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It means identifying and exposing illegal or deceptive actions within a company for personal or organizational gain.
How are corporate frauds usually detected?
They are detected through audits, whistleblower tips, inspections, or internal control checks.
What are some common types of corporate fraud?
Financial fraud, embezzlement, insider trading, bribery, and asset misuse.
What role does corporate governance play in preventing fraud?
It ensures transparency, ethical conduct, and control systems to prevent fraud.
Role of CS in Unearthing Corporate Frauds, Scope in Governance and Compliance
Unearthing Corporate Frauds involves systematically identifying and investigating illegal practices. Key regulatory bodies, like SFIO, SEBI, and legislative measures, work together with governance professionals to detect, prevent, and prosecute corporate fraud cases.
Muskan Verma29 Jul, 2025
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Unearthing Corporate Frauds is an increasing difficulty in the current business environment. As financial scandals, insider trading, and regulatory violations increase, companies encounter significant threats to their reputation and financial stability. Such deceptive actions diminish stakeholder confidence and also disturb economic stability.
Consequently, identifying and eliminating fraud has emerged as a fundamental duty, particularly for governance experts such as Company Secretaries, auditors, and compliance officers. As fraud becomes increasingly sophisticated with digital systems and international activities, detecting corporate fraud requires robust internal controls, regulatory oversight, and proactive risk management to maintain transparency, accountability, and sustainable business practices
What is Unearthing Corporate Frauds?
Unearthing Corporate Frauds refers to the systematic process of identifying, investigating, and exposing the illegal or unethical practices within the organization. All of these activities are always intentional and meant to deceive the stakeholders. Through such activities, they try to manipulate the financial outcomes or gain unfair advantages. Some of the common examples of these incidents are book manipulation, insider trading, bribery, etc.
Therefore, Unearthing Corporate Frauds has become very important to protect the investors, uphold their public trust, and ensure regulatory compliance. Because any timely fraud detection companies become largely prone to financial losses and reputational damages. One of the major losses that the companies face is a decline in their shareholders' confidence.
Definition of Frauds Under Various Legislations
Fraud has been defined in several different ways under various Indian legislations. Provided here is a table that shows the legal definitions, their focus, and other relevant information.
Definition of Frauds Under Various Legislations
Legislation
Section
Definition Summary
Indian Contract Act, 1872
Section 17
Fraud includes acts done with the intent to deceive, such as false statements, concealment of facts, or promises made without the intention to perform them.
Companies Act, 2013
Section 447
Fraud is any act of deception, misrepresentation, or misuse of position with the intent to gain unfair advantage or cause harm to the company or its members.
Types of Corporate Frauds
Unearthing Corporate Frauds primarily begins with understanding the different forms in which it exists. Covered here are some of the most common frauds that are seen mostly in the corporate framework.
Corruption
Corruption arises when people in power use their positions to benefit themselves, and it frequently appears in the form of bribery. Factors contributing to corruption include bureaucratic red tape, complex laws, and poor literacy. Fortunately, recent reforms such as digital record keeping and a move away from cash are making it easier to see where money flows. Investigative bodies like the CVC, the CBI, the SFIO, and the Enforcement Directorate are key in tracking down corrupt practices and bringing the wrongdoers to justice.
Asset Misappropriation
This type involves the misuse of company assets by individuals in trusted positions. For example, fake sales, inventory theft, and unauthorized use of company equipment.
Financial Statement Fraud
This involves deliberate misrepresentation of financial data. Techniques include falsification of accounts, non-disclosure of material facts, or misapplication of financial standards. Indicators include delay in finalizing accounts, frequent changes in policies, and cash flow irregularities.
When it comes to the Indian legal system then it has introduced several laws and regulatory bodies. This has been done in order to support the process of Unearthing Corporate Frauds. These measures empower the agencies and professionals to take strict actions against the culprits.
For example, SEBI’s 2015 Insider Trading Regulations have made it easier to penalize insider trading by tightening definitions and expanding disclosure rules. SFIO, meanwhile, has the power to arrest, interrogate, and prosecute individuals involved in corporate fraud. These institutions play a major role in Unearthing Corporate Frauds and ensuring justice. Refer to the detailed information below to learn about some of the key legislative tools and agencies.
Legislative and regulatory response
Law/Agency
Purpose in Fraud Detection
Fugitive Economic Offenders Act, 2018
Targets individuals fleeing the country after committing frauds over ₹100 crores.
Serious Fraud Investigation Office (SFIO)
Specialized body under the Companies Act to investigate complex corporate fraud.
SEBI (Securities and Exchange Board of India)
Regulates the securities market and actively tracks insider trading and disclosure fraud.
Role of Governance Professionals
While referring to the role of the governance professionals, we must refer to the Company Secretaries and the other governance professionals. All of these are central to detecting and reporting fraud. Their major role include risk management, regulatory compliance, and maintaining ethical standards. In the context of Unearthing Corporate Frauds, their scope includes:
Independent Directors and Audit Committees
Governance professionals are key to preventing fraud. Independent directors, with their oversight roles, are expected to raise red flags and ensure transparency. Audit committees are tasked with risk mitigation and monitoring financial reporting processes.
Vigilance and Whistleblower Mechanisms
Companies must implement functional vigilance frameworks that protect whistleblowers and ensure their concerns reach the highest levels, such as the Chairperson of the Audit Committee.
Strengthened Legal and Ethical Framework
The Companies Act mandates companies to establish fraud risk management policies. Directors are required to document objections and maintain accountability. The role of governance professionals now extends beyond compliance, including cultivating ethical culture and proactive surveillance.
In order to build a better understanding of the unearthing of corporate frauds, we’ve mentioned case studies below. Reading them will provide one with a crucial and in-depth understanding of what has been around.
Yes Bank Crisis
Founded in 2004, Yes Bank rapidly progressed but faced setbacks due to imprudent lending, insufficient NPA disclosure, and governance issues. Promoter Rana Kapoor played a crucial role in unrestricted loan approvals, leading to an increase in non-performing loans. The RBI enforced a moratorium and commenced a restructuring plan.
Punjab National Bank(PNB) fraud
This case centered on the illegal issuance of letters of undertaking(LOUs) by PNB officials to Nirav Modi and Mehul Choksi. CBI and ED investigations resulted in asset confiscation and extradition attempts. The RBI reacted by tightening regulations and ending LOUs.
DHFL Fraud
DHFL is accused of establishing shell firms and fraudulent accounts to divert money. The company issued uncensored Loans, breaching corporate governance standards. The board was overridden by the RBI, which commenced insolvency proceedings. This situation underscored failures in transparency, responsibility, and moral standards.
The increasing incidence of unearthing Corporate fraud highlights the necessity for strong governance and ethical standards. Experts in governance, aided by comprehensive laws and a regulatory framework, play a vital role in detecting and averting fraud. Their vigilance, integrity, and engagement are crucial for safeguarding stakeholder interests and restoring public trust in the corporate landscape. India is improving its regulatory system to address the evolving nature of Corporate Frauds, thereby elevating the significance of governance professionals considerably
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