Criminal Defenses & Important Evidences in Cases of Economic Frauds
Economic frauds and/or financial frauds occurs usually when someone deprives you of your monetary resources or injures your financial health through deceptively misleading or illegal procedures. This can be achieved through various ways such as Investment Frauds or Identity thefts. The fraudulent methodology of using someone else’s name and personal details to put the public in deception and gain financial advantage out of them amounts to Identity Theft (Tony Enterprises Vs. Reserve Bank Of India, Writ Petition (Criminal) No. 28823 of 2017). Most of the victim compensation programs operating in India cause unnecessary delays in the disposition of cases and do not aim to recover the money that is lost to any fraudulent scheme. The criminal defenses to the alleged accused person are quite few in number and the entire criminal case relies upon the books of accounts and the financial records respectively. These books of accounts and the financial records are the direct and primary evidences n the criminal case concerning economic frauds and/or financial frauds and the entire criminal prosecution and criminal defense is based upon the same. The financial records which are the primary evidences are enumerated herein below
• Bank Statements
• Credits Reports
• Tax Receipts from Current and Previous Financial Years, depending upon the crime
• Profit and Loss Statements
• Bank Receipts
• Records of Financial Transactions
• Balance Sheets of the Company
• Loan and Mortgage Documents
Primarily economic frauds and/or financial frauds can be bifurcated into three categories i.e.
Mass Marketing Frauds
Mass Marketing Funds are usually committed through spam emails and telephone calls, and this is usually involving counterfeit cheques, lotteries, invitations to honor societies and their charities, etc. The Court in Indrajeet Yadav Vs. State set a precedent that the operatives of any fictitious multi-level marketing company that commits fraud by providing fraudulent inducements to a large number of people in public will amount to a criminal offense under section 420 and 406 of IPC (Indrajeet Yadav Vs. State & Anr, Criminal Miscellaneous Petition No. 1127/2012). This is a way where people try to steal personal information concerning their finances to increase the contribution to fraudulent corporations through illegal means. The evidence in such cases can include call records, emails, invitations to their societies, false and misleading advertisements, bank statements, forged cheques, etc.
Investment fraud is inclusive of selling any kind of security or investment with some fraudulent misleading, information and fact. In such cases, the organization creates unnecessary hype or expectations regarding certain stocks and securities by publicly disseminating false information about the same and falsely assuring the investors that they will be making huge margins of profits in the future. In matters pertaining to Insider trading, the courts accept the submission of circumstantial evidence in light of violating the insider trading norms as laid down by the SEBI rules and regulations. Other important evidence would include communication influencing the stock prices, statements from witnesses, and documents about the stocks and securities in question.
Currently, the Indian media has thrown a lot of light on the infamous Saradha chit fund case, which was operated in West Bengal. The Saradha group ran a chit fund that collected 200 to 300 billion rupees from investors with a fraudulent promise of high returns for their investments. However, all those companies that enjoyed strong political affiliations and backings collapsed in April 2013 and the investors lost a big chunk of money which was estimated to be around Rs. 260 to 2400 Crores.
The Securities Scam 1992 or the Big Bull Scam of 1992 (Ashwin S Mehta, Mumbai Vs. Dci, Income Tax Appellate No. 8704 Mum 2011) was the largest money market scam, India had ever witnessed. Harshad Shantilal Mehta committed systematic fraud in the Stock market, that involved stamp papers and bank receipts for manipulating the stock prices. Various banks operating in India such as State Bank of India, Bank of America, Grinlays, UCO Bank-funded Harshad Mehta, which he used to create artificial markets and inflate the stock prices at his convenience. As an illustration, the Associated Cement Company (ACC) observed an unusual sore in stock prices. Mr. Mehta fraudulently increased the price of ACC from Rs.200 to Rs.9,000 in a very short period. This resulted in an abrupt increase of about 4,400% percent in various other stocks and that soon as he sold the stocks, there was a disruption in the Indian stock market, leading it to not only crash but also defrauded investors of more than one billion USD.
Loan Frauds or Mortgage Frauds
Loan Frauds or Mortgage Frauds are usually conducted by a third party who may open or sell a mortgage or loan using inaccurate information or employ deceptive practices such as deliberately omitting significant information during the process of mortgage loan application to purchase the property. The evidence in such cases would be deceptive documents and false information, mortgage documents, and loan, statements from the bank officials involved in the matter, etc. In instances where there is sufficient evidence to prove that the power of sale executed by the mortgagee is executed by exercising fraudulent or improper methods that run contrary to terms of the mortgage, the Mortgagor is advised to approach the Court before the commencement of the sale, along with an injunction in an order to put a stay on the procedures concerning to sale. However, the pleadings in action to put a restrain on the sale by mortgage should distinctly disclose the irregularity or fraud, in conformity of which relief is sought before the court (Bhopal Thapa Vs. Riva Devi Shaw & Ors, Criminal Petition No. 258 of 2014).
While financial frauds and white collars crimes have been on the rise lately, regulatory law enforcement bodies, vigilance departments, and the department of revenue intelligence have started adopting sophisticated methods and techniques to not only keep a check on such scams but to also apprehend the economic offenders in such cases. As mentioned earlier, it is the books of accounts and the financial records which are the direct and/or the primary evidences in these criminal cases.
Authored By: Adv. Anant Sharma & Lopamudra Mahapatra