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Soon, ED could raid & attach properties for fraud

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Sections 447 & 448 of the Companies Act are set to be included as scheduled offences under PMLA, giving ED the power to recover ‘fraud’ money.

New Delhi: The Enforcement Directorate (ED) could soon be able to attach properties and raid the premises of individuals being tried for fraud under the Companies Act – a move that will give more teeth to the law.

The related sections 447 and 448, which define “fraud” punishable under the act, are likely to be included as scheduled offences under the Prevention of Money Laundering Act (PMLA). The agency claims that this change will help compensate victims of fraud.

The reference to include the sections as a predicated offence under the PMLA was made to the Ministry of Finance by the Ministry of Corporate Affairs. It is the first time that a section under the Companies Act is being incorporated as a scheduled offence.

“The reference was made, and it has been accepted. Both sections of the Companies Act – 447 and 448 – have been moved to be included as predicated offences. They will now be sent to Parliament for approval, before they are finally included under PMLA,” a top ED official told ThePrint.

“Sections 447, 448 are frauds which are serious offences, which is why it is a valid decision,” he added.

What are sections 447 & 448?

Section 447 of the Companies Act states that any person found guilty of fraud involving public interest shall be held guilty. ‘Fraud’, in relation to the affairs of a company, includes any act or omission, concealment of any fact, or abuse of position committed by any person with intent to deceive or gain undue advantage from the company, its shareholders or creditors.

Section 448 further states that if a person who is found guilty furnishes a report or financial statement that is false, the person shall be liable.

What happens if these are made scheduled offences?

Until now, if an individual was booked under Section 447 of the Companies Act, s/he was just liable for a punishment and a fine. However, once the section becomes a scheduled offence, the ED gets the power to raid premises and attach properties to make the recoveries. Earlier, when the person was booked under the Companies Act, the agency had no powers to attach the individual’s property.

By making it a scheduled offence, it can be ensured that the victim in the case is compensated.

“In order to address the criminality angle, the director, additional director or assistant director of the Serious Fraud Investigation Office have been recently authorised to arrest any person believed to be guilty of any fraud, punishable under the act,” said the Ministry of Corporate Affairs.

A legal expert who did not wish to be named explained that the advantage of these becoming schedules offences was the recovery of the money. “This will enable the authorities to proceed against a person’s assets, and the money that was earned by fraudulent means could be recovered. It will also give the agency power to prosecute that individual,” the expert explained.

“It will ensure that the person who has been cheated gets his money back from the recovered amount. The complication is that he will have to wait for it until the case is on,” the expert added.

The Jaypee Group case, which falls under the Companies Act, is one case that could be affected by this proposed change in the law. It will allow agencies to attach properties of individuals to recover the amount that was invested by the public, and repay it.

Who could be affected?

ED’s counsel M.K. Matta explained that the sections essentially deal with people who wrongfully became beneficiaries of public money, concealed that money, and projected it as untainted property.

“The sections are being brought under PMLA because a person who is accused of fraud and is trying to project tainted money as untainted is guilty of laundering money, and should be charged under PMLA,” Matta said.

Major offences under the Companies Act usually include cases of mismanagement within companies, non-filing of balance sheets, audit reports, and differences between major and minor shareholders within a company.

“While other sections deal with internal matters of companies, Section 447 deals with fraud, which affects the general public that invests its money, hence the decision to bring it under PMLA is valid,” the legal expert said.

“Once the section becomes a scheduled offence, defaulters will be liable for a fine, will be prosecuted, and their properties will be attached for recovery,” he added.

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