Lawsikho Blog

 Explore how businesses can navigate an SFIO investigation, safeguard their interests, and implement proactive measures to stay ahead of regulatory scrutiny. Whether you are a company secretary, a lawyer, an HR professional, or a business owner, this guide offers valuable insights to help you understand and oversee the process effectively.

Introduction

“What would you do if your company came under the radar of the Serious Fraud Investigation Office (SFIO)?”

Would you be prepared with bulletproof compliance measures, or would you get baffled to tackle the damage? When accounting irregularities emerge, a company’s response determines whether it navigates a smooth inquiry or blows into a corporate crisis.

One Sunday afternoon, I met my friend, Kylie Briganza, over coffee. Kylie is a highly passionate and talented forensic auditor. 

Conversations with Kylie have always been insightful and thought-provoking and I am about to narrate one of her such experiences below. This conversation will be etched in my memory for a considerable time.

On a busy Monday morning, Ms. Braganza, as a part of her job, flagged possible financial irregularities at Malhotra Industries Ltd.  While going through employee payroll reports something caught her eye. A set of names who were not employees yet received hefty salaries for months. Curious, she cross-checked their records—no ID proofs, no past employment history. 

Her gut told her something was fishy. She discreetly escalated the matter to her senior who confirmed her doubts and together they uncovered a shocking truth—millions were being routed through fake employee accounts. It was a classic case of financial fraud disguised under payroll expenses. 

Who do you think should be at the forefront of such an investigation? 

A company secretary, right? 

So now let me introduce you to Ms. Reshma D’souza, a diligent company secretary of Malhotra Industries Ltd.  

Needless to say, the SFIO commenced an inquiry into books of Malhotra Industries. What followed was a corporate upheaval—executives were questioned, financials were audited, and arrests were made. Throughout all this, Reshma seemed prepared, vigilant and confident. 

Kylie was mighty impressed with how she handled the investigation. She immediately became Kylie’s new “boss lady”. 

You will now wonder, how can someone be prepared for an investigation. 

What did Reshma do right? It’s not an easy task but can be a cakewalk if you keep a report of certain particulars such as accounts, investments, and other outgoings of the company regularly. 

In this article, I will take you through a checklist, which will help you identify issues as well as manage such an inquiry in a more organised manner. Besides this, I also hope to educate you a little more on key legal provisions, when SFIO comes into the picture, their powers, etc. 

What exactly is SFIO? 

While I was a law student, my classmates often used to think that SFIO and the Enforcement Directorate do similar work. 

My ever-questioning brain would think then why would there be two separate agencies?

While both these agencies primarily perform investigations and work closely with each other, SFIO’s jurisdiction is limited to serious corporate fraud and financial discrepancies. 

SFIO was established under the Companies Act, 2013 vide Notification No. S.O.2005(E) dated 21.07.2015 with an objective to detect, prosecute or recommend prosecuting white-collar crimes/frauds.

It is a multi-disciplinary organization under the Ministry of Corporate Affairs, consisting of experts in accountancy, forensic auditing, banking, law, information technology, investigation, company law, capital market and taxation, etc. 

Who can apply, and what is the scope of the investigation?

Can any person initiate an investigation? 

The answer to this is no. 

It is crucial to mention at the very outset that an investigation can only be initiated on a well-founded opinion of the Central Government. 

According to Section 210(1) of the Companies Act, 2013 (“the Act” for short), the Central Government may order an investigation into the affairs of a company under the following circumstances:

1. On receipt of a report from the registrar or an inspector 

Such a report shall be made based on the inspection of the books of accounts of the company. 

2. When a company passes a special resolution requesting an investigation.
3. If it is deemed necessary in the public interest.

As laid down in N.R. Muthry v. Industrial Development Corporation of Orissa Limited ([1977] 47 Comp. Cas. 389 (Ori.)] it was held that in the case of a company intended to operate in modern welfare state, the concept of ‘public interest’ takes the company outside the conventional sphere of being a concern in which the shareholders alone are concerned. It emphasises the idea of the company functioning for the public good or general welfare state of the community, at any rate not in manner detrimental to the public good.  

4. A request from any department of the central or state government.

When the investigation is assigned to SFIO, it shall have exclusive jurisdiction, and no other investigating agency may proceed with a parallel inquiry. Any existing investigation must be transferred to the SFIO.

You know it’s important to understand the extent to which SFIO will go to investigate the affairs of the company so before exploring how to handle such an inquiry, let’s first know the scope and depth of an SFIO investigation. 

What are the powers of SFIO? 

SFIO isn’t just any other investigative agency. The Act empowers it to summon, interrogate, arrest and prosecute the accused. Sounds heavy, right?  Let’s dive into greater detail. 

Power to call for information

Section 212(5) of the Act obligates the company, its officers, and employees (both current and former) to provide all necessary documents, explanations, and assistance to the investigating officers. 

It is always advisable to cooperate with inspectors by promptly providing them with the requisite documents whenever requested. One should avoid withholding information or delaying the submission of documents that are in his custody.

Power to arrest 

Remember the Bhushan Steel case? The arrest of its former Managing Director? This is the case where the SFIO exercised its power to arrest in cases involving corporate fraud. 

• Section 212(8) authorises designated SFIO officers to carry out the arrest of individuals suspected of offences. 
• A copy of the arrest order and supporting materials must be maintained in a sealed envelope.

• The arrested person must be produced before a magistrate within 24 hours, excluding travel time.
• Offences are cognizable.

Power to inspect the affairs of the related companies  

SFIO in cases of large-scale financial irregularities in IL&FS, Bhushan Steel and Bhushan Power and Amrapali Group Real Estate went ahead and investigated their multiple subsidiaries and group companies to track fund diversion and identify interconnected fraud schemes. 

This provision empowers the SFIO to go a step further by carrying out investigations into the affairs of-  

• Subsidiaries, holding companies, or related corporate entities.
• Companies are managed by the same directors or managers.
• Companies are influenced by the investigated company or its directors.
• Current or former managing directors, managers, or employees.

The inspector will investigate and report on these entities only if the findings are relevant to the primary case.

Power to take notes of evidence 

As we know, during the investigation process, employees are asked a plethora of questions. To make their jobs easy, the Act empowers the SFIO to take down notes of the examination of any person concerning an investigation. 

Such notes of examination must be signed by the person examined after the notes have been read over to him. Thereafter, the notes may be used as evidence against him. 

Power to extract evidence from outside India

We are all aware that in Vijay Mallya’s extradition case, ED and CBI approached the UK government to obtain banking records, financial transactions and business documents related to Mallya’s assets. 

Even in the case of the Nirav Modi PNB scam, Indian investigative agencies had sought evidence from Belgium, Hong Kong and the UK to trace the source of money laundering.  

Suppose, SFIO wants to examine a witness based out of Dubai about the banking transactions of Mr. Chorikar, a director of Malhotra Industries Ltd. How will they approach the authorities of Dubai?   

So usually, in such cases, investigative authorities are empowered to extract evidence from outside India only when the authority has reasons to believe that evidence exists or may be found in a country outside India. 

SFIO may apply to a court in India for a letter of request, directing a court in Dubai to examine, either orally or otherwise, a person who is believed to know the facts or possess relevant documents related to the case.

Even if the SFIO wants to extract information and documents from Dubai relating to the banking transactions in question, the same process shall apply.  

Power to conduct search and seizure

During an investigation, officers do come across documents and other important evidence which may eventually lead to proving the offence. 

Naturally, when a substantial piece of evidence is found, they will apprehend tampering or concealing. To avoid this, they can search, seize, and later return them after the investigation. 

However, before seizing such documents, SFIO shall allow the company to take copies of relevant extracts.

Obligation to cooperate

To ensure a coordinated investigation process, other government agencies, including income tax authorities and police, must share relevant information. 

You now probably know why companies need to take this seriously. 

What follows the SFIO inquiry? 

Once the investigation report is submitted to the Central government by SFIO, the SFIO may:

Prosecute for criminal offenses 

If fraud or criminal liability is found, the Central government may initiate legal proceedings against the company and its officers. 

In such a case, it shall be the duty of the officers and other employees and agents of the company to render to the Central government all assistance in connection with the prosecution that they are reasonably able to give.  

Winding up of the company

If the report of the SFIO reveals that- 

• The affairs of the company are being conducted with the intent to defraud creditors and members or for a fraudulent or unlawful purpose, or it was formed for any fraudulent or unlawful purpose other than for fraudulent purposes; 
• The persons concerned with the formation of the company or the management of its affairs have been guilty of fraud or misconduct, 

The Central government may file a petition with the National Company Law Tribunal (NCLT) for its winding up or an order for relief against oppression and mismanagement or both.  

Recovery of damages   

The Central government may, in public interest, initiate proceedings for winding up if it appears that a fraud, misfeasance or misappropriation of property has been committed and thus, the company is entitled to bring an action for damages for fraud, misfeasance, or recovery of any property which has been misapplied or wrongfully retained. 

Penalties for non-compliance

Do you think if Reshma had given a false statement or tampered with any document or enabled tampering of the document and got away with it? 

Of course not, right? This Act provides deterrent punishment for employees who do not cooperate and disobey the law.  

Section 229 of the Act provides that-  

When any person is required to provide an explanation or make a statement during inspection, inquiry or investigation:

• Destroys, mutilates, falsifies or conceals documents or assists in doing so; 
• Makes or is a party to the making of a false entry in any document; 
• Provides false explanations during an investigation.

Shall be punishable as per Section 447 of the Act. 

The said Section 447 of the Act states that- 

1. Any person guilty of fraud involving at least ₹10 lakh or 1% of the company’s turnover (whichever is lower) faces:

• Imprisonment of at least 6 months but may extend up to 10 years
• Fine of at least the amount involved in fraud but which may extend up to three times of such an amount. 

2. If the fraud affects public interest, the minimum imprisonment is 3 (three) years.
3. For fraud involving less than ₹10 lakh or 1% of turnover, without public interest:

• Imprisonment of up to 5 years;
• Fine may extend up to ₹50 lakh; or 
• Both

What role does a company secretary play concerning an investigation? 

By now we know that Reshma is a true blue Type-A lady. 

What is that one eccentricity of a Type-A person that distinguishes them from the rest? 

It her obsession with checklists. And NO it has nothing to do with her secretarial duties, she’s simply a creature of habits. 

So the checklist that I will be sharing with you is also pinned to Reshma’s workstation and if you too are a company secretary, you may do the same. 

Now let’s take you through her much-touted checklist that has indeed helped her handle the investigation with courage and confidence. 

1. Basic information about the company – Name of the company, date of incorporation, location of the registered office, branches, factories, and other offices; status of the company (public or private); objects of the company; capital structure; voting rights attached to the shares; shareholding pattern.
2. Business activities – Nature of the existing business, licensed and installed capacities, expansion program, and sources of finance. Whether the company belongs to a particular group; if so, the names of other companies within the group.
3. Details regarding debentures, bank finance, and deposits. 
4. Details regarding foreign collaboration agreements.
5. Management – Brief history of past management setup, existing management setup, the composition of the Board of Directors; whether the terms and conditions of the appointment of managerial personnel are being adhered to; details regarding the appointment of directors and their relatives to the office of profit, etc.
6. Whether all the statutory registers, including minute books, being maintained up-to-date?
7. Whether the internal control system being properly followed?
8. Working results and financial position – General assessment of the company’s working, evaluation of the level of performance and efficiency of the management, a review of the company’s profits, performance data, and financial position in the context of its working results for the last three years.
9. Compliance with the provisions of the Companies Act.
10. Compliance with the provisions of other applicable Acts.
11. Accounts – The accounting practices in use, compliance with the provisions of Schedule III of the Act; whether adequate provisions were made for provident funds, gratuity, taxes, bonuses, dividends, etc.
12. Details of the loans taken and loans advanced.
13. Details of the investments made.
14. Particulars of sole selling agency.
15. Instances of mismanagement and other irregularities.
16. Particulars of acquisition/disposal of substantial assets.
17. A scrutiny of abnormal/heavy expenditure items.
18. Complaints, if any, against the company and its management should be listed.
19. Brief particulars of the litigations against the company and the reasons thereof.
20. Management’s relation with the employees and labour.
21. Shareholders – Instances of oppression on minority shareholders, allegations of non-receipt of dividend, notices of meetings, accounts, share certificates, illegal forfeiture of shares, etc. 
22. Auditors – Names and addresses of statutory auditors and whether the provisions of sections 139, 142, and 143, and 145 have been complied with?
23. Points requiring scrutiny – Any instance of concealment of income by falsification of accounts; instances of mismanagement of the company, intent to defraud the creditors, shareholders, and Government; and serious omission by the auditors.
24. Action points – After the above-mentioned information is compiled, the next step should be to list out the action points and pursue them vigorously. This may rectify many aspects which would otherwise lead to problems later on.

How should an inquiry be handled? 

So when there is such an exhaustive checklist in your hand and you make periodical reports based on this, handling the SFIO inquiry is nothing but a breeze. 

I would still like to give you some pointers which will further help you in responding to such an inquiry strategically and lawfully. Let’s take a look. 

Acknowledge & cooperate

• Respond to SFIO summons promptly. 

For instance, when a notice calls upon you to remain present on say 5th April 2025 and you cannot remain present due to certain other preplanned commitments, you need to respond to the summons within a week from the date of its receipt stating your inability to attend the office on that particular day. This will take you a long way in showing your bonafide. 

• Cooperate fully but also ensure that your rights are protected.

Reshma produced all the documents that she was asked to, responded to all the questions with a certain level of clarity and abstained from responding to the questions that she was not sure of. At the same time, she was vigilant that no document left the office without her knowledge or her taking a photocopy. That’s how she nailed it.  

Seek legal counsel

Understand the nature and legal implication of the inquiry by engaging experienced corporate and fraud investigation lawyers.

Throughout the investigation, Reshma had a trusted team of company lawyers who guided her at each step of the investigation. They ensured that the rights of employees were not breached and search of place and seizure of documents was conducted as per the provisions of Bhartiya Nagrik Suraksha Adhiniyam, 2023.       

Preserve and organise documents

• As already mentioned before, have financial records, board resolutions and audit reports in place; and 
• Ensure that documents are not manipulated and evidence is not destroyed.

Conduct an internal review 

This can be done by assessing company records and transactions internally so that any regulatory lapses or financial irregularities are regularised. 

Basis the pointers in the foregoing paragraph, Reshma prepared periodical reports for her ready reference besides doing it statutorily. This practice helped her identify and understand the reasons for such irregularities. So whenever a question was posed, she was always two steps ahead in answering it convincingly. 

Train employees on communication

• Train employees on how to respond to SFIO queries by being calm and transparent. 
• Ensure all statements/explanations given are true to avoid legal repercussions.

I would also like to give some credit to Suzie, HR Manager at Malhotra Industries Ltd. Taking inspiration from a mock fire drill, she also conducted mock inquiries wherein she trained the employees on the field on how to respond to the questions, their demeanour while responding, explaining them repercussions of making false statements, etc. Isn’t this innovative? 

Maintain confidentiality

• Limit internal discussions about the investigation (by sharing information only on a need-to-know basis, avoiding casual discussions about the enquiry, etc.); 
• Prevent leaks that could worsen the company’s position (by restricting document access and controlling media and external communication).

Malhotra Industries Ltd. is a listed company. It cannot afford to let the public know of such scrutiny. Can you imagine the loss of reputation and wealth they would suffer if such news broke out to the public? Their policies have ensured that during such testing times even loosely discussing such matters within the company shall be met with serious consequences. And if any person is held responsible for disseminating such sensitive information to the public, he/she shall be fired immediately. 

Prepare for possible legal action

• Be ready for financial penalties, management scrutiny, or even criminal charges.
• Develop a crisis management plan to protect the company’s reputation.

Malhotra Industries Ltd. has a robust crisis management system in place. Because of this, Reshma and Suzie with their respective teams immediately commenced implementing it by conducting an internal review of financial records, controlling media response to protect their reputation and cooperating with regulatory authorities. While juggling with this, Reshma also ensured that the business remains unaffected and it continues….

Follow regulatory compliance

• Review and strengthen corporate governance policies.
• Implement stronger internal controls to prevent future violations.

The fact there is some discrepancy in the finances of Malhotra Industries Ltd. is established with this inquiry, correct? This means that there is further scope for having more robust and more watertight policies in place. Talented employees such as Reshma and Suzie must identify the loopholes in the system and must endeavour to fix them.

By adopting this approach, Reshma was able to effectively manage the inquiry in a well-planned, transparent, and legally sound manner. The fact that she was calm, composed and cooperative throughout the inquiry helped them mitigate risks which ultimately resulted in a reasonable penalty rather than an excessively heavy one. Isn’t this a “boss lady” move? 

Conclusion

An SFIO investigation is not just a regulatory process—it is a test of a company’s governance, transparency, and ethical foundations. As we saw in Reshma’s case, a company secretary’s role extends beyond compliance, playing a crucial part in identifying and addressing corporate misconduct.

Handling such an inquiry requires proactive measures—strict adherence to compliance, well-maintained documentation, and a structured response strategy. Companies must cooperate with authorities while safeguarding their legal rights and ensuring that employees, like whistleblowers, are protected.

Ultimately, a well-governed organization has nothing to fear from an SFIO inquiry. Strong internal controls, ethical leadership, and a culture of transparency can help businesses not only withstand scrutiny but also emerge stronger. After all, the real strength of a company is measured not just by its profits but by its integrity.

FAQs

Does the Act provide for any protection of employees during investigation?

Yes. The Act, under section 218, protects employees who disclose critical information during an investigation from unfair dismissal or retaliation.

Which court tries SFIO cases? 

The Special Court constituted under the Act has jurisdiction to try SFIO cases. Appeals against the order of the special court shall lie before the High Court. 

What is the composition of SFIO?

The Serious Fraud Investigation Office is headed by a director and consist of experts from different fields viz banking, corporate affairs, taxation, forensic audit, capital market, information technology, law etc.

When does SFIO initiate an investigation?

SFIO steps in when:

• A case involves frauds affecting public interest.
• Central governement refers the case to SFIO. 
• Other agencies like SEBI, RBI, or the Enforcement Directorate (ED) seek SFIO’s assistance.

What types of cases does SFIO investigate?

• Corporate frauds and scams
• Misrepresentation of financial statements
• Fraudulent transactions and siphoning of funds
• Ponzi schemes and illegal investment activities
• Violations of company law leading to public losses

How long does an SFIO investigation take?

The standard investigation period is six months, but it may be extended based on case complexity and legal approvals.