The Ministry of Corporate Affairs is in the process of developing an early warning system to identify early signs of frauds including potential frauds. Giving this information in written reply to a question in the Rajya Sabha today, Shri Sachin Pilot, Minister of Corporate Affairs, said that Pilot testing of the proposed system is expected to be completed during 2013-14.

Regarding action against companies indulging in defrauding investors through ponzi schemes, Shri Pilot informed the House that his Ministry has ordered investigation under Section 235 of the Companies Act, 1956 to be conducted by Serious Fraud Investigation Office on the basis of reports of Registrars of Companies in respect of 67 such companies who had allegedly floated ponzi schemes and investigation is being conducted in respect of all of them. As and when the investigation is completed, Government orders prosecution in respect of violations of the provisions of the Companies Act, 1956 and Indian Penal Code, 1860.

Early warning system for corporate fraud detection announced, with investigations and prosecutions for alleged Ponzi schemes to follow. The Ministry of Corporate Affairs is establishing an Early Warning System to detect early signs of fraud and pilot testing is expected to be completed in 2013-14; separately, investigations into alleged Ponzi schemes have been ordered under the Companies Act to be conducted by a specialized investigative agency, with prosecutions to follow for Companies Act violations and related criminal offences.