Market regulator SEBI has set up a specialised department to tackle cases of diversion of funds, bank loans and resources by company promoters. The move comes after a spate of cases involving Cox and Kings, DHFL and the now infamous liquor baron Vijay Mallya. The new department will be known as the Corporation Finance Investigation Department (CFID).

While Mallya is now a proclaimed absconder and accused of fraud and money laundering running into thousands of crore, recent investigation by the Enforcement Directorate has found that DHFL promoters had diverted more than ₹12,000 crore. More than ₹7,000 crore is said to have been laundered by Cox and Kings promoters.

This and more such cases where even funds raised through initial public offerings have been diverted have pushed SEBI into action. The new department will even check if resources like company land, guest houses or vehicles are misused by promoters, a source close to SEBI said.

Turf of CFID

Currently, investigations and corporate finance departments separately look at various frauds committed by company promoters. But there is often confusion and clash as both the departments believe that it is not their turf. Hence, the turf of the CFID will now be defined, including the cases it is supposed to handle, the sources said.

According to SEBI’s internal circular, the CFID will, among others, handle cases of fraud, diversion, and siphoning or misappropriation of funds; will look at material mis-statement in financial statements; will probe complex transactions involving resources of the listed entity undertaken for the ultimate benefit of promoter/promoter group; investigate fraudulent related party transactions wherein financial and governance issues are inter-linked and a holistic examination is required; take up cases where a forensic audit has been initiated by lenders, management other regulators; and look into allegations made against auditors.

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