Corporate fraud faces equal fine.

The Shradul Shroff Committee constituted by the department of company affairs (DCA) Government of India’s Ministry of Finance to suggest measures against erring corporates, met to recommend that the fine for irregularities should be equal to the magnitude of frauds. Upto now, for listed companies, breach of clause 49 of the listing agreement of the Securities and Exchange Board of India (SEBI), which specifies corporate governance norms attracts a small fine of Rs 1,000 under the Securities Contract Regulation Act. The penalty would now be ad-valorem, with the extent of punishment being linked to the size of the offence.

The report is likely to recommend more teeth for the National Company Law Tribunal by vesting it with criminal jurisdiction. This would mean speedy justice as there would be no need to refer the cases to district courts. The committee is also of opinion that a company should not be held responsible for its employees’ irregularities.

The report classifies corporate irregularities such as accounting frauds and siphoning off of funds as major offences. Procedural violations such as failing to file annual returns are minor offences. If a major offence is grave and affected a large number of people, the guilty will face a five-year imprisonment, in addition to the fine. The emphasis, however would be on fines than prison terms, the sources added.