AUTHOR:
This article has been written by Geetanjali Seth, a student of NMIMS school of law,Mumbai campus.
TOPIC NAME: Ongoing crisis of the problem of corporate frauds and how it impacts the people.
INTRODUCTION:
One of the main problems for fraud occurences in our banking industry is corruption and if it is not identified at the budding stage,it will spread to the entire corners of the financial system.Due to the laxity in systems,white collar crimes like PNB fraud and Kingfisher Airlines Fraud are increasing in the banking industry nowadays.Dual or triple control systems to be effectively implemented in banking transactions and continuous monitoring of corporate accounts will give better results in preventing fraud.Public money is not even safe in bank’s hands since a lot of scams have been revealed in past few years.The contributing factors to be identified and internal audit to be reviewed in every public sector bank to prevent corporate fraud.Also,it was revealed that to absence of proper nternal control in banks causes massive fraud.The Indian banking sector is now facing major challenges regarding its lending as an outside influence and other issues in management lead sanctioning of certain corporate advances,finally it leads to NPA in a way of fraud.Recovery chances of many non-performing assets are very tough for banks to get the entire dues,hence,banks must scrutinize high value advances properly before it is sanjctioned
The nature and causes of corporate fraud were studied and in one of the studies it was found that the regulatory system in the existing companies is vague and there is urgent need to review the role of auditors.Further coordination is not up to the mark among various regulatory bodies.Banking organisations are facing challenges such as failure in management supervision and insufficient actions are warning signals leading to financial fraud.
Factors influencing Corporate Frauds
The environmental factors that influence corporate frauds are inadequate rewards,inadquetae internal controls,no separation of duties or audit trails,ambiguity in job roles,duties and responsibilities and lack of accountability ,failure to counsel and take administrative action when performance levels or personal behaviour fall below the acceptable levels,inadequate operational review,lack of timely or periodic review,inspections and follow up to issue compliance with the company goals,procedures and governmental regulations and failure to monitor and enforce policies on honesty and loyalty.
CASE LAWS ON CORPORATE FRAUDS
ICICI-Videocon loan case:involved allegations of quid-pro-quo between Chanda Kochchar,the former CEO of ICICI bank and her husband Deepak Kochchar.The allegations involved loan disbursement of over 1800 crores to Videocon Industries,a company facing financial difficulties.Deepak Kochchar,Chanda’s husband allegedly had business dealings with Videocon through his firm Nu Power Renewables Critics alleged that the loans to Videocon were approved in return for favours to Deepak Kochchar’s company.Videocon invested funds in Nu Power after receiving loans from ICICI bank The case tarnished the reputation of ICICI bank and raised questions about its corporate government practices.Chanda and Deepak were arrested by the CBI on charges of criminal conspiracy and cheating.
The DHFL case:involves allegations of large scale financial irregularities at Dewan Hosing Finance Corporation Ltd .The CBI alleges the DHFL,under the leadership of kapil and Dheeraj Wadhawan,diverted a significant pportion of the funds received from lenders for purposes other than those stated in loan agreements.They are also accused of inflating borrower income and manipulating the company’s books to obtain loans.HFL defaulted on loans $ 34,615 crore from a consortium of 17 banks led by Union Bank of India.This is considered one of the biggest banking frauds in India.The company is facing insolvency proceedings as it struggles to repay its debts.The RBI superseded the board and appointed an administrator to oversee the restructuring process.
CONCLUSION:
With the ever increasing facilities in the banking sector,the bproblem of emerging system of corporate frauds have been increasing manifold and efforts have to be made to curb the problem of corporate frauds.However the Companies Act,2013 provides certain legislations involving the establishment of certain organisations like the SFIO and other investigation organisations that would monitor the company avtivities and also the auditor would monitor the work of the company and thereby award punishments for wrong doings or any thing that could affect the company whole heartedly.The SFIO plays a vital role in the company’s affairs and also the management of the company.The system of corporate frauds has formed a vital threat to the banking system because of the above mentioned reasons.However the government should impose stringent laws to keep a check on the affairs of the company.
FAQ:
One of the major questions imposed is to what extent is the corporate fraud affecting the country and that has it been eradicated or yet to be so?
The answer to this would be that corporate frauds in terms of embezzlement of money,etc is still prevalent in the country in some form or the other and more stringent laws need to be established so that the fraud system is completely eradicated.The government has to establish more stringent laws in terms of the scrtunizing the company affairs in a broader way.The whisteleblower policy is also helpful in scrutinizing the affairs of the company and that the reports should be periodically checked to avoid hazards.
