Tangled Webs: White Collar Scams in India

Author-Pooja, Rayat College of Law, Railmajra

INTRODUCTION

For many decades, the news headlines about scams and frauds committed by individuals and corporations have become more prevalent in India. Unfortunately, several people are unaware of these scams like Phishing calls, Telegram fraud, custom duty scams, financial scams and more. However, these practices are still ongoing, and offenders are taking advantage of loopholes in the statutes due to the negligence of lawmakers during the creation of laws. Nobody dares to question these practices till the day when news headlines reveal that ‘A’ person fled to ‘B’ Country before any legal action can be taken as he has committed default in repaying such amount i.e., raised or borrowed money by him from multiple sources from the past ‘X’ years. When an aggrieved party or parties file the petition before the court then it’s already too late to administer justice to them because defaulters know very well how to defeat the law as the judiciary has no jurisdiction beyond the country even if all the evidence shows yes, it is a scam.

For example, if the Judiciary gives judgment against the offender but during the time of execution of the decree in general question arises how we can recover that money as the Offender did not leave any sufficient property as all the properties belonged to him at ‘B’ country, where the offender currently resides. All the victims are not able to get their funds back due to the typical procedure established by the committee and not a proper channel of communication to listen to the queries of the victims because of the incomplete investigation from the side of the authorities. No doubt, many people will say that they have official data to prove that people getting refunds, but the reality is much different from the data. Normally. data is just a formality nothing else because a large number of people commit suicides[1] and lose hope in the justice system. We can see that on the surface everything is going on very smoothly but if we dive into reality then we will see there is an ocean of corruption and laziness from the side of the authorities. In the end, Authorities treat the victims in such a manner which makes them believe that they are the root cause of the problem, not the defaulters because justice is in the hands of such people and there is no one to address their miseries. That’s why, reality is too harsh and beyond the way.

Now, we can understand that it is a very well-planned tactic and generally played by the many offenders at every time because they believe that no one can restrict such activities as they have the power in their hands till they have money which is sufficient to feed the mouth of corrupted officials and for that sake, such officials will protect them as far as possible. However, On the other side, many officials are honest and dedicated to their profession. Still, they do have not the power to restrain such corrupt practices that are adopted in the world of the corporate.

Even Today, there is no specific legislation to deal with, regulate and provide adequate relief against such practices. Ultimately, these practices are increasing at a higher pace. In this article, we will understand the meaning, statutory provisions, Problems and remedies to prevent such Crimes in the interest of justice.

Keywords (Minimum 5): Corruption, Money ‘Power, Loopholes in Statutes, Lack in the implementation of Law, Defeat of Justice, Corporate Crime and Scams.

Meaning, and Definition:

White-collar scams fall under the umbrella term of white-collar crime. White-collar scams are one of the white-collar crimes. It means the scope of white-collar crime is much greater than white-collar scams.

A “scam” generally refers to a deceptive, manipulative or fraudulent scheme. These scams are designed to cheat someone out of money or assets. When this type of fraudulent activity is adopted by individuals or entities in positions of authority, trust, or influence. This is how scams become white-collar scams[2][3]

“Crime committed by a person of respectability and high social status during his occupation.” ————– Edwin Sutherland

In other words, White-collar crimes denote non-violent, illegal activities, financially motivated and tricks like deception, fraud, or manipulation particularly committed by individuals of high social status, such as professionals, business executives, or government officials, during their occupation or profession.

Historical Background

In 1930, The Sociologist and Criminologist Edwin Sutherland coined and popularised the concept of white-collar crime. Before this, there was a myth that individuals from the upper social class never indulge in such unethical and immoral practices.

Sutherland challenged this notion and brought attention to the involvement of respected individuals in illegal activities[4]. Since then, various theories and approaches have been developed to analyse and address issues concerning such crimes. Over time, Due to technological advancement and globalization, these crimes have become more sophisticated because of the complex financial schemes and regulatory challenges[5].

“The Santhanam Committee’s report showed a wide picture of white-collar crimes committed by respectable individuals such as businessmen, industrialists, contractors, and suppliers, as well as corrupt public officials. The motivation for committing a crime is not always based on necessity.[6]” It includes Businessmen, Industrialists, Contractors, Suppliers and not surprisingly corrupt Public Officials.

In May 1958, the government appointed a Board of Enquiry headed by Justice Vivian Bose[7]. In 1963, The Reports of the Vivian Bose Commission[8] investigated the affairs of the Dalmia Jain group of companies and drew attention towards the Businessmen who often indulge themselves in White Collar Crimes such as Forgery, Fraud, Falsification of accounts, Tampering with records for personal gains and Tax evasion etc. Consequently, the problems like huge financial, social, and psychological suffering by the victims and society at large[9].

Principles and Doctrines:

Strict Construction and Interpretation of Criminal Statutes – The idea behind this principle is that there must not be a formality when the laws are enacted but every provision contained in the statutes must address the issues and the procedures in the concised form. Therefore, criminal statutes must be construed strictly and interpreted precisely by keeping in view the practical application of the laws.
The Tricks of Deceit and Concealment – This doctrine states that in this AI era, it is an easy task to access information because lack of security issues and data is bought and sold by such persons who do not have the authority to do so but this is the reality and lack of the vigilance from the side of the authorities. Hence, criminals often employ fraudulent schemes, misrepresentations, or false information, to accomplish their objectives.
Causes behind the criminal intent of the Individual – This concept is very helpful to understanding and investigating the criminal behaviour of individuals, such as rule-violating nature, greed, lack of awareness among people, lack of strict rules and laws, lack of accountability, peer support, loopholes of legal structure, technological and industrial development[10].

Therefore, this list is not limited but understanding of these factors aids in identifying and combating such crimes. As, there are various theories such as rational choice, social control, strain etc, that can be applied to explain the motivations and tactics behind white-collar crimes. This is how researchers and policymakers can understand the root causes of such offences.

Essentials / Elements / Pre-requisites:

One of the most essential points is that there must be the presence of the Intention to deceive
The statement by the person that he/she is from an ‘X’ company ‘agent or your relative’ friend is like impersonating themselves to gain the trust of the individual. Such act known as Breach of trust,
The intention to deceive someone only because there is an existence of financial motive,
In scams, the most common element is to operate illegal activities by showing that these activities are complying with the law. This is called the concealment of illegal activities.

Note: A thorough investigation is required to uncover the scams may involve complex schemes and multiple parties.

Exceptions:

There must be a lack of intention to deceive the victim to gain undue financial advantage.
When there is no meeting of mind that leads to the mistake of fact.
No usage of manipulative tricks to trap the victims to do such acts which they ordinarily resist to do so. It is known as
There must not be use of force of any type over the victim to do such an act. Such acts count as

However, proving these defences can be challenging due to the nature of white-collar scams and the evidence required to establish guilt.

Forms / Modes [11]

Some common types of white-collar scams[12]:

Fund Embezzlement: The misuse of funds by the executives within organizations that are entrusted under the care of the individual.
Fraud[13]: “Fraud occurs when someone knowingly lies to obtain a benefit or advantage to which they are not otherwise entitled, or someone knowingly denies a benefit that is due and to which someone is entitled”[14]. In other words, there must be a presence of an intention to deceive to secure unfair or unlawful financial gain, which can include:
Investment Fraud, Insurance Fraud, Forgery, Credit Card Fraud, Securities Fraud, Bank Fraud, Online Auction Fraud etc
For example, in the case of Punjab National Bank Fraud (2018): Over Rs 14,000 crores was defrauded by Nirav Modi (Billionaire Jeweller) and this fraud was committed via the issuance of fraudulent Letters of Undertaking by a subordinate clerk at a single Mumbai branch.
Insider Trading: “This practice that often blurs the line between legitimate investment activities and unlawful behaviour. It happens when individuals or entities buy or sell securities in a company based on non-public, material information about that company. This practice can lead to unfair advantages, market distortions, and loss[15].

For example, In the Re Harshad Mehta Scam (1992) case: This is one of the biggest securities scams in Indian history and it involved fraudulent brokerage practices and over Rs.6,000 crores in bank funds being siphoned off.

Ponzi Schemes: In this scheme, at first, the funds are collected from new investors then these funds are used to pay returns to their earlier investors, creating the illusion of profit when no legitimate business activity is occurring.

For example, In the Re Rose Valley Chit Fund Scam (2012-13) case: An estimated Rs 15,000 crores Ponzi scheme defrauded lakhs of small investors across India.

Pyramid Schemes: This scheme is familiar with the Ponzi scheme, where participants are recruited to make payments to those above them in a hierarchy, promising future profits based on recruiting more participants.

Example: In the Re PACL Ponzi scam case (2014): In the Re PACL Ponzi scam case (2014): PACL collected over Rs 45,000 crores through its instalment payment plan and cash down payment plan as part of its collective investment scheme. The investors were lured by promises of an interest rate of 12.5 per cent on deposits are much better option instead of investing in the Fds and depositing in the savings bank account, besides free accidental insurance and income tax-free maturity. Sebi passed an order asking the company to refund Rs 49,100 crores, with promised returns.[16]

Phishing Scams: This is a method of sending fake emails or messages to trick individuals into providing sensitive information, such as passwords or credit card numbers. Afterwards, this information is used for identity theft or financial fraud.
Tech Support Scams: Tech support personnel convince victims to provide remote access to their computers as they impersonate themselves so that individual will believe their words and do such acts that scammers want them to do. That‘s why, it is easier for scammers to steal personal information or install malware.
Business Email Compromise and Phishing Calls: Scammers use compromised email accounts and phone numbers to impersonate executives or employees, tricking others into transferring funds or sensitive information.
Identity Theft: In this era, both online and offline at some official platforms sharing of personal data is very common but our data are sold/leaked by the sources to whom we give access to have our data. That’s how Scammers Illegally obtain and use someone else’s data, such as Social Security numbers or credit card information, for financial gain.
Loan Scams: Offering fraudulent loans with unrealistic terms and prerequisite conditions is upfront fees or personal information that can be used for identity theft[17].

Legal Provisions and Regulations

India’s legal framework addresses white-collar scams with specific statutes and provisions:

Statutes:

“Central Bureau of Investigation (CBI) Act, 1946 – The CBI is the premier investigating agency in India to investigate major crimes, including white-collar crimes. The CBI Act empowers the agency to investigate offences across state borders”[18].
“Banking Regulation Act, 1949 [19]– Sections 33A, 34A, 35 dealing with banking related fraudulent transactions, falsification of accounts”[20].
“Income Tax Act, 1961[21] – This act includes provisions related to tax evasion, which is a common aspect of white-collar crimes. Evading taxes through fraudulent means is punishable under this act”.

Havells India Ltd Tax Evasion (2016): Tax evasion of over Rs 500 crores by under-reporting sales and profit figures over several years.

“Securities and Exchange Board of India (SEBI) Act, 1992” [22]

The Securities and Exchange Board of India Act regulates the securities market and aims to prevent market manipulation and insider trading.

Amendments: Amendments have been made to the SEBI Act to enhance regulatory oversight and enforcement against insider trading and market abuse.

Indian Penal Code (IPC)[23]

Sections 403 to 409 deal with offences related to criminal breach of trust, misappropriation, and cheating.

Sections 463 to 468 cover forgery and counterfeiting.

Sections 471 to 474 address the use of forged documents as genuine.

Amendments: The IPC has undergone various amendments over the years to strengthen provisions against white-collar crimes. Notable amendments include updates to punishment clauses for fraud, misappropriation, and financial offences.

[24].

Information Technology Act, 2000[25]– With the rise of cybercrimes related to white-collar offences, this act provides legal provisions for electronic fraud, data theft, and hacking.
Prevention of Money Laundering Act, 2002[26]: This Act focuses on dealing with corruption involving public officials and public servants.

Commonwealth Games Scam (2010): Large-scale inflated expenses and corruption during preparation for the games with over ₹70,000 crores estimated to have been laundered.

Amendments: Amendments to this Act have introduced stricter penalties for corruption, bribery, and illegal gratification.

Central Vigilance Commission Act, 2003[27]: This act enhances vigilance in public sector organizations[28]
“Lokpal and Lokayuktas Act, 2013[29]: Establishes Institutions to Combat Corruption[30] The Act provides for the establishment of Lokpal at the central level and Lokayuktas at the state level to inquire into allegations of corruption against public officials.”

“The Lokpal and Lokayuktas (Amendment) Act, 2016[31],2019 and, 2020, introduced provisions for declaring assets and liabilities of public servants and their family members. Also amended various sections to enhance transparency, streamline procedures for filing complaints, protect whistleblowers and for the extension of the time limit for public servants to declare their assets and liabilities.”

“The objectives behind these amendments are to strengthen the functioning of Lokpal and Lokayuktas, increase accountability, and expedite the resolution of corruption cases. It covers various offences related to corruption and misconduct by public servants.”

Prevention of Corruption Act, 1988[32]

“The Prevention of Corruption (Amendment) Act, 2018[33], introduced stringent provisions against corruption, including criminalizing giving bribes and punishing commercial organizations for bribery.”

The objectives are to ensure speedy trial and enhanced punishment for offenses related to bribery, corruption and curb corruption and promote transparency in governance.

This Act complements the Lokpal and Lokayuktas Act by defining various offences related to corruption involving public officials and public servants. and prescribing penalties

Amendments: The Act has undergone amendments to enhance penalties and widen the scope of offences, to complement the objectives of the Lokpal and Lokayuktas Act.”

“Foreign Contribution Regulation Act, 2010[34]: Regulates foreign contributions and targets financial misconduct[35].”
“Companies Act (2013)[36]: The fraud committed by officers of a company falls under the Sections 447 and 448 like financial statement fraud falls under this. One more thing is that there is no specific definition of Fraud in the Companies Act, of 1956”.
“Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015[37] – Sections – Deals with non-disclosure of foreign assets, tax evasion on undisclosed foreign income and assets.”
“Fugitive Economic Offenders Act, 2018[38]: To deal with the economic offenders who fly to another country from India[39] .”

Case Laws:

V Senthil Balaji v State[40]-In this Special Leave Petition case reported in 2023, the Tamil Nadu chief minister was involved in the Cash for Job scam. the Supreme Court provided insights into white-collar crimes and their legal implications[41].
Rahul Dinesh Surana vs. Senior Assistant Director[42][43]– The Madras High Court held to grant imprisonment to the former CEO of Surana Group of Companies in a Rs 10,000 Crores fraud case highlights the seriousness of white-collar crimes in India.
Vijay Madanlal Choudhary vs Union Of India [44][45]– A case discussing the constitutional aspects of the procedure under the Prevention of Money Laundering Act (PMLA), shedding light on legal safeguards in white-collar crime investigations.
2G Spectrum Scam (2008): Mobile frequencies allocation scam involving underpricing that led to an estimated loss of ₹1.76 lakh crores to the exchequer[46].
Satyam Scam (2009) India’s biggest accounting fraud involving fictitious assets and inflated cash balances worth ₹7,800 crores by its chairman.[47]

Amendments / Repealing :

Amendments to PMLA: The Prevention of Money Laundering Act (PMLA) was amended in 2023 by the Central Government to include provisions related to the punishment for forgery and falsification of accounts[48].
Repeal of IPC: The enactment of three new acts aimed at reforming criminal laws, The Indian Penal Code, 1860 replaced by the Bharatiya Nyaya Sanhita Bill, 2023, the Criminal Procedure Code, 1898 replaced by the Bharatiya Nagarik Suraksha Sanhita Bill, 2023 and the Indian Evidence Act, 1872 replaced by the Bharatiya Sakshya Bill, 2023[49].

CONCLUSION & COMMENTS (Recommendations and Remedies)

This article paints the real picture of the current legal framework and obstacles within the judicial process while dealing with white-collar scams in India. This study emphasises that the consequences are beyond financial losses, affecting businesses, consumers, and the overall economy.

Likewise, the Mundhra scam (1950) case marked independent India’s first big financial fraud. The famed Harshad Mehta Scam- Stock market and Money laundering scam (1992), Satyam Scam-White collar scam (2008), Sahara Scam (2013) – In this case, Option bonds were collected over Rs. 24000 crores from the public without authorisation of proper regulatory authorities, Bhushan steel scam- Money Laundering (2019), Dewan Housing Finance Limited-Bank scam ( 2021), ABG Shipyard-Bank scam (2022) are frauds keep growing on with an alarming frequency following every decade and many more.

To deal with such scams/crimes, there is a huge need to adopt a comprehensive mechanism. There are some recommendations such as Principles of transparency, accountability, integrity, and ethical conduct, that must be adopted. Remedies include reviewing laws governing economic offences, engaging knowledgeable prosecutors, expediting trials through exclusive courts, simplifying court procedures, and establishing a special penal code for white-collar crime prevention.

In lump sum, the study calls for a stringent approach to address white-collar crimes in India, advocating for legal reforms, judicial efficiency enhancements, and preventive measures to combat these complex forms of criminal activities effectively and efficiently.

Therefore, it is high time for our constitutional machinery to focus on the enactment of stringent laws that will be helpful to deter offenders and prevent such crimes by tightening bail provisions to prevent economic offenders from being released easily and a special penal code dedicated to preventing white-collar crime to expedite justice, combat and prevent misconduct, promote corporate responsibility, and maintain public trust in institutions.

REFERENCES

Books / Commentaries / Journals Referred

https://kbsaa.org/journal/wp-content/uploads/2022/12/Saptarshi-Ganguly-and-Amit-Majumder.pdf
https://ijirl.com/wp-content/uploads/2022/07/A-CRITICAL-STUDY-OF-WHITE-COLLAR-CRIMES.pdf

Online Articles / Sources

com – Legislations Against White Collar Crimes
com – White-Collar Crime 2023
LiveLaw – Reathed all Latest Updates on and about White Collar Crimes
LinkedIn – White Collar Crime in India
JSTOR – Corrupting the Harm Requirement in White Collar Crime
com/library/detail.aspx
India code
Hindustan Times
Outlook.com

Cases Referred

https://www.livemint.com/Companies/UJ4F8Dyx6L9CEmLYME3o6K/Mundhra-scam-Indias-first-big-corporate-fraud-case.html
https://main.sci.gov.in/supremecourt/2012/20230/20230_2012_Judgement_17-Apr-2012.pdf
https://main.sci.gov.in/supremecourt/2012/20230/20230_2012_Judgement_17-Apr-2012.pdf
https://www.livemint.com/Companies/UJ4F8Dyx6L9CEmLYME3o6K/Mundhra-scam-Indias-first-big-corporate-fraud-case.html
https://www.rediff.com/business/report/bhushan-steel-case-a-classic-example-of-crony-capitalism/20200528.html.

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