Corporate India has seen an uptick in regulatory crackdowns over the last year. From high-profile questioning of IndusInd Bank executives over alleged ₹1,960 crore irregularities, to enforcement actions linked to foreign exchange management and money laundering probes, the signal is clear: regulators are scrutinising corporate conduct more aggressively than before. For boards, compliance teams and senior management, the message is not only about avoiding misconduct but also about anticipating how lapses – intentional or otherwise are now being interpreted in law.

What Counts As Accounting Irregularities?

At its core, “accounting irregularities” is not a term of art in legislation, but regulators and courts view it as any departure from legally mandated standards of accounting and disclosure. This can include:

• Inflated revenues or understated expenses to paint a rosier financial picture.
• Failure to disclose related-party transactions that may conceal conflicts of interest.
• Round-tripping or circular transactions aimed at inflating balance sheets.
• Improper provisioning for bad loans or non-performing assets.
• Violations of foreign exchange rules under the Foreign Exchange Management Act (FEMA).

In other words, irregularities are not always outright fraud; sometimes, they stem from negligence in applying accounting standards or ignoring disclosure requirements. But in practice, intent matters less than effect: the failure to present a “true and fair view” exposes companies to investigation and penalty.

The Regulators On The Front Line

Several agencies have overlapping jurisdiction when irregularities surface:

• Enforcement Directorate (ED): investigates money laundering under the Prevention of Money Laundering Act (PMLA) and foreign exchange violations under FEMA.
  
  
• Securities and Exchange Board of India (SEBI): scrutinises listed companies for non-compliance with disclosure norms, insider trading, and market manipulation.
  
  
• Serious Fraud Investigation Office (SFIO): steps in when complex corporate fraud is suspected.
  
  
• Reserve Bank of India (RBI): oversees banks and NBFCs, ensuring prudential norms are not violated.
  
  
• Income Tax Department: examines tax evasion or misreporting of income.
  
  

What makes recent probes particularly daunting for companies is the multi-agency approach. A single irregularity flagged in financial statements can invite parallel proceedings across ED, SEBI and SFIO, each applying its own mandate.

Disclosure Obligations And Fiduciary Duties

Indian company law has tightened accountability for directors and officers. The Companies Act, 2013, requires directors to exercise due and reasonable care in ensuring financial statements are accurate. Independent directors, in particular, are expected to question management and demand transparency.

For listed entities, SEBI’s disclosure regime is uncompromising. Material events, related-party dealings, or adverse regulatory findings must be disclosed promptly. Failure here does not only trigger monetary penalties but also reputational fallout, often more damaging than the sanction itself.

This legal expectation translates into a broader fiduciary duty: executives and boards must act in the best interests of shareholders, which includes avoiding reckless financial reporting. Courts have held that directors cannot shelter behind lack of knowledge if irregularities were reasonably discoverable through diligence.

Why Internal Controls Matter More Than Ever

One thread connecting recent investigations is weak or compromised internal audit systems. Regulators are increasingly unsympathetic to arguments that lapses went unnoticed. Instead, companies are expected to maintain robust safeguards, including:

• Independent internal audits with direct reporting lines to the audit committee, not management.
• Periodic stress-testing of controls, especially in high-risk areas such as overseas transactions or large vendor contracts.
• Whistle-blower mechanisms that protect employees who flag anomalies.
• Technology-enabled monitoring, using data analytics to catch unusual patterns early.

Boards that treat internal audits as a compliance formality, rather than a strategic safeguard, risk exposure when regulators dig deeper.

Possible Penalties And Fallout

The consequences of proven irregularities are wide-ranging:

• Monetary penalties: Running into crores, often across multiple regulators.
• Attachment of assets: Under PMLA and FEMA proceedings.
• Debarment of directors: SEBI can bar individuals from holding board positions.
• Prosecution: In serious cases, directors and executives face imprisonment.
• Market consequences: Loss of investor confidence, downgrade of credit ratings, and erosion of market capitalisation.

As seen in recent enforcement drives, regulators are increasingly willing to pursue personal liability for executives who either participated in, or failed to prevent, misconduct.

What Companies Should Do Now

Staying compliant in this environment requires a proactive stance, not reactive firefighting. Some practical steps include:

• Strengthen governance: Ensure the audit committee is empowered, independent, and informed.
  
  
• Update risk registers: Map out compliance risks across accounting, tax, foreign exchange, and disclosure.
  
  
• Invest in compliance training: Senior management must be conversant with regulatory expectations, not just legal teams.
  
  
• Test reporting lines: Check whether whistle-blower systems, escalation processes, and board reporting are actually functional.
  
  
• Scenario planning: Prepare for regulatory raids or investigations with protocols for disclosure, cooperation, and crisis communication.

Compliance is no longer about ticking boxes. It is about creating an ecosystem where red flags are identified early, acted upon decisively, and disclosed responsibly.

A Shifting Regulatory Climate

The spike in high-profile probes is not incidental. It reflects a broader shift towards accountability and transparency in India’s financial markets. With global investors watching closely, regulators are under pressure to demonstrate enforcement credibility. For corporates, this means a higher bar for diligence, integrity and reporting discipline.

Boards and executives who internalise this shift and embed compliance into corporate culture will not only avoid the scrutiny that has ensnared others but also build the trust that sustains long-term growth.