Corporate Financial Fraud

What the law treats as fraud

Section 447 of the Companies Act, 2013 covers acts done in relation to the affairs of a company with intent to deceive, to gain undue advantage from, or to injure the interests of the company, its shareholders, its creditors or any other person.

The same conduct is separately an offence under the Bharatiya Nyaya Sanhita, 2023, principally cheating, criminal breach of trust and forgery, which replaced the corresponding provisions of the Indian Penal Code with effect from 1 July 2024.

Categories seen most often

• Internal misappropriation: diversion of funds by employees or officers
• Procurement fraud: fictitious suppliers, inflated invoices, undisclosed related parties
• Financial statement fraud: manipulation of books to mislead lenders or investors
• Credit fraud: misuse of borrowed capital, or false statements in a facility application

Indicators that typically precede detection

• Transactions that do not correspond to any contract or approval
• A vendor onboarded outside the normal process, or paid outside normal terms
• Audits repeatedly deferred, or records produced late and incomplete
• One person controlling initiation, approval and reconciliation

Preventive measures

Most of what limits exposure is ordinary governance: separating the roles that initiate and approve payments, documenting vendor onboarding, having reconciliation performed by someone outside the transacting team, and running a whistleblower mechanism that reaches the audit committee rather than line management.