Pushya Mithra Advocate

Financial Fraud & Regulatory Matters

These matters arrive in two shapes: something has gone wrong and has to be examined, or a regulator has asked a question that has to be answered. Early handling decides what is available later, because it determines which records survive and how the first document is worded.

The order a suspected fraud is handled in

Fig. 3
The sequence for responding to a suspected corporate fraud Three steps run in order: preserve records and system access before anyone is confronted; review internally under privilege to establish what can be evidenced; assess duties to the board, the auditor and any regulator. The sequence then forks into two parallel tracks: recovery through a suit, arbitration or insolvency proceedings, and a criminal complaint drafted consistently with the civil case. Preserve records and access, before confronting Review internally, under privilege Assess duties to board, auditor, regulator Recover suit, arbitration, or insolvency Complain criminal complaint, consistent with civil in parallel
Each step narrows what the next one can do, which is why the sequence matters more than the speed. Recovery and prosecution run in parallel at the end, not as alternatives, and what is asserted in one will be read against the company in the other. Companies Act, 2013, sections 143(12) and 447; Bharatiya Nyaya Sanhita, 2023

Matters handled

Principal legal framework

Bharatiya Nyaya Sanhita, 2023
Cheating, criminal breach of trust and forgery, in force from 1 July 2024.
Prevention of Money Laundering Act, 2002
Reporting obligations, attachment and adjudication proceedings.
Companies Act, 2013, section 447
The statutory definition of fraud and what follows from it.
SEBI Act, 1992 and RBI directions
Market conduct, fraud classification and reporting timelines.

Questions that come up

What counts as fraud under the Companies Act, 2013?

Section 447 defines fraud to include any act, omission, concealment of a fact or abuse of position committed with intent to deceive, to gain an undue advantage from, or to injure the interests of the company, its shareholders, its creditors or any other person, whether or not there is any wrongful gain or loss.

Should a company file a police complaint or a civil suit first when fraud is suspected?

The two are not alternatives and are frequently pursued together, but the order matters. A criminal complaint is directed at the offender and at the investigative machinery; a civil suit or arbitration is directed at recovery. Facts stated in the first proceeding will be read against the company in the second, which is why an internal review is usually completed before either is filed.

What is the reporting obligation when an auditor suspects fraud?

Under section 143(12) of the Companies Act, 2013 read with the applicable rules, an auditor who has reason to believe that an offence of fraud involving an amount at or above the prescribed threshold has been committed must report it to the Central Government in the prescribed manner and within the prescribed time. Below the threshold, the report is made to the audit committee or the board.

This page describes the scope of the practice in this area. It is general information and not legal advice on any particular matter.

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