Vepa Kamesam committee recommendations on issues related to SFIO
October 13, 2009
The SFIO set up in 2003 to investigate corporate fraud has been largely criticised for turning out to be a toothless tiger. To answer the criticism about SFIO’s performance or lack thereof, the government set up an expert committee under Reserve Bank of India’s former deputy governor, Vepa Kamesam. Despite the committee submitting its report way back in 2006, the same has still to see the light of day. There, is not even a single word, or discussion on its content anywhere.
Here is acloser look at some of the recommendations from the Vepa Kamesam report, a copy of which is available with Moneylife. The report says…
1. Strengthen investigative powers of SFIO and create statutory obligation for other entities to cooperate with it.
2. SFIO should have power to call for information and stringent, non-compoundable punishment for refusal to provide
information. This includes a maximum prison sentence of three years (up from six months currently) to a fine of Rs5,00,000.
3. Need for a comprehensive, inclusive definition of corporate fraud and with an exclusive jurisdiction for corporate fraud under the Companies Act.
4. Amend companies act to create long-term special regulation to deal with fraud in the broader sense.
5. Review compliance and corporate governance structure under Companies Act to enforce transparency and accountability.
6. The commission wants SFIO inspectors to have the powers to attach movable and immovable property of persons under investigation, with the proviso that the officials will inform the courts about the basis of action within seven days.
7. Under current statute, a person accused of company fraud cannot form, promote or manage a company for five years. The Kamesam committee wants this to be extended forever. It wants that even the directors, officers and functionaries, who were not directly involved in fraud, but contributed passively or indirectly, should also held accountable for the offence under criminal negligence and have a civil liability and monetary penalty. Similarly, the committee wants statutory auditors and internal auditors of a company that is accused of fraud to be held accountable.
8. It wants incorporation of whistleblower sections under the Companies Act, so that the person blowing the whistle will have his/her employment protected and subject to lesser penalty or even acquitted.
9. It asks for special courts with civil and criminal jurisdiction to deal with company’s law cases, in order to ensure speedy disposal of cases.
10. It wants a research and market analysis department in SFIO to help the investigation process. Then, it wants SFIO posts upgraded and paid better in order to attract officials from other enforcement agencies.
The committee has thus provided for more powers to be given to the SFIO through stricter punishments and higher penalties, and called for all those involved in corporate fraud, directly or indirectly, to be held accountable.