Better late than never, the government has asked the Serious Fraud Investigation Office (SFIO) to inquire into the charges that some companies in West Bengal have been running fraudulent chit fund and Ponzi schemes, cheating tens of thousands of ordinary people. The office is a multi-disciplinary agency that not only investigates cases which have “substantial involvement of public interest” but also suggests “improvement in systems, laws or procedures”. Given the objective of reining in companies like Saradha, which enjoyed political patronage and ran its operations for several years until it collapsed like a house of cards, the Centre could not have entrusted the job to a better agency.
Set up 10 years ago, the SFIO suffers from several legal and structural inadequacies. For instance, it was constituted on the basis of the recommendations made by the Naresh Chandra committee report on corporate audit and governance. However, instead of giving it a statutory status as recommended, the government had made it an appendage of the ministry of corporate affairs. What’s more, its powers were restricted to examination of documents and lacked the powers of search, seizure and arrest. Though a half-hearted attempt was made to strengthen the SFIO when the Companies Bill, 2012, was passed by Parliament, it still can launch probe and prosecution only on the directions of the government.
Unless the SFIO is given powers to start investigations, politicians in power can always prevent it from doing its duty. Those running fraudulent money schemes take advantage of the loopholes in the banking and company laws and that is why agencies like the Reserve Bank of India are unable to take preventive action. Even the Central Bureau of Investigation does not actually have the expertise to handle cases of the nature of Saradha scam and Coalgate. There is, therefore, an urgent need to give the SFIO teeth and greater functional autonomy.