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* Varsha Rajora 3 rd Year Student, B.A. L.L.B (Hons) Institute of Law, Nirma University (ILNU) Ahmedabad

Research Paper on Corporate Frauds in the world of corporate sector: A Critical Analysis

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INDEX

CHAPTER-1

Introduction of Topic

 

Nature and Scope of the Study

Objectives of the study

3-6

Hypothesis

Research Methodology

CHAPTER-2

Legal Provisions

8-9

CHAPTER-3

Instances of Frauds & Scandals in corporate sector

11-26

CHAPTER-4

Conclusion & Suggestions

28-36

BIBLIOGRAPHY

Books

Journals

Reports

Web References

Case Laws

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CHAPTER-1

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Introduction

White Collar Crimes are those, which are committed by respectable persons, holding enviable positions, either in public or private concern. It is very hard to detect these crimes. It is defined by the Federal Bureau of Investigation as “illegal acts characterized by deceit, concealment or violation of trust, which are not dependent upon the application or threat of physical force or violence 1 .” The FBI says that in cases of white collar crime, “individuals and organizations commit these acts to obtain money, property or services; to avoid the payment or loss of money or services; or to secure personal or business advantage.”

The phrase “White Collar Crime” was coined in 1939 during the speech given by Edward Sutherland to the American Sociologist society. He, in his published research paper on white collar criminality in the American Sociological Review, defined the concept as, “a crime committed by persons of respectability and high social status in course of their occupation.” White collar crimes by their very nature are such that the injury or damage caused as a result of them is so widely diffused in the large body of society that their gravity in regard to individual victim is almost negligible 2 . It is highly difficult to prosecute a white collar crime because the perpetrators are sophisticated criminals who conceal their activities through a series of complex transactions.

Today, the focus of white collar crimes has moved from the individual to the organization, where individuals alone or in collaboration with others commit acts that are criminal. One of such white collar crimes is the CORPORATE FRAUDS. Of all white collar crimes, corporate frauds are the most sophisticated and adversely affect the society. They are the crimes which are committed by the so called high profile and sophisticated humans of the society. They reduce the interest and trust in corporate investments and in turn reduce the confidence on the government as well as society. Corporate frauds are more dangerous to the society because financial loss to society from corporate frauds is greater than the financial loss from burglaries, robberies, larcenies etc.

1 “Recent cases of white collar crime” <http://www.onlinelawyersource.com/criminal_law/white_collar/recent- cases.html>

2 Sutherland E (1941). ‘White collar criminality’, American Sociological Review. Vol-V No.1

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Corporate frauds have become a global phenomenon with the advancement of commerce and technology. Like any other country, India is equally in the grip of corporate fraud. The reason for enormous increase in corporate frauds in recent decades is to be found in the fast developing economy and industrial growth of this developing country.

According to Oxford dictionary, a fraud is defined as, “the use of false representations to gain unjust advantage and criminal deception.” According to the Internal Resources Service (IRS) Department of the US Department of the treasury, “A corporate fraud is violation of the Internal Revenue Code (IRC) and related statutes committed by large, publicly traded corporations, and /or by their senior executives 3 .”

A corporate fraud occurs when a company or organization deliberately changes or conceals the information in order to make it appear healthy. A company may commit fraud by manipulating accounting records, hiding debt, or failing to inform shareholders of loans and bonuses given to its executives. The falsification of financial information, including false accounting entries, bogus trades designed to inflate profits or hide losses and false transactions will help the organization to attract funds from the lenders and investors.

The motives of committing fraud by a company may be many, but the main motive is making money and creating a false soundness for the company in order to save its image in the market and to misguide the government departments to avoid the heavy tax burdens.

In India, the Commission on ‘Prevention of Corruption’ in its report 4 observed, “the advancement of technological and scientific development is contributing to the emergence of mass society with a large rank in file and a small controlling elite, encouraging the growth of monopolies, the rise of a managerial class and intricate institutional mechanisms. Strict adherence to high standard of ethical behavior is necessary for the even and honest functioning of the new social, political and economic processes. The inability of all sections of society to

3 <http://www.irs.gov/compliance/enforcement/article/>

4 Government of India, Report of the Commission on Prevention of Corruption (1964) Para 2.13, p 11

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appreciate this need in full results in the emergence and growth of white collar and economic crimes renders enforcement of the laws, themselves not sufficiently deterrent, more difficult 5 .”

The Report of the Vivian Bose Commission of Inquiry into the affairs of Dalmia-Jain group of companies in 1963 highlights how these big industries indulge in frauds, falsification of accounts, tampering with records for personal gains and tax evasion 6 etc. Similar observations were made by Mr. Justice M C Chagla about the big business magnate Mundra who wanted to build up an industrial empire of dubious means. There were as many as prosecutions against this business tycoon and companies owned and controlled by him between 1958 to 1960 and as many as 113 of them resulted into conviction 7 .

A careful study of a number of large corporations and business houses attribute to the highest degree of criminality to business world which include traders, businessmen and industrialists. It has been held in the Report of Vivian Bose Commission of Inquiry 8 that Business Communities in India of large and small merchants are basically a dishonest bunch of crooks. While it is true that the object of businessmen is to make profit, there are degrees and degrees of making profit, and nowhere in the world do businessmen get rich as quickly as they do in India 9 .

The most comprehensive survey of attitudes by business executives towards management and corporate practices showed that the Business executive tends to ignore the great ethical laws as they apply immediately to his work. It is also believed that Businessmen would violate a code of ethics whenever they thought they could avoid detection 10 .

5 Law Commission of India, 29 th Report, 1966, p3

6 Government of India introduced VDIS (Voluntary Disclosure of Income Scheme), 1997 to unearth Black money on the recommendations of Wanchoo Committee appointed in 1990.

7 4 th Annual Report on the Working of Indian Companies Act, 1956 Government of India (1960)

8 Government of India (1963), Report of the Vivian Bose Commission of inquiry

9 Menon N.R.M. (1968). A socio-legal study of White Collar crime in India, unpublished dissertation 10 Baumhar Raymond C (1961). How ethical are Businessmen? , Harvard Business review, July-August

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Objectives

1. To critically analyse the various instances of frauds that had taken place in the corporate world.

2. To analyse the reasons of committing such crimes

3. To study the role of the legislature for the prevention of such crimes.

Hypothesis

1. That fraud in corporates affects not only to corporate world but also adversely affects the society and affects the economy of the country at large.

2. That such fraud reduces the interest of the general public into corporate investment.

3. That legislature has played a vital role to preserve and protect the interest of the society.

Research Methodology

This report is the brief doctrinal project which is carried out by the researcher after a careful research and analysis of the data and which has been collected with the help of different books, various articles & journals and number of web references.

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CHAPTER-2

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Legal Provisions

For the Prevention of such corporate Frauds in India, the legislature has included the provisions such as S 397 & 398 in the companies Act, 1956 which provides that any member may apply to NCLT in case of Oppression and Mismanagement. The frauds which take place in corporate world are the results of mismanagement into the company which in turn adversely affect the economy of the country and therefore they need special treatment.

397. Application to Tribunal for relief in cases of oppression

(1) Any member of a company who complain that the affairs of the company are being

conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of section 399.

(2) If, on any application under sub-section (1), the Court is of opinion-

(a) That the company's affairs are being conducted in a manner prejudicial to public interest or

in a manner oppressive to any member or members; and

(b) that to wind up the company would unfairly prejudice such member or members, but that

otherwise the facts would justify the making of a winding-up order on the ground that it was

just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

398. Application to Company Law Board for relief in cases of mismanagement

(1) Any members of a company who complain-(a) that the affairs of the company are being

conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or

(b) that a material change not being a change brought about by, or in the interests of, any

creditors including debenture holders, or any class of shareholders of the company has taken place in the management or control of the company, whether by an alteration in its Board of

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directors, or manager or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is

likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company, may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of section

399.

(2) If, on any application under sub-section (1), the Tribunal is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Tribunal may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

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CHAPTER-3

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Frauds and scandals in the corporate sector

Satyam Scam: India’s Enron Scandal

Satyam Computer Services Ltd was founded in 1987 by B Ramalinga Raju 11 . The company offers Consulting and information technology (IT) services spanning various sectors, and is listed on the New York Stock Exchange, the National Stock Exchange (India) and Bombay Stock Exchange (India). Satyam plunged into a crisis in January 2009 after its founder B Ramalinga Raju, stated that the company’s Profits had had been overstated and confessed that Satyam's accounts had been falsified. On 7 January 2009, company Chairman Ramalinga Raju resigned after notifying to board members and the Securities and Exchange Board of India (SEBI) that Satyam's accounts had been falsified.

Raju confessed that Satyam's balance sheet of 30 September 2008 contained:

Inflated figures for cash and bank balances of Rs 5,040 crore(US$ 1.04 billion) (as against Rs 5,361 crore (US$1.1 billion) crore reflected in the books).

An accrued interest of Rs 376 crore (US$ 77.46 million) which was non-existent.

An understated liability of Rs 1,230 crore (US$ 253.38 million) on account of funds was arranged by himself.

An overstated debtors' position of Rs 490 crore (US$ 100.94 million) (as against Rs 2,651 crore (US$ 546.11 million) in the books).

Raju claimed in the same letter that neither he nor the managing director had benefited financially from the inflated revenues. He claimed that none of the board members had any knowledge of the situation in which the company was placed 12 . He stated, “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualised revenue run rate of Rs 11,276 crore (US$ 2.32 billion)) in the September quarter of 2008 and official reserves of Rs 8,392 crore (US$

11 Corcoran, Elizabeth (2006). “Back-office charity” (Reprint) Forbes <http://www.satyam.com/homenews/documents/forbes_speak.pdf.> 12 “Letter from Raju to SEBI and Stock Exchange accepting the fraud.” Economic Times on the Web. 1 st July 2009 <http://economictimes.indiatimes.com/photo.cms?msid=3946287>

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1.73 billion). As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. It was like riding a tiger, not knowing how to get off without being eaten.”

Consequences

The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts. He is charged with several offences, including criminal conspiracy, breach of trust, and forgery.

Raju had appointed a task force to address the Maytas situation in the last few days before revealing the news of the accounting fraud. After the scandal broke, the then-board members elected Ram Mynampati to be Satyam's interim CEO. Mynampati's statement on Satyam's website said: “We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation.”

On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. Chartered accountants regulator ICAI issued show-cause notice to Satyam's auditor Price water house Coopers (PwC) on the accounts fudging. On the same day, the Crime Investigation Department (CID) team picked up Vadlamani Srinivas, Satyam's then-CFO, for questioning. He was arrested later and kept in judicial custody 13 . On 11 January 2009, the government nominated noted banker Deepak parekh former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's board.

13 ‘Satyam ex-CFO Vadlamani Srinivas Sent to judicial custody till Jan 23’ Economic times on the web

<http://economictimes.indiatimes.com/articleshow/3964323.cms>

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Analysts in India have termed the Satyam scandal as India's own Enron Scandal 14 . Immediately following the news, Merill Lynch (Now with Bank of America) terminated its engagement with the company. Also, Credit Suisse suspended its coverage of Satyam. It was also reported that Satyam's auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its license to work in India may be revoked 15 . Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues 16 , which was stripped from them in the aftermath of the scandal 17 . The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009 18 . India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on January 12 19 .

Satyam's shares fell to 11.50 rupees on 10 th January, 2009, their lowest level since March 1998 compared to a high of 544 rupees in 2008 20 . In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80.

The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company. However, whether employment will continue at pre-crisis levels, particularly for new recruits, is questionable 21 . On 14 th January, 2009, Price Waterhouse, the Indian division of Price water house Coopers announced that its reliance on potentially false information provided by the management of Satyam may have rendered its

14 Jan 7, 2009 ‘Satyam scandal could be India’s Enron’ World Business on the web

<http://www.msnbc.msn.com/id/28539007/>

15 “satyam scandal rattles confidence in accounting Big Four”

<http://inreuters.com/article/companyNews/idNHKG30879120090108>

16 “Grand Jury meeting of Golden Peacock Awards 2008 – 8 th September 2008, New Delhi announcement of results” <http://www.goldenpeacockawards.com/GPA_RESULTS_ANNOUNCEMENT_2008.pdf>

17 “Satyam stripped off Golden Peacock Global Awards” <http://economictimes.indiatimes.com/Infotech/Software/Satyam_stripped_off_Golden_Peacock_Global_Award/a

rticleshow/3949334.cms>

<http://sify.com/finance/nyse-halts-trading-in-satyam-stock-news-

national-jegu0achifi.html>

19 “Key Developments for Satyam Computer Services Ltd”

<http://www.reuters.com/finance/stocks/keyDevelopments?symbol=SAY.N&timestamp=20090107142400&rpc=

66>

20 “Indian IT scandal boss arrested”. BBC News on the web. 9 th January, 2009

<http://news.bbc.co.uk/2/hi/business/7821087.stm>

21 CNBC TV 18. “Ready to bail out Satyam, if required: Govt”. CNBC TV on Web. 12 Jan 2009

<http://www.moneycontrol.com/news/business/ready-to-bail-out-satyam-if-required-govt_377175.html>

18

“NYSE

halts

trading

in

Satyam

stock”

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audit reports “inaccurate and unreliable” On 22 nd January, 2009, CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing INR 20 crore rupees every month for paying these 13,000 non- existent employees.

Controversies

The whole Controversy arose with the Maytas acquisition. Maytas is an infrastructure development, construction and project management company. Maytas Infra was originally run by Teja Raju, the elder son of Satyam Computer Services. It came under the scanner due to its association with B. Ramalinga Raju. There were allegations that funds from Satyam were diverted to Maytas, causing the Government agencies to verify the infrastructure company’s records as well. Maytas Infra later requested for an extension of its quarterly results due to these investigations.

In 2008, Satyam attempted to acquire Maytas Infrastructure and Maytas Properties founded by family relations of company founder Ramalinga Raju. The Satyam Board approved a US$ 1.6 billion acquisition of the Maytas Infra ($300 million) and Maytas Properties ($1.3 billion) controlled by the Raju family. The acquisition attempt was seen as an attempt by the Raju family to exploit Satyam's cash resources, as the transaction would have left Satyam in a debt of around $400m.

This eventually led to a review of the deal by the government, a veiled criticism by the vice president of India and Satyam's clients re-evaluating their relationship with the company.

Satyam's investors lost about INR 3,400 crore in the related panic selling. The USD $1.6 billion (INR 8,000 crore) acquisition was met with skepticism as Satyam's shares fell 55% on the New York Stock Exchange. Three members of the board of directors resigned on 29 December

2008.

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The World Bank had banned Satyam from doing business with it for 8 years due to inappropriate payments to the World Bank's staff 22 . The World Bank accused Satyam of giving improper benefits to its (the Bank's) staff and of failing to maintain documentation to support fees charged for its subcontractors. However, it clarified that Satyam was not involved in incidences of data theft or malicious attacks that had been made on the Bank's information systems 23 .

UK mobile Payments Company Upaid Systems is suing Satyam for over 1 billion US dollars on complaints of fraud, forgery and Breach of Contract 24 . The matter is still sub-judice and the company has stated that it will defend in accordance with U.S procedures 25 .

In addition to other controversies involving Satyam, on January 7, 2009, Chairman Raju resigned after publicly announcing his involvement in an accounting fraud. Ramalinga Raju is currently in a Hyderabad prison along with his brother and former board member Rama Raju, and the former CFO Vadlamani Srinivas.

In wake of the Satyam scam, the Citizens for a Better Public Transport in Hyderabad (CBPTH) demanded a CBI inquiry into the process of how Maytas bagged the Hyderabad Metro Rail project. The CBPTH convener C Ramachandraiah alleged that the state government had been favouring Maytas for infrastructure projects. The Economic Times reported that the Andhra Pradesh government has had paid Rs. 1,800 crore to Maytas Infra towards works under the irrigation department's Jalayagnam project. The major irrigation minister Ponnala Lakshmaiah said that works totalling another Rs 11,000 crore had been sanctioned to Maytas Infra, since Y S Rajasekhara Reddy took as the chief minister in 2004. Maytas Infra-led

22 ET Bureau. ‘World Bank bans Satyam for 8 years”. The Economic Times on the web. 24 December 2008

<http://economictimes.indiatimes.com/Infotech/World_Bank_bans_Satyam_for_8_years/articleshow/3882667.cm

s>

23 ‘Satyam Computer recoups after sharp slide’ The Hindu Business Line on the web. 25 December, 2008.

<http://www.thehindubusinessline.com/2008/12/25/stories/2008122551661000.htm>

24 N Shivapriya, TNN. “Old client files forgery lawsuit against Satyam”. The Economic Times on the web. 15 May, 2008 <http://economictimes.indiatimes.com/Infotech/Software/Old_client_files_forgery_lawsuit_against_Satyam/article

show/3041117.cms>

25 Bureau. “Satyam to defend US class action law suits, unpaid litigation” Economic Times on the web. 9 th June, 2009 <http://economictimes.indiatimes.com/Infotech/Software/Satyam-to-defend-US-class-action-law-suits-

Upaid-litigation/articleshow/4636709.cms>

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consortium failed to achieve financial closure and give performance guarantee, the state government of Andhra Pradesh forced to end its unprecedented generosity and cancel the concession agreement with the group on the Rs 12,132-crore Hyderabad Metro Rail project. On July 21 2009, a criminal case was registered against the promoters of the company by the Hyderabad police under Section 406 (criminal breach of trust) and Section 420 (cheating) of the Indian Penal Code.

Harshad Mehta Scam: A Stock Market Scandal

Harshad Shantilal Mehta was born in a Gujarati Jain family of modest means. His early childhood was spent in Mumbai where his father was a small-time businessman. Harshad Mehta slowly and gradually arose to become a stock broker in the Bombay Stock Exchange. He was making waves in the stock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Company (ACC). The price of ACC was bid up to Rs 10,000. For those who asked, Mehta had the replacement cost theory as an explanation. The theory basically argues that old companies should be valued on the basis of the amount of money which would be required to create another such company. Through the second half of 1991, Mehta was the darling of the business media and earned the sobriquet of the ‘Big Bull’, who was said to have started the bull run. He promised the ultimate rags to riches story 26 .

On April 23, 1992, journalist Suchita Dalal in a columnin The Times of India, exposed the dubious ways of Harshad Metha. The broker was dipping illegally into the banking system to finance his buying. “In 1992, when I broke the story about the Rs 600 crore that he had swiped from the State of Bank, it was his visits to the bank’s headquarters in a flashy Toyota Lexus that was the tip-off. Those days, the Lexus had just been launched in the international market and importing it cost a neat package,” Dalal wrote in one of her columns later.

26 Sucheta Dalal, ‘Harshad Mehta: From Pied Piper of the markets to India's best-known scamster’ December 31, 2001 http://www.rediff.com/money/2001/dec/31dalal.htm

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The authors explain: “The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jewellery…. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price.”

It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system. A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities, though that wasn’t the case in the lead-up to the scam. In this settlement process, deliveries of securities and payments were made through the broker. That is, the seller handed over the securities to the broker, who passed them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller. In this settlement process, the buyer and the seller might not even know whom they had traded with, either being know only to the broker.

This the brokers could manage primarily because by now they had become market makers and had started trading on their account. To keep up a semblance of legality, they pretended to be undertaking the transactions on behalf of a bank. Another instrument used in a big way was the bank receipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i.e. the seller of securities, gave the buyer of the securities a BR. As the authors write, a BR “confirms the sale of securities. It acts as a receipt for the money received by the selling bank. It promises to deliver the securities to the buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer.”

Having figured this out, Mehtha needed banks, which could issue fake BRs, or BRs not backed by any government securities. “Two small and little known banks - the Bank of Karad (BOK) and the Metorpolitan Co-operative Bank (MCB) - came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee,” the authors point out.

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Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, obviously assuming that they were lending against government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the bank was returned. The game went on as long as the stock prices kept going up, and no one had a clue about Mehta’s modus operandi. When the bubble burst after fictitious trading rings came to light, the banks found themselves cheated of $1.4 billion and were left holding BRs which did not have any value.

Mehta made a brief comeback as a stock market guru in 1997, giving tips on his own website as well as a weekly newspaper column 27 . This time around, he was in cahoots with owners of a few companies and recommended only those shares. This game, too, did not last long 28 . Interestingly, by the time he died 29 , Mehta had been convicted in only one of the many cases filed against him. Till now, it is still unknown what was the real story behind the entire scam.

BCCI: The Rogue Corporation

Globalization and revolution in the information technology have given a free rein to crimes and they now play with very few constraints. This can be very well illustrated by the rise and fall of the Bank of Credit and Commerce International (BCCI). Its founder, Agha Hasan Abedi, an evil genius, was born in UP (India) but migrated to Pakistan during Partition. There, he came to have a commercial bank of his own – United Bank Ltd which prospered till 1972 when it was nationalized by Zulfikar Ali Bhutto 30 . But Abedi was no to change his line of business. He chose the international forum rather than the national boundaries of Pakistan. He realized that offshore banking with no control from any central bank had enormous possibilities and opportunities for him. It was completely unregulated world of banking whose contours

27 Sucheta Dalal, ‘Harshad Mehta: From Pied Piper of the markets to India's best-known scamster’ December 31, 2001 http://www.rediff.com/money/2001/dec/31dalal.htm

28 “Sebi Debars Harshad Mehta from securities dealing: BPL, Videocon, stelite restricted” April 19, 2001.

<http://www.rediff.com/money/2001/apr/19sebil.htm>

29 “Big Bull' Harshad Mehta dead Tuesday”. 01 Jan 2002

<http://www.thehindubusinessline.com/bline/2002/01/01/stories/2002010102180100.htm>

30 Mishra Girish, Pandey Braj Kumar (1998). White-Collar Crimes, New Delhi: Gyan Publishing House.

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were not even imagined by any earlier authority on modern banking from Walter Bagehot to R S Sayers.

Abedi had arranged just $ 2.5 million as seed money from the Bank of America and floated the BCCI whose two main arms were incorporated in Luxembourg and the Cayman Islands though most of its top executives operated from London where its head office was located. It prospered without any interruption and at a break-speed and within less than two decades it became on of the largest privately owned financial institutions in the entire world and its assets came to $ 20 billion with branches in as many as 72 nations. It had a core of 3,000 customers around the globe, most of them were corrupt and crooked but there were a number of careless and innocent people among them too. Its customers also included top businessmen and politicians of the world 31 .

Greed for large profits led him successfully enter into the Soviet Union and china and became the first western style bank who was permitted to function on the Chinese mainland.

Abedi posed himself as a champion of the Third world in general and of Islamic countries in particular. He moved around and met the leaders of the third world, tried to impress upon them the need to support and strengthen the BCCI which, in turn, would help them meeting their needs of both capital and modern technology. The bank was flourishing 32 in its own way by siphoning the billions for their rich and corrupt ruling classes. 33

The BCCI’s operations did not arouse any suspicion till the early years of the 1980s because most of the deals and operations remained well camouflaged. Only from then onwards, all scruples and caution were thrown to the winds and the result was that BCCI sank into one crisis after another. Its greed led it to involve itself into narcotics trade, money laundering, legal and illegal arms deal brokering. CIA had intimate knowledge of both covert and overt functioning of the bank but it kept mum as they had kept substantial amount of money at banks

31 Long Robert Emmet (1993). ‘Banking Scandals: The S&L and BCCI, New York:

32 Adams Ring James, Chelius & Frantz Douglas (1993). ‘Full service Bank: How BCCI Stole Billions Around the world, New York: Pocket Books

33 Larry Gurwin, Peter Truell (1992). ‘False Profits: The inside story of BCCI, New York: Houghton Mifflin Harcourt

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various branches and used its Pakistan office as a conduit for providing millions of dollars in secret US aid to Mujahedin frightening the Soviet-backed government in Afghanistan 34 .

The bank had links with terrorist, arms dealers, drug runners, the CIA, the ISI and many corrupt rulers from the different parts of the world. It used Islam as a mask. It is said that the Khashoggi to Noriega to the CIA, everyone was impressed with its efficiency. Noriega had deposited at least $ 33 million and recommended its facilities to US narcotics ring desperate to launder the ill-begotten money. Alan Garcia, a former President of Peru, used its panama branch to siphon away funds from the national treasury. And the BCCI itself plundered innocent small depositers of the Third world, from sub-Saharan Africa to Bangladesh. Even the central banks of Nigeria and Zambia were induced to keep their money with it and result was huge losses for them when the bank had collapsed.

The bank manipulated its account books so cleverly that even a reputed firm from auditors like Price Waterhouse could not detect anything fishy in the first attempt. It was given tons of bogus data to write its audit reports. It is said that as many as 6500 individual customers’ flies were kept by Abedi himself under his own personal custody and auditors were not allowed any access to them. Manipulators were mind-boggling. Key bank officials received payoffs to keep mum. During 1987-88 alone, they were paid $ 53.1 million. According to Price Waterhouse, the BCCI concealed each fraud behind another one. It could succeed in unraveling the mystery only when a former top executive of the bank agreed to help it.

When the Bubble burst, depositors realized that they were ruined and among them, the Muslims had a sizeable proportion. It became clear that frauds, thieves and robbers whether sporting blue collars or white collars do not make any discrimination on the basis of religion. Even the American Express lost around $ 30 m and so did the Peruvian Central bank.

Soon the BCCI came to be described as ‘Bank of Crooks and Criminals International’ or as ‘Bank of Criminal and Conmen International’. Many influential people around the globe unsuccessfully tried to save it from exposure and collapse. It was found that as much as $ 17 billion was unaccounted for.

34 The Newsweek, 12 August, 1991.

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Its collapse came as a rude shock to many people in the third World. They thought that its closure and the sentencing of Abedi to a jail term of 8 years by a court in the United Arab Emirates and his being wanted in the USA to stand trial as the mastermind of the “largest bank fraud in the world of financial history” were regarded as a western conspiracy to destroy a dynamic entrepreneur from the Third world.

Enron Scandal: A Corporate fraud in America

Enron Corporation was an American energy company based in Housten, Texas. Before its bankcrupcy in late 2001 35 , Enron employed approximately 22,000 and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of nearly $101 billion in 2000. A Magzine named Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the “Enron Scandal”. Enron has since become a popular symbol of willful corporate fraud and corruption. The scandal also brought into question the accounting practices of many corporations throughout the United States, resulted in the creation of the Sarbanes-Oxley Act of 2002 36 .

On October 16, 2001, Enron, the seventh largest corporation in the U.S., announced a $638 million loss in third-quarter earnings. On November 8, 2001, the company publicly admitted to having overstated earnings for four years by $586 million and to having created limited partnerships to hide $3 billion in debt. As investors lost confidence in the company, Enron stock, which had been worth as much as $90 per share in 2000, plummeted to less than $1 per share 37 . Thousands of Enron employees lost their jobs and retirement savings, which had been invested in corporate stock through a 401(k) retirement plan. Banks and lenders lost millions of dollars in loans made to Enron based on the fraudulent earnings reports.

35 Brian Roach (2006). “Business and the environment” <http://www.eoearth.org/article/Enron_Corporation and Joseph M. Schwartz>

36 Sarbanes-Oxley Act of 2002 is a United States federal law enacted on July 30, 2002

37 http://www.iimcal.ac.in/community/FinClub/dhan/dhan2/art23-en.pdf

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The Chronology of the fall:

20 Feb, 2001: A Fortune story calls Enron a highly impenetrable Co. that is piling on debt

while keeping the Wall Street in dark.

On 14 Aug, 2001: Jeff Skilling resigned as chief executive, citing personal reasons. Kenneth Lay became chief executive once again.

12 Oct, 2001: Arthur Anderson legal counsel instructs workers who audit Enron’s books to

destroy all but the most basic documents.

16

Oct, 2001: Enron reports a third quarter loss of $618 million.

24

Oct 2001: CFO Andrew Fastow who ran some of the controversial SPE’s is replaced.

8 Nov 2001: The Company took the highly unusual move of restating its profits for the past

four years. It admitted accounting errors, inflating income by $586 million since 1997. It effectively admitted that it had inflated its profits by concealing debts in the complicated partnership arrangements.

2Dec, 2001: Enron filed for Chapter 11 bankruptcy protection and on the same day hit Dynegy Corp. with a $10 billion breach-of-contract lawsuit.

12 Dec 2001: Anderson CEO Jo Berardino testifies that his firm discovered possible illegal acts

committed by Enron.

9 Jan 2002: U.S. Justice Department launches criminal investigation.

Hence within three months Enron had gone from being a company claiming assets worth almost £62billion to bankruptcy. Its share price collapsed from about $95 to below $1.

Consequences

The innovative business practices of overstating profits and concealing debt increased the company's stock value, thus allowing the company to borrow more money and to expand. It

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also led to some top executives selling their stock and making over one billion dollars. Those former executives were later indicted for Fraud, Money Laundering, and conspiracy, and they also face dozens of civil lawsuits filed by Pension funds and former employees. The company's accounting firm, Arthur Andersen, admitted to having shredded Enron documents after it had learned that the Securities and Exchange Commission (SEC) was conducting an investigation of the corporation. The accounting firm was convicted of Obstruction of Justice, lost hundreds of clients and employees, and went out of business.

Investigation

The collapse of Enron Corporation in 2001 led to massive investigations involving allegations of a range of criminal activities perpetrated by some of the company's top executives. In January 2002, the U.S. Justice Department announced that it had formed an Enron Task Force consisting of a team of federal prosecutors and under the supervision of the department, agents of the Federal Bureau of Investigation and agents of the criminal division of the Internal Revenue Service. The scandal developed into a case study of corporate fraud, poor management decisions, and faulty accounting practices.

Much of the early investigation into the Enron fiasco focused on the company's financial reporting practices. Though the company followed ‘Generally Accepted Accounting Principles’ (GAAP), these practices gave the false impression that the company was more profitable and more secure than it really was. The company reported revenues that were actually funds flowing through transitional transactions with related companies. Moreover, the company hid its losses and debts in partnerships that did not appear on Enron's financial statements. Anderson was also convicted for doctoring a memo and misstating a news release related to Enron. The company was found guilty of obstruction of justice in June 2002Ñan appeal is still pending as of September 2003. It was placed on probation for five years and required to pay a fine of $500,000 38 .

The first criminal charges were filed against Enron's accounting firm, Arthur Andersen, L.L.P. The Justice Department brought charges that the accounting firm had destroyed

38 http://qanda.encyclopedia.com/question/criminal-charges-did-arthur-andersen-llp-face-364117.html

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thousands of documents, including computer files, related to its dealings with Enron. Anderson was also convicted for doctoring a memo and misstating a news release related to Enron. The company was found guilty of Obstruction of Justice in June 2002—an appeal is still pending as of September 2003. It was placed on Probation for five years and required to pay a fine of $500,000. Analysts questioned whether the accounting firm would survive after the conviction. In addition to its role as accountant, Arthur Andersen had served as a consultant to Enron for a number of years, thus raising conflicts of interest questions.

Because the Justice Department had not moved forward with criminal indictments against Enron officials, several critics charged that the federal government under President GEORGE W. BUSH was protecting top Enron executives. Several of these executives were questioned by the Senate Commerce Committee in February 2002, but no charges were filed. Several of Enron's senior executives reportedly had personal interests in certain risky transactions. These executives even sold Enron stock while at the same time convincing employees to hold their stock. The board of directors of the company also allegedly failed to provide significant oversight regarding the auditing and reporting by the company.

The first major criminal charges involving an Enron executive were brought against Michael Copper, who had served as an aide to chief financial officer Andrew Fastow. Copper pleaded guilty to charges of Money Laundering and conspiracy to commit Fraud in August 2002. Copper implicated Fastow, claiming that Fastow had conducted transactions on behalf of Enron for the benefit of third-party partnerships owned by Fastow.

The Justice Department then focused its attention on Fastow, who allegedly had $12.8 million in funds and was constructing a $2.6 million house. The government alleged that Fastow and Kopper had accumulated $22 million from illegal Enron deals. In November 2002, the Justice Department indicted Fastow on 78 counts, including fraud, money laundering, and obstruction of justice. The criminal indictment did not include former CEO Kenneth Lay, former CEO Jeffrey Skilling, or any other top executives. The Justice Department also announced that it could file a superseding indictment with additional charges. This superseding indictment might name additional defendants as well.

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Fastow appeared before the Securities and Exchange Commission in December 2002

but invoked his FIFTH AMENDMENT PRIVILEGE AGAINST SELF-INCRIMINATION. In several trade

publications in the late 1990s, Fastow had discussed his accounting practices at Enron, including methods for keeping funds off of Enron's books. According to several commentators, Fastow could represent a "fall guy" for the Enron fiasco, as it was probable that other executives and members of the board were aware of these reporting practices.

Others involved in Enron transactions were also brought up on criminal charges. In July 2002, three British bankers were charged with wire fraud for their dealings with Enron. The Justice Department subsequently focused its attention on Enron Broadband Services, an Internet division of the company. The Houston Chronicle reported in April 2003 that executives of that branch were likely to be indicted for insider trading, fraud, and money laundering. As of the end of April 2003, twelve charges had been filed relating to the Enron fiasco, though only seven were filed against company insiders.

World Com Scandal

In March 2002, the world learned that WorldCom, the second largest long-distance phone company in the U.S., had overstated profits by listing $3.8 billion in normal operating expenses (which were basically routine maintenance costs) as capital expenses. This move allowed them to spread the expenses out over several years, thereby making profits look much larger and artificially inflating the company's value in order to meet Wall Street's expected earnings. WorldCom stock, which was valued as high as $60 per share in 1999, dropped to 20 cents per share in response to the news. Seventeen thousand WorldCom employees lost their jobs. The Justice Department has secured indictments against the former Chief Financial Officer, Richard Breeden, for bank fraud, Securities Fraud, conspiracy and false statements in SEC filings. Four other former WorldCom executives have pled guilty to securities fraud and agreed to cooperate with the prosecution. The SEC has filed a civil suit against the company. As of 2003, the SEC has uncovered over $9 billion in bogus accounting. In July 2002, WorldCom filed the world's largest Bankruptcy. Bernie Ebbers, former CEO of WorldCom, has been accused of participation in an $11 billion accounting fraud.

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Aftermath

After Enron's and WorldCom's fraudulent accounting practices became public knowledge, news of more corporate accounting scandals came flooding in. In February 2002, Global Crossing was caught inflating revenue and shredding documents that contained accounting information. In April 2002, Adelphia Communications made headlines amidst the discovery that $3.1 billion worth of secret loans had been made to the company's founding family—some of whom were later arrested—and earnings were overstated. In May 2002, Tyco International, Ltd. accused three former senior executives of having fraudulently taken out loans from the company without permission and without paying them back. The men also allegedly issued bonuses to themselves and other employees without approval from the company's board of directors. The SEC has since charged the three for fraud and theft and is investigating whether the company had knowledge of this conduct. In July 2002, it was revealed that AOL Time Warner had inflated sales figures. Amid further investigations, the company admitted to having possibly overstated revenue by $49 million. Other companies in the spotlight for corporate accounting scandal allegations include Bristol-Myers Squibb, Kmart, Qwest Communications International, and Xerox. In addition to corporate scandal, television personality and home decorating maven Martha Stewart was indicted for allegedly selling 3,928 shares of stock in ImClone Systems, thus making about $227,824, based on an insider trading tip that she had received from the company's founder, Samuel Waksal.

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CHAPTER-4

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Conclusion & Suggestion

Conclusion

A corporation is a congregation of various stakeholders, namely, customers, employees, investors, vendor partners, government and society. A corporation should be fair and transparent to its stakeholders in all its transactions. This has become imperative in today’s globalized business world where corporations need to access global pools of capital, need to attract and retain the best human capital from various parts of the world, need to partner with vendors on mega collaborations and need to live in harmony with the community. Unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed.

As there is a saying ‘As the Ruler, so the rule’ , it does not take much time for the wrongdoing to spread down the hiearchy. People who come to know of the wrongdoings of management or those who have themselevs assisted the management in commmitting the fraud also tend to resort to fraud, eventually. But, there are proved instances that during the course of time, some of the persons assisted will become whistleblowers and disclose the scam to the public. As a result some people become victims of corporate fraud. These victims can be persons either outside or inside the company. Insiders who are possible victims include directors, managers, and employees who may suffer a loss of position, reputation or standing. Outside victims include investors, creditors, partners, customers, suppliers, underwriters, attorneys and independent auditors.

Corporate governance is about ethical conduct in business. Ethics is concerned with the code of values and principles that enables a person to choose between right and wrong, and therefore, select from alternative courses of action. Good corporate governance is good business because it inspires investor confidence, which is so essential to attracting capital. All the confidence however, that the good companies build, and the good work that they do over time can be largely undone by a a few unscrupulous businessmen, and fly-by-night operators. Such exceptions require to be handed out deterrent punishments. Though many Acts have been created for the security of the people’s money, there could be no positive outcome from the

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owner’s side. Their main goal is to earn as much as possible money from the public through inviting them to invest, and building their personal empires. It is the easiest way to earn mass

money at a single attempt. Sometimes it seems that the efforts to build the business

empires are just to attract the common public to invest in their companies and make themselves

at the enjoying posititon. In India, there is a common phenomenon in every citizen that their

own money means hard-earned money and public or others money is the easily-earned money. So, there shall be strict rules and punishments applied on the directors who gamble with the public money. Any relaxation towards the guilty will encourage the fraudsters to continue their fraudulent activities, affecting adversely not just the process of price formation on stock exchanges, but also the very basis of the functioning of the corporate world.

Though complete prevention is impossible, prevention of frauds would be a desirable outcome for corporate governance programs. Implementing better corporate governance

measures by the corporates themseleves and application of laws strictly by the regulatory bodies by awarding stronger punishment to the fraud makers can prevent these fraud practices.

A better awareness is required among the public while investing in the corporates. Also, a

corporate accountability should be developed in the corporates since the money invested by the public is to be gainfully utilized and serve the interests of public at large.

Thus what is required is the good governement based on effective representative democracy with a strong oppostition drawing its substence from working people, which is well- informed and does not confine itself only to rhetorics. This will reduce the instance so of corporate frauds to a substantial extent.

Thus white collar crimes can be avoided by the promotion of good corporate governance , with reasonable transparent processes within the corporation, to detect improper activities of its executives.

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Suggestion for the Prevention of Corporate Frauds

Adoption of fraud prevention policy

Generally many companies have an ethics policy, which set forth in detail, the expectations from the employees in the ethical climate of the company. Adoption of a written

fraud policy is another important element of overall fraud prevention programs of a company or organization. It specifically spells out about the person, who is responsible and handles varying fraud matters in the conflicting situations. A fraud prevention policy is the first step towards effective fraud prevention program. The fraud prevention process has four main elements 39 :

1. Establishment of corporate governance

2. Implementation of transaction-level control processes often referred to as the system of internal accounting controls.

3. Retrospective examination of governance and control processes through audit examinations.

4. Investigation and remediation of suspected or alleged problems.

1. Establishment of corporate governance:

Corporate governance is beyond the realm of law. It stems from the culture and mindset of management, and cannot be regulated by legislation alone. Corporate governance deals with conducting the affairs of the company such that there is fairness to all stakeholders. It is about openness, integrity and accountability 40 .

Corporate governance is about setting and monitoring objectives, policies, risk appetite, accountability and performance. An appropriate system of governance should be born with the company itself, and grow in complexity and reach as the company grows. It should predict any possible opportunity for fraud. It further communicates that compliance with laws, ethical business practices, accounting principles, and corporate policies is expected, and that any

39 Thomas W. Golden, Steven L. Skalak, and Mona M. Clayton, “The Corporate Fraud Cycle: How to break the chain?” http://www.pricewatercoopers.com/

40 Report of the SEBI Committee on Corporate Governance (1983)

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attempted or actual fraud is expected to be disclosed by those who know or suspect that fraud has occurred. Prevention, therefore, offers a more realistic view. In short, corporate governance is an entire culture that sets and monitors behavioral expectations intended to find the fraudster.

In order to execute effective governance, boards and management must effectively oversee a number of key business processes, including the following:

Strategy and operation planning

Risk Management

Ethics and Compliance

Performance measurement and monitoring

Mergers, acquisitions, and other transformational transactions.

Management evaluation, compensation, and succession planning.

Communication and reporting

Governance Dynamics

2. Transaction-level control

They are accounting and financial controls designed to ensure that only valid, authorized, and legitimate transactions occur and to safeguard corporate assets from losses due to theft or other fraudulent activity. These procedure are preventive because they may actively block or prevent a fraudulent transaction occurring. Such systems, however, are not foolproof, and fraudsters frequently take advantage of loopholes, inconsistencies, or vulnerable employees.

3. Retrospective examination

Retrospective procedures, such as those performed bu auditors and forensic accounting investigators, do not prevent fraud in the same way that font-end trascation controls do, but

they form a key link in communicating tolerance for fraud and discovering problems before they grew to a size that could threaten the welfare of the organization. Although auditing cannot truly prevent fraud before it happens, but helps in fraud prevention policy.

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4. Investigation and Remediation An investigation should also form the basis for remediating control procedure. Investigations should lead to actions commensurate with the size and seriousness of the impropriety or fraud, no matter whether it is found to be a minor infraction of corporate policy or a major scheme to create fraudulent financial statements or misappropriate significant assets.

Regulatory Role in Fraud Prevention

From the last two decades India too has seen several corporate fraud experiences involving thousands of Crores of public money. These frauds hit the Indian industry as well as country’s financial system so severely that it has no other go except to bring changes in the policies of regulatory authorities like RBI, SEBI etc. To bring the drastic changes in the corporate sector and to formulate the corporate governance policy, the Indian government initiated three high-level committees. The Naresh Chandra Committee was appointed by the Union government to look into the role of audit committees focusing primarily on independent directors. The Kumara Mangalam Birla Committee and Narayana Murthy Committee were appointed by SEBI to look into the various aspects of corporate governance. These committees concluded:

Appointment of independent Directors in the Audit committees of the listed companies.

Certification of CEOs, COOs on the Annual Audit Accounts.

Setting up an independent quality review board to periodically examine and review the quality of audit, secretarial and cost accounting firms, and pass judgment and comments on the quality and sufficiency of systems, infrastructure and practices.

Setting up of a corporate serious fraud office (CSFO) in the Department of Company Affairs.

Strengthening of ROC offices to ensure better compliance.

Outsourcing of non-statutory work, and tightening the law regarding lapses in sectorial compliance, by inserting a section analogous to section 233A to allow the government to special compliance audits.

Inclusion of clause 49 in the listing Agreement between the companies and SEBI by giving emphasis on the disclose practices and inclusion of independent directors on the

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board of a listed company, who would be responsible for upholding the corporate ethical culture.

Clause 49 (Listing Agreement) – SEBI Guidelines

The recommendations of the Narayan Murthy Committee have been accepted by SEBI and included in clause 49 of Listing Agreement of every Indian stock exchange. Clause 49 is all about the provisions of listing agreement between companies and SEBI. It not only frames the code conduct to be followed by the companies, but also deal with many other aspects like board of directors, non executive directors, audit committees and related aspects. The listed Companies are now bringing about a slew reforms to clause 49 in the areas such as committee composition, board practices and compensation policies – the core of corporate governance. The formulation of Audit Committee is mandated to oversee the financial reporting process which is the prime source of corporate frauds. The following are the provisions in relation to fraud prevention. Audit Committee

Composition of Audit Committee: A qualified and independent audit committee shall be formed with a minimum three directors as members, out of which two-thirds of members must be independent directors. All the members must be financial literates. An independent director must be the chairman of audit committee, who will answer the queries of shareholders. A Company Secretary will act as secretary to the committee.

Powers of Audit Committee: the audit Committee shall powers, which should include the following:

To investigate any activity within its terms of reference.

To seek information from any employee.

To obtain outside legal or other professional advice.

To secure attendance of outsiders with relevant expertise, if it considers necessary.

Role of Audit Committee: The role of the audit Committee shall include the following:

Oversight of the company’s financial reporting process and disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.

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Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees.

Approval of payment to statutory auditors for any other services rendered by the statutory auditors.

Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to:

a) Matters required being included in the Director’s Responsibility statement to be included in the board’s report in terms of clause 2AA of S 217 of the Companies Act, 1956.

b) Changes in accounting policies and practices for the same

c) Major accounting entries involving estimates based on the exercise of judgment by management.

d) Significant adjustments made in the financial statements arising out of audit findings.

e) Compliance with listing and other legal requirements relating to financial statements.

f) Disclosure of any related party transactions.

g) Qualifications in the draft audit report.

Reviewing, with the management, the quarterly financial statements before submission to the board for approval.

Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems.

Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit.

Discussion with internal auditors and significant findings and follow up there on.

Reviewing the findings of any internal investigations by internal auditors into the matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.

Discussion with the statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.

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To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders and creditors.

To review the functioning of the Whistle Blower mechanism, in case the same is exists.

Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.

Report on Corporate Governance

There shall be a separate section on corporate governance in the Annual Reports of company, with a detailed compliance report on corporate governance. Non-compliance of any mandatory requirments of this clause with reasons thereof and the extent to which the non-

mandatory requirment of this clause with reasons thereof and the extent to which the non- mandatory requriments have been adopted should be specifically highlighted. The information to be place before Board of Directors are:

Annual operating plans and budets and any updates.

Capital budgets and any updates.

Quaterly results for the company and its operating divisions or business segments.

Minutes of meetings of audit Committee and other Committees of the Board

The information on recruitment and remuneration of senior officers just below the board level, including appointment or removal of chief financial officer and the company secretary.

Show cause, demand, prosecution notices and penalty notces which are materially important.

Fatal or serious accidents, dangerous occurences, any material effluent or pollution problems.

Any material default in financial obligations to and by the company, or substantial nonpayment for goods sold by the company.

Any issue, which involves possible public or product liablity claims of substantial nature, including any judgment or order which, may have passed strictures on the conduct of the

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company or taken an adverse view regarding another enterprise that can have negative implications on the company.

Details of any joint venture or collaboration agreement.

Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property.

Significant labor problems and their proposed solutions.Any significant development in human Resources / industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc.

Sale of material nature, of investments, subsidiaries, assets, which which is not in normal course of business.

Quaterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material.

Non-compliance of any regulatory, statutory or listing requirements and shareholders service such as non-payment of dividend, delay in share transer etc.

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Bibliography

Books:

1. Mishra Girish, Pandey Braj Kumar (1998). White-collar Crimes, New Delhi: Gyan Publishing House.

2. Paranjape N V (2007). Criminology and Penology, Allahabad: Central Law Publications.

3. Sri Valli Naga K (2007). White Collar Crimes-A debate, Hyderabad: The ICFAI University Press.

4. Qadari Afzal S M (2005). Criminology: Problems & Perspectives, Lucknow: Eastern Book Company

5. Long Emmet Robert (1993). ‘Banking Scandals: The S&L and BCCI, New York:

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Houghton Mifflin Harcourt

7. Adams Ring James, Chelius & Frantz Douglas (1993). ‘Full service Bank: How BCCI Stole Billions Around the world, New York: Pocket Books

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1. Sutherland E (1941). ‘White collar criminality’, American Sociological Review. Vol-V

No.1

2. Thomas W. Golden, Steven L. Skalak, and Mona M. Clayton, “The Corporate Fraud Cycle: How to break the chain?” http://www.pricewatercoopers.com/

3. NRM Menon’s (1968). A socio-legal study of White Collar crime in India, unpublished dissertation

4. Radhesyam (2007). ‘Corporate Frauds’, Amicus Books. Vol-I PP 70-89

5. Tunstall Ian (2007). ‘Wrongful activities of corporate officers’, Amicus books. Vol-I pp

38-69

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Reports:

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2. Government of India (1960). Annual Report on the Working of Indian Companies Act,

1956

3. Government of India (1983). Report of the SEBI Committee on Corporate Governance.

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5. Government of India (1963). Report of the Vivian Bose Commission of inquiry

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