post is contributed by Suprotik Das,
a 4th year law student at the Jindal Global Law School, Sonepat, Haryana.]
ease of doing business for Indian companies. This post is specifically with
regard to Section 143 of the Companies Act, 2013 concerning the power and
duties of auditors and its amendment thereof.
in this section, if an auditor of a company, in the course of the performance
of his duties as auditor, has reason to believe that an offence involving fraud
is being or has been committed against the company by officers or employees of
the company, he shall immediately report the matter to the Central Government
within such time and in such manner as may be prescribed.”
in this section, if an auditor of a company in the course of the performance of
his duties as auditor, has reason to believe that an offence of fraud involving
such amount or amounts as may be prescribed, is being or has been
committed in the company by its officers or employees, the auditor shall report
the matter to the Central Government within such time and in such manner as may
involving lesser than the specified amount, the auditor shall report the matter
to the audit committee constituted under section 177 or to the Board in other
cases within such time and in such manner as may be prescribed.”
frauds – The amended section 143(12) speaks of a threshold limit (yet to be
notified), wherein fraud involving amounts above the threshold limit will be
reported to the Central Government and amounts lower than the threshold limit
will be reported to the Audit Committee under S. 177.
development in the United States. In Amgen Inc. v. Connecticut
Retirement Plans & Trust Funds, the
Supreme Court stated that a plaintiff is not required to prove the materiality
of fraud/misrepresentation in order to obtain class certification. Class certification
is a process by which a certain set of people are grouped together as a ‘class’
for the purpose of a class action suit under Rule 23 of the Federal Rules of
Civil Procedure. This ruling will greatly benefit plaintiffs in the United
reporting fraud – Internally to
the Audit Committee and externally to the Central Government. However, this is
applicable only to auditors.
internal and external whistleblowing by employees:
employee in a company, there is still no demarcation as to when they are to
report fraud internally and externally. The law still mandates reporting fraud
to the Audit Committee with a stringent whistleblower policy in place. However,
the execution and implementation of this aspect remains flawed due to the lack
of protection to ensure anonymity for employees.
of Corporate Affairs (MCA) should ensure that it specifies rules dealing with
the instances and threshold limits, which would guide an employee as to when to
report fraud via the internal or external route. This procedure should be
captured in the company’s whistleblower policy and adequate safeguards should
be included to protect and preserve the anonymity of the employee.
procedure of an internal route vis-à-vis an external route of reporting fraud
would provide greater clarity as to what exactly constitutes a ‘genuine
concern’ under S. 177(9) of the Companies Act.
also be safeguards that address conflict of interest issues such as when the
internal route is biased, or when a member of the audit committee is being
accused of fraud.
there exists a number of inconsistencies within the Act. Just as the Parliament
has started this dual approach to reporting fraud keeping in mind the
materiality and substantiality of the amount involved with regard to Auditors,
the MCA should notify rules which guide employees of a company when to report
fraud internally and externally.
whether reporting increases of decreases, especially after the new materiality