome:
Declared a fugitive economic offender under the Fugitive Economic Offenders Act, 2018.
Extradition proceedings are ongoing in the UK.
Indian authorities have seized his assets in India and abroad.
Significance: First high-profile case under the new Fugitive Economic Offenders Act. Emphasized the need for fast-track action against defaulters.
5. Saradha Chit Fund Scam (West Bengal)
Facts: The Saradha Group collected over ₹2,500 crore from small investors through Ponzi schemes under the guise of chit funds. The scheme collapsed in 2013.
Legal Action:
Investigated by CBI, ED, and state agencies.
FIRs filed for cheating, criminal breach of trust, and money laundering.
Outcome:
Group chairman Sudipto Sen arrested.
Assets seized.
Several politicians and celebrities were questioned/investigated for links.
Many investors lost their savings.
Significance: Led to greater scrutiny of chit funds and unregulated investment schemes. Pressed the demand for a strong regulatory framework.
6. IL&FS Crisis (2018)
Facts: Infrastructure Leasing & Financial Services (IL&FS), a major NBFC, defaulted on repayments due to mismanagement and alleged window-dressing of its financials. The group had over ₹90,000 crore in debt.
Legal Action:
Charged under Companies Act, IPC, and PMLA.
SFIO (Serious Fraud Investigation Office) and NCLT involved.
New board appointed by the government to take over operations.
Outcome:
Several senior executives were arrested.
Multiple entities under the group sent into insolvency.
Systemic reforms for NBFCs were initiated.
Significance: Highlighted the systemic risk from large non-bank financial institutions. RBI strengthened regulatory oversight of NBFCs.
Conclusion
Prosecuting corporate fraud and white-collar crime involves multi-agency coordination, including:
CBI (Central Bureau of Investigation)
ED (Enforcement Directorate)
SFIO
SEBI
RBI
However, delays in the judicial process, lack of forensic skills, political interference, and extradition hurdles continue to hamper swift justice.
Key Takeaways:
Corporate fraud has massive economic implications and erodes public trust.
Indian legal mechanisms are evolving with stricter laws like:
Fugitive Economic Offenders Act, 2018
Amended Companies Act, 2013
Preventive measures such as stronger compliance systems, internal audits, and whistleblower protection are essential to curb white-collar crimes.
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