• Corporate fraud

We are a chartered accountant firm practicing in Kolkata. From the public domain it has come to our knowledge that our firm name has been misused by several listed companies with regard to the internal audit of such companies.

Our firm was shown as internal auditor of few listed companies for the financial years 2015-16 and 2016-17. As per Companies Act, 2013, it is mandatory to appoint internal auditor and conduct internal audit. We have examined annual report of these companies. In the Directors’ Report annexed to such Annual Report we found a very strange fact. In the Directors’ Report following has been mentioned under the sub head “Internal Auditors”:

 “The company has appointed M/s. Jaiswal Akash & Co. , Chartered Accountants, Kolkata (FRN 328324E) as Internal Auditors of the Company for the current financial year.”

We also conducted an inquiry with the Registrar of Companies where we found that such companies have filed bogus Board resolutions via Form MGT – 14 for appointment of our firm as Internal Auditor. 

We had never given any sort of consent in any mode to be appointed as the internal auditor of such companies. We never conducted or performed any audit function with regard to activities and books of account of such companies. Further, we never prepared or signed any Internal Audit Report of such companies. We have not been associated with such companies in any manner be it financial or otherwise.

Without any appointment being made with consent; without any performance of audit function and without certification of any audit report such companies, our firm name has been misused as internal auditor by such companies.

We understand that it is an apparent case of planned fraud as such companies have not only mentioned our firm name in the Directors’ Report but also intimated the Registrar of Companies that our firm has been appointed as Internal Auditor of such companies without any actual appointment and consent.

These companies are penny stocks as per Income Tax Law. We understand that main purpose of these companies is to provide exempted Long Term Capital Gain and accommodation entries. These are jamakharchi companies.

Because of use of our firm name by such jamakharchi companies image of our firm has been affected. Hence, we want to file defamation case against such companies and claim for monetary compensation apart from other legal action.

Is it possible to file such case? If yes, what is the maximum amount that can be claimed as compensation? On what factors amount of compensation depends?
Asked 4 years ago in Business Law

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15 Answers

Hello,

Defamation case can not be filed.

You may file a civil suit and claim compensation from the companies who have used your name without your permission.

Also you may send them a legal notice before initiating legal action.

Get in touch with a local lawyer.

Regards

Anilesh Tewari
Advocate, New Delhi
17940 Answers
377 Consultations

5.0 on 5.0

You collect the evidences of the fraudulent activities of the said companies using your company's name as their internal auditors.

If possible you may even collect their account details with signatures of the auditors.

Then you may inform the ROC and also issue a legal notice to the said companies for misusing your name without any authority or consent or permission etc. You can instruct them to withdraw your name from their report mentioning your firm as internal auditors.

You can inform the registrar of companies in writing stating that you did not audit the said companies in the period shown to have been audited by your firm and disclaim the responsibility.

You can issue a public notice in a newspaper about this and disclaim the liability of auditing of the said companies.

A corporate fraud occurs when a company or an entity deliberately changes and conceals sensitive information which then apparently makes it look healthier. Companies adopt various modus-operandi to commit such corporate frauds, which may include miss-information in the prospectus, manipulation of accounting records, debt hiding etc. The aspect of falsification of financial information includes false accounting entries, false trades for inflation of profits, disclosure of price sensitive information which comes under the ambit of insider trading and showing false transactions which result in attracting more investors and lenders for funding.

Fraud in relation to affairs of a company or any corporate body as defined in S.447 of the Companies Act 2013, includes 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..

Any person who is found guilty of fraud shall be punishable with imprisonment for a term which shall not be less than six (06) months but which may extend to ten (10) years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three (03) times the amount involved in the fraud. Where the fraud in question involves public interest, the term of imprisonment shall not be less than three (03) years.

Undr section 448; If in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement —

which is false in any material particulars, knowing it to be false; or

which omits any material fact, knowing it to be material

T Kalaiselvan
Advocate, Vellore
78133 Answers
1543 Consultations

5.0 on 5.0

1) inform ROC that you have never acted as internal auditor fir such companies

2) file Police case against the companies for cheating , fabrication of documents

3) file suit for damages against the companies and claim one crore as damages for maligning your reputation

Ajay Sethi
Advocate, Mumbai
87975 Answers
6207 Consultations

5.0 on 5.0

Inform the ROC and also issue a legal notice to the said companies for misusing your name without any authority or consent or permission etc. You can instruct them to withdraw your name from their report mentioning your firm as internal auditors. The acceptance of an auditor to audit the company account is also important.

Send a legal notice or otherwise you will file a complaint before the registrar of companies in writing stating that you are not audited the company account and not received any appointment letter and not give your acceptance letter to company as internal auditor.

Ajay N S
Advocate, Ernakulam
3991 Answers
93 Consultations

5.0 on 5.0

Hi,

You may very well file the defamation and other cases for doing such a fraud. The claim of compensation may be the amount as you feet suffered by you. This also attract the provisions of criminal case.

Ganesh Singh
Advocate, New Delhi
6646 Answers
16 Consultations

4.5 on 5.0

You can file two cases against the companies who have used your name without the consent you can make companies Chartered Accountants those who are performing statutory audit and Registrar of companies as parties in your fraud case under section 420 and 406 IPC read with section 120 b in the High Court along with a defamation petition under section 500 IPC for the punishment for the defamation by the companies by using the name of the form without the consent and submission of certified copies of board resolution signed by the directors of the companies to the Registrar of Companies.

Vimlesh Prasad Mishra
Advocate, Lucknow
6848 Answers
23 Consultations

4.9 on 5.0

1. What evidence do you have to prove that your name was misused as the internal auditor of the companies? If the evidence is there then firstly send a representation to ROC to complain that you have never been their auditor. Thereafter, file a FIR for the offence of cheating under 420 IPC and forgery under Section 468 and 471 IPC.

2. Apart from above, you may also file a civil suit for damages to seek damages to the tune of 100 crores for the misuse of your name which caused loss of reputation to you.

Ashish Davessar
Advocate, Jaipur
30761 Answers
971 Consultations

5.0 on 5.0

Sir if the proof of the damage to reputation and loss caused and circulation in public you can file a case of cheating along defamation a police complaint or a private complaint directly to the magistrate can be filed.

Further firstly file a representation with ROC to remove your name as internal auditors and further to take action against company in companies act.

Also you can file a suit for damages caused due to fraud.

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

1. First of all you can lodge police complaints against these companies and also lodge formal complaints before the registrar of companies.

2. if no action is taken against those companies by the police and/or the registrar, you can file a writ Petition against the police and/or the Registrar for their inaction praying for an order upon the police to register FIR, investigate and act and order upon the Registrar to act based on your complaint.This at of yours will put pressure on those companies.

3. Thereafter you can file a Damage Suit against those companies for causing damage to your firm's reputation claiming payment of compensation to mitigate the damaged caused partially and the amount of damage will depend on the capacity of those companies to pay individually. An amount of Rs.20 lakhs as damage claim from each companies can be considered as justified.

Krishna Kishore Ganguly
Advocate, Kolkata
26614 Answers
726 Consultations

5.0 on 5.0

For damages a civil suit can be filed wherein against company a complaint with ROC can be filed as it has submitted misleading and false information the ROC shall proceed against the company.

Further give company a legal notice to remove the name and pay compensation for damaging your image and reputation.

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

1. To seek compensation you have to file a suit for recovery of damages in the court. All civil suits are filed under Section 9 CPC.

2. It will be filed in the court having pecuniary jurisdiction, which only a local lawyer can tell.

3. It takes years in the courts in India to get justice.

Ashish Davessar
Advocate, Jaipur
30761 Answers
971 Consultations

5.0 on 5.0

section 467 of the IPC, which directly covers cases of "forgery of valuables, security will etc" provides for punishment between 10 years and life term.

2) the Supreme Court dealt with this controversy and held that a person aggrieved by a forged document, can file a private criminal complaint under certain relevant sections of the Indian Penal Code,

3) Section 357 Criminal Procedure Code (CrPC) confers a duty on the Court to apply its mind to the question of compensation in every criminal case. It necessarily follows that the Court must disclose that it has applied its mind to this question in every criminal case,"

Ajay Sethi
Advocate, Mumbai
87975 Answers
6207 Consultations

5.0 on 5.0

You can first issue a legal notice demanding an explanation from them for using yor firm's name without your permission or consent and inform them that this illegal act has caused you mental stress because of the liability impacted to your firm by such act. You can also mention that you will be issuing a public notice warning the general public who are directly or indirectly involved in the business with you are to taken to believe that you are their firm's auditor and are being misguided about their authenticity at the background of using your firms's name. You can claim compensation for causing this mental agony to the extent you may justify.

once you get as reply/explanation, you can decide about further legal course of action through civil court as well as with a complaint to the ROC about this. .

T Kalaiselvan
Advocate, Vellore
78133 Answers
1543 Consultations

5.0 on 5.0

Hi,

As per the documents mentioned by you, you have the sufficient proof of the fraud by that company. You may get FIR registered under section 420, 467,468,469 of IPC as well as you may also avail the civil remedy of compensation and damages/defamation. It may take about two years in decision by court.

Ganesh Singh
Advocate, New Delhi
6646 Answers
16 Consultations

4.5 on 5.0

That will be a civil suit under the code of civil procedure.

it will take good 3-5 years for the case to get decided

Anilesh Tewari
Advocate, New Delhi
17940 Answers
377 Consultations

5.0 on 5.0

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