FALSIFICATION OF ACCOUNTS
Category: Criminal Law
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INTRODUCTION
Accounting fraud consists in manipulation of records for the purpose of giving a wrong impression of an organization. This is an emerging spicy and common form of fraud, which has major impacts on individual entities and the economy as a whole. A few years ago, the Satyam Computers scam was an instance of corporate fraud that has put investorsâ confidence at risk and revealed shortcomings of corporationsâ governance and financial legislation. Policies can be implemented under the IPC; the Companies Act; SEBI; and the RBI; yet enforcement is still an issue in India. This paper aims at looking at the legal provisions and briefly discusses some of the cases in light of the need to enhance the regulation on these jurisdictions.
LEGAL PROVISIONS AND FRAMEWORKÂ
Indian Penal Code (IPC)
Section 477A of the Indian Penal Code states that any person who makes any falsification of the book or records or makes any statement knowing that it is false in a material particulain regards any particular branch of trade, business or manufacture shall be guilty of felony, and shall be liable to be imprisoned for seven years or to receive such fine. Section 420 deals with cheating and dishonest affairs of property that is commonly used in frauds.
Bhartiya Nyay Sanhita (BNS)
Section 344 of Bhartiya Nyaya Sanhita (BNS) makes it a criminal offense to make a document relating to any arms dealing with an intention of using the same for cheating. This provision corresponds to Section 477A of the IPC but has features more in harmony with the present ageâs financial crime.
Banking Regulation Act, 1949
Banking Regulation Act, 1949: This act requires that financial accounts of banks should be proper. Section 35 of the act also allows the RBI to scrutinize the books of the reporting institutions and punish fraudsters.
Companies Act, 2013
Section 128 of Companies Act 2013 insists on absolute compliance with the records and book of accounts, while Section 447 utilizes imprisonment up to ten years and fines for fraudulent reporting of financial statements.
ECONOMIC IMPACT OF FALSIFICATION OF ACCOUNTS
Account fraud has significant economic consequences, including negative impacts on investor confidence to the generation of systemic risks in the financial market. Embezzlement causes corporate collapse, job losses, lower tax collections, wrong resource distribution. SMEs are among the most affected since they experience unfair competition with big organizations involved in fraud.
CASES AND EXAMPLES OF FALSIFICATION OF ACCOUNTS
Satyam Computers Scam (2009)
Certainly, Satyam Computers Scam In 2009, Satyam Computers was called âIndiaâs Enronâ its founder B. Ramalinga Raju admitted to manipulating the companyâs financial statements and embezzling about INR 7,000 crore from investors. Among other things the scandal result in changes to the Companies Act in terms of governance standards and audit requirements.
Kingfisher Airlines Case (2012)
Kingfisher Airlines Case (2012) Within three years of operation, Vijay Mallyaâs Kingfisher Airlines went bankrupt as the company engaged in cooking its books by concealing the rising dues of various stakeholders. This case threw the light in areas of financial negligence made by banks and led to formulation of strict regulations by the RBI concerning loan sanctioning policies.
REGULATORY MECHANISMS TO PREVENT FALSIFICATION OF ACCOUNTS
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Securities and Exchange Board of India (SEBI)
Listing Obligations and Disclosure Requirements (SEBI LODR) regulations SEBI aims at maintaining and enforcing high Listing Obligations and Disclosure Requirements with strict deadlines for financial reporting. It also requires forensic examination of companies believed to have engaged in wrong doing and also upholds high corporate integrity benchmarks.
Reserve Bank of India (RBI)
Reserve Bank of India (RBI) The RBI set prudential measures that check enable banks from fudging figures. Risk based supervision and enhanced monitoring of NBFCs are some of the mentioned strategies which form part of its prevention of fraud.
Institute of Chartered Accountants of India (ICAI)
Accounting Body of India: ICAI ICAI controls the auditing profession of India and Standards on Accounting and Auditing are followed. Coâreview and the quality of audit reviews are done to check compliance to the set practices by auditors.
National Financial Reporting Authority (NFRA)
National Financial Reporting Authority (NFRA) NFRA is aimed at delivering and enforcing accounting and auditing standards for large companies as well as entities of public interest. It investigates fraud and hence auditors are made to answer questions regarding their professional misconduct.
The Prevention of Money Laundering Act (PMLA), 2002
Prevention of Money-Laundering Act 2002 The PMLA contains laws against fraudulent and fraudulent related account-modification for the aim of money-laundering. It demands disclosure of reports and provides the Enforcement Directorate (ED) with authority to probe and freeze the associated property.
CHALLENGES IN ENFORCEMENTÂ
India has an efficient legal ratio but availability of laws is not sufficient to offer protection in real terms due to the following factors. Long producer also gives the offender time to interfere with the evidence or avoid taking his /her punishment. SEBI, RBI and other regulatory bodies suffer from resource limitations which prevent effective audit and dynamic surveillance. Inadequate regulation is supplemented by corruption, and political interference. Multistate variations on laws and poor coordination between agencies further fetter enforcement efforts, and greater improvements to the legal processes and standardization of agency effectiveness are needed.
CONCLUSION
Embezzlement is a very serious offense that has equally dangerous economical implications. Much as there are clear provisions of the law under the BNS, IPC, Companies Act and with the attention given by SEBI, RBI and ICAI, enforcement is still a challenge. Legal procedures should be accelerated; agencies must strengthen their cooperation; they must learn to use means, for instance forensic accountancy, etc. Adding more responsibility to prepare and disclose necessary financial information will secure investors and maintain a suitable environment for an economy.
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WRITTEN BY: PAYAL DEVNANI
GUIDED BY: ADVOCATE ANIK
