Invest in investigation | The Economic Times

Op-Eds by Corporate and Financial · April 18, 2019
Author(s): Vedika Mittal and Aishwarya Satija

Last month, in response to a Right to Information (RTI) query by activist Jitendra Ghatge, Mumbai Police’s Economic Offences Wing (EOW) revealed that of the over-180 cases of alleged financial fraud in Maharashtra in the last three years — including the alleged bank fraud involving Punjab National Bank scamster Nirav Modi — prosecution was undertaken in only two cases. It was further revealed that of an estimated Rs 19,317 crore involved in these suspected offences, only Rs 2.5 crore was recovered by the EOW.

A similar situation exists with other investigation agencies. According to the annual reports of the ministry of corporate affairs, the Serious Fraud Investigation Office (SFIO) only completed five of the 33 investigations ordered by the government from December 2017 to November 2018. As for the poor conviction rate in dealing with money laundering cases by the Enforcement Directorate (ED), that’s the stuff of legal lore.

Inefficacy in investigation of economic offences in India is a consequence of fragmentation and diffused accountability.

The SFIO, EOW, ED, Central Bureau of Investigation (CBI), Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (Irda) and a range of acronymised bodies all have jurisdiction to investigate various economic offences.

In fact, given the way regulators and enforcement agencies have mushroomed over the years, in most cases, there arises much overlap in their enforcement mandate.

This leads to multiplicity of investigations. For instance, in the recent case involving Infrastructure Leasing and Financial Services (IL&FS), investigations have reportedly been initiated by SFIO, ED and EOW. Similarly, in the case of the alleged bank fraud by Nirav Modi and his associates, investigations have reportedly been initiated by SFIO, CBI and ED. This leads to duplication of work by government agencies. As a consequence, public resources are wasted.

Criminal jurisprudence also presumes a person innocent till proved otherwise. Multiple investigations, several of them accompanied by headline stories, can cause severe reputational loss much before any adjudication of guilt actually takes place.

Moreover, the establishment of multiple investigative agencies in a niche area such as economic offences without the corresponding increase in skilled manpower, has led to a shortfall of experienced and well-trained investigators.

It is no surprise, then, that the arrest in August 2018 of the former promoter and managing director of Bhushan Steel, Neeraj Singal, by SFIO was invalidated by the Delhi High Court due to certain irregularities, including procedural lapses, on the part of the investigating body.

Although the order of the high court was partially stayed by the Supreme Court, it demonstrates the potential consequences of lack of procedural expertise. Towards this end, it may be logistically more viable to consolidate criminal investigative functions for economic offences into one agency, and focus on equipping such an agency for specialisation.

In the US, while there are multiple agencies that have jurisdiction to prosecute economic wrongdoings, investigation of economic offences that are purely criminal in nature is generally always entrusted to the Federal Bureau of Investigation (FBI). Similarly, streamlining investigative functions into one agency in India may aid in systematising the current process.

Such an agency will make the investigation procedure uniform, curtail duplicity of work and provide a specialised cadre of investigators. It will also increase investor confidence by insulating companies and their directors from multiple proceedings, thereby promoting the ease of doing business.

Naysayers may argue that forming a mega investigation agency at this stage will be akin to unscrambling eggs. This could well be true, but still not a good enough reason to forestall the exercise.

Amalgamating agencies into one will be arduous administratively. But the ultimate test of an investigative agency is not in its structure but in its ability to investigate professionally and secure convictions for economic wrongs.

On this test, our multiple agencies have come up short time and again. Highprofile economic wrongs are proliferating and convictions are scarce. If results are what matters, a unified investigation agency is the way forward.

The writers are with Vidhi Centre for Legal Policy, New Delhi

About Vedika Mittal:

Vedika is a Senior Resident Fellow with the Corporate Law and Financial Regulation team. Her areas of interest are competition law, insolvency law and corporate governance. At Vidhi, she has worked on a diverse range of projects including research and drafting support for amendments to the Competition Act, 2002 and the Insolvency and Bankruptcy Code 2016, adoption of the UNCITRAL Model Law on Cross-Border Insolvency, review of offences under the Companies Act, 2013 and simplification of the GST returns filing system. Vedika completed her B.A. LL.B. (Hons.) from Gujarat National Law University in 2011 and an MCL from University of Cambridge in 2014 where she was ranked 2nd in her cohort. Apart from writing for leading newspapers, Vedika has contributed to panel discussions and conferences in the area of cross-border insolvency including the Annual Global Insolvency and Restructuring Conference organised by the International Bar Association. Prior to joining Vidhi, she worked in the Chambers of Mr. Dayan Krishnan, Senior Advocate. She has also worked as the Khaitan & Co. Research Fellow for Mergers and Acquisition at Gujarat National Law University and as an associate in the Capital Markets team at Amarchand Mangaldas, Mumbai.. She has also authored independent reports in areas including competition law and corporate governance of PSU’s.

About Aishwarya Satija:

Aishwarya is a Research Fellow in the Corporate Law and Financial Regulation vertical. At Vidhi, she is working on the Insolvency and Bankruptcy Regulations and cross-border Insolvency laws. Aishwarya graduated with a B.A. LL.B (Hons.) from Jindal Global Law School (JGLS) in 2017. During her time there she has worked on two human rights reports and attended specialised courses in Advanced Corporate Law and Competition Law. She has also interned under Senior Advocate Ramji Srinivasan, in Avantha Holdings Ltd. and in law firms like Phoenix Legal, and PSA Legal. Link to full bio