Corporate Law

Lead Investigative Agency for Economic Offences: Time for Reform

Aditya Saraswat

The establishment of a lead investigative agency, which will involve other bodies on a need basis, will put an end to the overlapping functions of multiple investigative agencies.



The mushrooming of different agencies with similar powers to investigate economic offences in the country has lead to duplication of efforts and wastage of public resources. For instance, if company funds are used in order to bribe a Union government official, it will constitute different offences under the Prevention of Corruption Act (1988), Prevention of Money Laundering Act (2002) (“PMLA”) and the Companies Act (2013). This, in turn, means that the multiple investigative agencies functioning under these legislative enactments, the Central Bureau of Investigation (“CBI”), the Enforcement Directorate (“ED”) and the Serious Fraud Investigation Office (“SFIO”), will all work simultaneously. There is hence an overlap in functions, which causes procedural delays in the investigation process.

There have been many instances in our country where concerns have been raised by accused regarding the lack of coordination between these multiple investigative agencies. For example, in the Punjab National Bank scam case, an accused filed an application for the lack of coordination between the CBI and the ED, where he was made an accused by the CBI but a witness by the ED, thus creating conflict. In the same case, another accused raised concerns regarding jurisdictional issues between the PMLA and the CBI. Such issues are bound to occur where multiple agencies are involved at the same time. The issue is not restricted to the lack of coordination between these agencies: another important lacuna is the inability of Union investigative agencies to work on a pan-India basis. The denial of permission to a central agency like the CBI for the investigation of the ongoing horse trading issue by the Rajasthan Government is one of the many instances which show the state of these agencies in India. In this light, the author in the present article has advocated the constitution of a lead investigative agency to deal with the problem. Before discussing this idea, the status of some of the existing investigative agencies will be discussed in detail.


The SFIO: An office full of inefficiencies

The SFIO is the premier investigative agency for white collar crimes in the country. It functions under the Ministry of Corporate Affairs (MCA). However, the concerning fact is that it lacks the suo moto power to initiate investigation and has to wait for the cases to be assigned by the government. Even after submitting the investigation report, the SFIO again needs permission from the government to initiate prosecution. This hampers the efficiency of the SFIO and makes it over-dependent on the government. The alleged relation of politicos with various scams further highlights the ills of this dependence.

The inefficiency of SFIO is also evident from its paltry staff appointment. On 20 July, 2018, it was stated in the Lok Sabha that as against the sanctioned number of 133 posts in the agency, only 59 posts were occupied. This means that the premier investigative authority in the country is only functioning with around half of its strength. SFIO has also been criticized for its slow speed of investigation. Between 2014 and 2018, out of the 166 cases assigned to it for investigation, it completed the investigation in only 65 cases. The provisions of the Companies Act itself stimulate such an inattentive approach. Section 212 of Companies Act, 2013, does not stipulate any time period for the completion of an investigation by the SFIO. Especially in the present times, when corporate frauds are on the increase, it is expected from the agency to complete the investigation process in a reasonable, time bound manner. Because of all these deformities, the 65th Report of the Standing Committee on Finance (2017-18) also expressed displeasure over the body’s lax functioning.

Is the SFIO the real “sole” authority?

Once a case is assigned to the SFIO, as per Section 212 of the Companies Act, it is supposed to function as the sole investigative authority for that matter, and all other investigative agencies are required to stop the investigation and share all the information with it. However, a number of difficulties are faced in implementing this provision. In most of the cases assigned to it, other agencies like the ED and the CBI are already involved, which makes it difficult for the SFIO to timely procure the relevant documents and evidence. The most significant problem here is the inability of the SFIO to function as a lead authority. It lacks the powers to take cognizance on its own and cannot lead by involving other agencies on a need basis. Instead, what happens is that multiple agencies start investigation simultaneously, and there is no authority which can systematize the entire process.


The Enforcement Directorate: In a “Three-Legged Race”

The Enforcement Directorate functions as per the provisions of the Prevention of Money Laundering Act (2002), the Foreign Exchange Management Act (1999), and the Fugitive Economic Offenders Act (2018). The ED has gained some significant powers through the recent amendments introduced through the Finance Act, 2019. All the offences under the PMLA have now been made cognizable and non-bailable. Further, an arrest can now be made by the ED even without a warrant or an FIR being filed. However, despite gaining unprecedented powers through these amendments, the biggest drawback for the ED is its inability to register a case on its own. The ED’s legs are tied with scheduled agencies like the CBI or State Police, and it cannot take up any independent investigation.

Moreover, the ED is always considered to be in a “three-legged race”. Many times, courts are of the view that if a case initially registered by an investigative agency is dropped, =the ED’s case should automatically be dropped as well. This leads to a lot of wastage of resources and time for the ED. If its case doesn’t have a standing of its own, why is it unnecessarily involved in the matter?


The Central Bureau of Investigation: The Caged Parrot

The CBI derives its powers of investigation from Section 2 of the Delhi Special Police Establishment (DSPE) Act, 1946. Even it can’t initiate suo moto investigation and investigates only those cases that are notified to it by the government. As per Section 6 of the Act, the CBI requires consent from the state governments before conducting investigations in any particular state. The states are very reluctant to provide this consent, especially when there are different political parties at the Centre and in the State concerned. For this reason, the CBI lacks the powers to operate on an “all-India” basis despite being a central agency. States like West Bengal, Andhra Pradesh, Karnataka, Sikkim, Nagaland and very recently Rajasthan have withdrawn the consent provided to the CBI to conduct investigations in these states.

Further, the overdependence of the CBI on the government has not been hidden from anybody’s eyes: even the Supreme Court has named it as a “caged parrot”. The Ministries of Home, Law, Finance etc. can all be considered as masters of the CBI in one way or the other. The agency depends on the Home Ministry for its staffing, and on the Law Ministry for lawyers. Further, since the CBI is mostly staffed by IPS officers on deputation, it is always susceptible to the government’s manipulation as these IPS officers are dependent on the Central Government for future postings. As long as the government has the power to transfer and post officials in the CBI, it will not be possible for the agency to enjoy autonomy.

In the current setup, the CBI is often misused by ruling parties to settle their own political scores. This fact led the Supreme Court, in the Jain Hawala Case, to direct that the investigation be done independently of the executive. However, this approach was restricted only to that case and ever since, every successive government has been quite successful in keeping the parrot in its cage.

The Need for a Lead Investigative Agency

In the light of the above lacunae in various investigative agencies, especially in the SFIO which is supposed to be the leading agency, it becomes imperative to constitute a lead investigative agency. Once such an agency is set up, every case will be dealt by only one agency and other agencies will be involved only on a need basis, for specialized support. This will significantly ameliorate the issue of duplication of efforts, which is a usual occurrence in the current set up. Since all these abovementioned agencies are functioning individually rather than collectively, whichever agency gains the first-mover advantage, seizes all the books and keeps all the incriminating evidence to itself thereby impeding the investigation process. The 24th report of the Parliamentary Standing Committee also opined that the increasing number of investigative agencies is leading to issues of conflict of interest, overlap in jurisdiction and lack of synergy.

Thus, it is logically desirable to set up a lead agency which can streamline the functioning of different agencies. Last year, the Ministry of Corporate Affairs also pitched for such an agency. A number of countries have adopted the concept of a lead investigative agency which provides for the preliminary directions and involves other agencies only on a need basis. Through such a measure, accountability and uniformity in the investigation process can also be ensured. Also, in the light of the fact that presently the investigative agencies are heavily dependent on the government, it becomes imperative to keep this leading agency away from the clutches of the government and place it under an independent body. The organisation must be provided with a statutory basis through a Central Act, which empowers it to operate on an all-India basis (unlike the CBI). Further, it must be vested with functional autonomy and the power to take suo moto cognisance of cases. A transparent method of appointment of officers must be implemented. To make the body more accountable, annual audits can also be conducted by a team of people from the backgrounds of justice, law, administration and public affairs, and the reports from such audits must be placed before Parliament.

Another issue which requires consideration is the need for a federal list of crimes, on which deliberations have been going on for quite some time. The NITI Aayog and the Malimath Committee (2003) have also advocated for the same and have pitched for putting offences with national ramifications separately under the Federal list. Corporate frauds, economic offences of serious nature, money laundering etc. must also form part of this federal list. Accordingly, when any such offence in the federal list take place, the jurisdiction should automatically lie with the proposed lead agency (just like FBI in United States), which can further involve other agencies as per the requirement. In the current set-up, since police and public order form part of the state list, a case is first handled by the state police and later do central agencies, such as the CBI, comes into the picture. In this process, the quality of investigation suffers. Hence, having a federal list of offences can significantly aid in the functioning of the proposed agency.

Hence, in order to reduce the duplicity of work, the establishment of a lead investigative agency can be extremely beneficial. The establishment of the same might appear to be an arduous task: however, this cannot be a cogent reason to forestall a proposal that can significantly improve the quality of the investigation of economic offences in the country.

Aditya is a student at the National Law University, Jodhpur.

Categories: Corporate Law