Financial Fraud and its Regulations in India

Fraud is a phenomenon that has been in existence since the beginning of time. It still continues to plague the world now. Fraud is “generally referred to an act of deceiving illegally in order to make money or obtain goods.” In the past decade, there has been a steady upsurge in the cases of financial frauds that have been reported in India. It is important to note that financial frauds are seen to be a part and parcel of the business world. Especially, post the liberalization of the economy. But the steady upsurge in the cases of such financial frauds and the fact that the complexity of such frauds has also been increasing. This poses some serious issues to the regulators of the financial institutions.

In India, the banking sector is mainly regulated by the Reserve Bank of India. They have defined fraud as “A deliberate act of omission or commission by any person, carried out in the course of a banking transaction or in the books of accounts maintained manually or under computer system in banks, resulting into wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank”.

The Ketan Pareikh Scam (2001), stamp paper scam (2003), Satyam Scam (2008), Vikram Investments Scam (2018) are some of the biggest cases of financial frauds that have happened in India in the last two decades. These scams involve huge sums of money which is a great loss to the country. As per the “Financial Stability Report by RBI released in the month of June, in the year 2018 the banking system has reported around 6,500 instances involving fraud of around Rs 30, 000 crores in the last fiscal year.” 

The “Indian Penal code of 1860” is the primary statute that governs criminal offenses in India and the procedural law for the conduct of proceedings is prescribed by the “Criminal Procedure Code of 1973”. In addition to this, there are provisions of the “Companies Act of 2013” that provide provisions to curb fraudulent activities in companies. “Section 447 of the Companies Act is one such provision whereby fraud is defined as including any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.” 

“The Prevention of Corruption Act 1988 and the Prevention of Money Laundering Act 2002 were some enactments that were made in order to deal with the issue of corporate and business fraud.”

Technological advancement has given rise to some new types of financial frauds and the same has been listed hereunder:

Phishing – In this type of financial fraud, the fraudster targets the internet banking clients by sending them tricky emails that would ask for the person’s account details to a website that would look like a legitimate website of the concerned bank. 

Understanding the Pyramid Scheme

Pyramid Schemes – This type of financial fraud refers to a system that guarantees the customers or financial specialists enormous benefits that are based on the recruitment of others to join their program, not founded on benefits from any genuine speculation or genuine offer of merchandise to people in general. A few plans may indicate to sell an item, yet they regularly basically utilize the item to shroud their pyramid structure. 

Skimming- Under skimming the fraudster usually steals information from a credit card by using a wedge or any other form of a skimming device that records all the information on the magnetic strip when a person swipes or uses his/her card for a proper and legitimate transaction.

Identity fraud- This type of fraud refers to a person wrongfully gaining an individual’s personal information and then using the same to rob the person of their money.

Advance Fee Frauds- These tricks are typically executed through a letter, email, or call offering whereby the fraudster offers the victim an enormous amount of cash on the off chance that the victim can assist somebody with moving a huge number of rupees or other money out of his nation. To start the exchange, the victim is solicited to send subtleties of their financial information and an organization charge. 

It is important to note the aforementioned list of financial frauds isn’t exhaustive and does not cover all the financial frauds. There are more types of financial frauds that are in existence in the country. But a common feature that was observed while research the aforementioned types of financial frauds is that in most of these frauds the fraudster has contacted the victim through the internet and has attempted to make use of the advancement of technology such as credit cards and other mobile banking features that have evolved in the recent times. 

The “Information Technology Act, 2000” was enacted by the government to deal with the issue of frauds committed via computers and cyberspace. Section 43 of the aforementioned act provides for damages up to ten lakhs. This is payable by the wrongdoer to the individual influence on the off chance that there are unapproved acts submitted in regard of someone else’s PC framework like accessing or downloading or making duplicates of the data or information put away in their respective PC’s. Further, the said Act likewise gives for discipline detainment up to three years for messing with PC source reports and for hacking the PC frameworks.

It is important to note that there isn’t separate legislation that deals exclusively with the issue of such financial frauds that are committed in cyberspace. It is important for the government to enact suitable legislation in order to keep up with the changing times and curb the increasing case of such financial frauds.

About Anuncia William

Anuncia William is pursuing her undergraduate degree in business administration and law from Symbiosis Law School Hyderabad.

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