The Companies Act, 1956/2013 mandate that only individuals having Director Identification Number, which is allotted on verification of ID and address proof can become directors of a company. Further, the law requires physical verification of registered office addresses of companies by practicing professionals and intimation to the Registrar of Companies in the events of setting up or change in the situation of, registered office by the company. In addition, the accounts of all companies are required to be prepared as per Accounting Standards and audited by external auditors. The auditors are also required to report to Central Government on frauds above a prescribed threshold. Stringent penal provisions have been provided for fraud. These provisions appear sufficient to ensure that companies and its directors are traceable and the financial transactions of the company are properly and completely reported.

This was stated by Shri Arun Jaitley, Minister of Corporate Affairs in written reply to a question in the Lok Sabha today.

Director identification requirement and mandatory audit/reporting strengthen traceability and fraud reporting in corporate financial transactions. Director Identification Number must be obtained after verification of identity and address before serving as a company director; practicing professionals must physically verify registered office addresses and companies must intimate the Registrar of Companies upon establishment or change of registered office. Company accounts must comply with Accounting Standards and be audited by external auditors who must report frauds above a prescribed threshold to the Central Government, and the statutory framework includes stringent penal provisions for fraud.