Parliamentary Panel Angry As Corporate Affairs Ministry Misses Deadlines On SFIO Vacancies

The Parliamentary Standing Committee on Finance is miffed with the ministry of Corporate Affairs (MCA) for failing to formulate recruitment guidelines for the Serious Fraud Investigation Office (SFIO), which mainly probes cases involving violation of the company’s law. As per MCA, around 58 per cent of the sanctioned posts in SFIO are lying vacant. For the past three years, SFIO is struggling with a crippled capacity, with as many as 75 vacancies out of a sanctioned strength of 130 personnel lying vacant, it told the Committee. But the House panel has been regularly pulling up MCA and requesting it to expedite the recruitment guidelines so that all the sanctioned posts get filled up.

SFIO has 28 categories of posts and recruitment rules are yet to be framed for seven categories. Besides, amendments are to be made with respect to 15 categories.

In its submission to the panel, the Ministry said the recruitment rules are under finalisation and "efforts are being made to notify these in the current financial year".

Despite the shortfall, as many as 301 cases have been assigned to SFIO since its inception in 2003. SFIO has taken up as many as 209 cases in the last three years, MCA said.

"Out of the total 1,160 prosecutions/complaints filed by SFIO since its inception till July 1, 2015, 137 cases have been disposed of by various courts... There are 1,023 prosecution cases pending at different stages of court proceedings," the report said, citing data provided by the Ministry.

The recruitment rules should be finalised "without any loss of time", the committee has said while observing that the agency has also seen an increase in fund allocation from the Ministry. In its report tabled in Parliament on December 3, the Parliamentary Standing Committee on Finance said it was constrained to observe that capacity building has not materialised at the investigation agency. The report is on the action taken by the Ministry on the recommendations made by the panel earlier on Demands for Grants (2015-16).

The Parliamentary panel has now recommended that the recruitment rules should be finalised by the MCA without further loss of time and "not later than one month of presentation of this report".

The panel said in its report that the Budget estimate for SFIO was nearly 20 per cent higher at Rs 11.56 crore in the current financial year (2015-16). In its submission to the panel, MCA said the recruitment rules are under finalisation and "efforts are being made to notify these in the current financial year".

As part of efforts to strengthen its capabilities, SFIO is hiring individual experts and consultants besides empaneling chartered accountant firms. Chartered accountants are being empaneled for taking up assignments relating to forensic audit, analysis of financial data and interpretation of financial statements, among others, in connection with investigations under the provisions of the Companies Act, 2013.

Nothing Changed Three Months Ago
Even in August this year, the Parliamentary Standing Committee on Finance had come down heavily on MCA on several counts including lagging behind in executing crucial projects required for addressing investor grievances and for failing to formulate recruitment guidelines that could cover the shortfall in specialised posts that remain vacant in SFIO, the investigative arm of MCA.

The Parliamentary committee, incidentally, is headed by former corporate affairs minister M Veerappa Moily under whose tenure most of the reforms within MCA were initiated. The House panel has representations from across political parties. Its members from Lok Sabha include S.S. Ahluwalia and Kirit Somaiya from the BJP, Saugata Roy (TMC), Bhartruhari Mahtab (BJD) and former Prime Minister Manmohan Singh (Congress) from the Rajya Sabha as some of its members.

Taking a serious view of the acute shortage of officers (more than 50 per cent posts vacant) in SFIO, the house panel had lamented MCA for its "lackadaisical approach" in realising the full potential of SFIO in unravelling corporate frauds. It said that the three-month deadline to MCA for finalising the recruitment rules for SFIO was missed by the ministry. The Parliamentary panel noted: "The technological capability of SFIO also seems to be falling behind the curve. The Early Warning System, which was propounded as panacea for all corporate frauds at the time of its launch by the ministry, has been dumped by it for want of encouraging results."

The panel expressed its unhappiness with the lack of progress shown by the specialised units within the SFIO. "The computer forensics lab set up in Market Research and Analysis Unit (MRAU) of SFIO is yet to show tangible results by way of timely identification and detection of high-tech corporate frauds."

Responding to the panels suggestion on recruitment for SFIO, the MCA said that the terms of deputation offered in SFIO were not as attractive as offered by other premier Investigation Agencies like CBI, IB, Enforcement Directorate, NIA and SEBI. "As a result, there is no motivation for officers from various organizations to opt for deputation to SFIO. This issue has now been taken up with the 7th Pay Commission and a strong case has been made out for raising the deputation allowance," it said.

Not satisfied with the response, the panel told MCA to finalise the recruitment rules immediately without further delay so that SFIO could have a permanent cadre of officials and lack of manpower would no longer be an issue for its under-performance. The committee noted that MCA in their 'Action Taken Replies' remained silent on the mechanism regarding accountability in case of delays in finalising cases. "The ministry should install a system in this regard and be firm in fixing responsibility where there are delays in finalising cases," the committee told MCA.

The Parliamentary committee also pulled up MCA for delaying the setting up of the Investor Education and Protection Fund (IEPF) Authority as required under the new Companies Act. The Parliamentary panel wants the redressal of all investors grievances under IEPF as a single-window system. In its report on demand for grants 2014-15 for MCA, the House panel said that creation of IEPF Authority has taken an "unduly long time". Panel had noted that excluding investor grievances from the mandate of IEPF Authority will do “no justice” to the investors' fraternity.

"The Ministry should include all investor-related activities including redressal of investor grievances under the ambit of the Authority as it will act as a single window for all investor problems," the report had said.

What happened in 2013?
In 2013, the MCA had approved a proposal to create permanent cadre for SFIO which was then probing several chit funds, including those belonging to the Saradha Group from West Bengal. Back then, SFIO was overburdened with a pile-up of at least 28 cases which were under various stages of investigation.

To tackle the situation, the MCA had approved a proposal for the creation of "Permanent Cadre" for SFIO as, all positions till then were filled up on deputation basis. MCA had also approved a proposal for hiring legal counsels on deputation basis.

The acute staff shortage had also attracted the ire of the Parliamentary standing committee on finance responsible for overseeing the functioning of MCA. Back then the Committee was led by Yashwant Sinha. The committee had expressed concerns on the efficiency and functioning of SFIO, which it said was operating at an alarming vacancy level of 90 per cent for the legal staff.

"The committee would urge MCA to take urgent steps to address the shortage of manpower so that SFIO is well-equipped for the enhanced role it is expected to play after the passage of the Companies Bill, 2012," the panel had told MCA in mid-2013.

Back then of the 130 sanctioned posts in SFIO, 73 were lying vacant. As per the current figures, the 75 posts out of 130 are lying vacant.