In India’s corporate landscape, risk has often been the third musketeer, the other two being ambition and expansion. Over the years, some of the country’s most prominent companies have collapsed under the weight of fraud, leaving behind shattered trust and financial losses running into thousands of crores.

These were not fringe players, but giants like Infrastructure Leasing & Financial Services (IL&FS), Dewan Housing Finance Corporation Limited (DHFL), Satyam Computers and Punjab National Bank (PNB) whose collapse caused massive disruption to the financial system. A look at some of these giant collapses would be instructive.

Let us start with IL&FS. It was once India’s premier infrastructure finance firm, overseeing more than 300 companies and holding assets worth over ₹1.2 trillion in 2018. But its business model leaned heavily on short-term borrowing to fund long-term projects, an unsustainable strategy.

In 2017, a whistleblower flagged ₹5,200 crore in suspicious intra-group loans allegedly meant to hide bad debts. Despite this, no action was taken. By late 2018, IL&FS had defaulted multiple times, accumulating nearly ₹1 lakh crore in debt. A subsequent RBI audit found that 70 per cent of its loans were impaired.

The government finally stepped in by replacing the board, but by then investor confidence had been shattered. Only ₹44,000 crore was recovered and ₹38,000 crore was lost. These losses might have been cut by ₹7,000–₹19,000 crore if early warnings had been acted upon.

DHFL presents a similar picture. A leader in affordable housing finance, it borrowed nearly ₹42,871 crore from 17 banks. But by mid-2019, over ₹34,000 crore had become bad loans.

Forensic audits revealed that ₹29,000 crore had been lent to 66 related entities and another ₹11,000 crore had flowed through 87 shell firms. DHFL also created 2.6 lakh fake home loan accounts under a non-existent Bandra branch to mask ₹14,000 crore in fictitious loans.

A 2019 media sting exposed the scam. By July 2019, DHFL defaulted. Eventually, it was taken over by the Piramal Group through insolvency proceedings, with creditors recovering only 46 per cent of their claims, resulting in losses of over ₹18,000 crore. Experts believe that better audits, stronger KYC checks and early detection could have saved ₹7,000–₹12,000 crore.

In both cases, the warning signs were visible. Whistleblowers raised alarms, financial statements had red flags and yet the systems in place failed to respond effectively.

The primary reason for such disasters was not the absence of tools but their poor use. Companies ignored whistleblowers, auditors missed red flags and data analytics was either too weak or not used in time.

India has frameworks like the MCA21 (Ministry of Corporate Affairs) portal, which serves as the central platform for corporate filings. With the July 2025 launch of MCA21 V3, 38 e-forms are now in machine-readable XBRL format and AI-driven anomaly detection is live.

However, the quality of submissions remains problematic. Incomplete filings, scanned documents and blank director IDs render the AI tools ineffective. For these tools to work, data must be complete, clean and validated. Regulators like SEBI, RBI and ED must have real-time, seamless access to this information.

Internal gatekeepers like auditors and whistleblowers are equally critical, yet both face systemic limitations. The Companies Act and Companies Auditor’s Report Order (CARO) 2020 require auditors to report suspected fraud and whistleblower complaints, but conflicts of interest, pressure from clients and lack of forensic training often dampen red flags.

Whistleblowers have it even worse. India’s Whistle Blowers Protection Act (2014) applies only to public servants and is rarely enforced. Private sector whistleblowers have neither legal protection nor incentives to speak up.

In contrast, the US SEC’s whistleblower programme provides up to 30 per cent of recovered penalties as reward. It has recovered over $4.8 billion and paid $1 billion in rewards since inception. The UK and Singapore are exploring similar models.

Without similar protections, India will continue to see whistleblowers turn to the media because they fear retaliation or believe no one else will act.

Globally, regulators are investing in AI, real-time analytics and advanced monitoring. India is trying to follow suit.

MCA21 V3 and the Serious Fraud Investigation Office (SFIO) have begun using AI tools. SEBI’s real-time trading surveillance has caught insider trading and pump-and-dump schemes, through social media and suspicious UPI-linked trades in 2025.

However, most financial fraud investigations still rely on outdated manual methods. Many agencies lack dedicated analytics teams or modern technology to work with. Opaque ownership structures, related-party transactions and under-the-radar shell firms continue to bypass scrutiny despite tighter KYC norms and new disclosure rules.

To shift from reactive damage control to proactive fraud prevention, India needs systemic reforms. These reforms on the issue of fraud prevention rest on four pillars: strong enforcement, whistleblower protection, data analytics and regulatory coordination. Each of these must be strengthened.

First, the Whistle Blowers Protection Act must be expanded to cover private sector employees and include financial incentives, just like the SEC model. Whistleblowers who expose large frauds must be rewarded.

Second, MCA21’s AI tools must be fully implemented and data submissions must be clean, consistent and machine-readable.

Third, a permanent fraud intelligence unit must be created to connect SEBI, SFIO, RBI, ED and tax authorities with shared, real-time access to data and insights. This will enable early detection of fraud networks before they spread.

Fourth, forensic audits and real-time reporting should be mandatory for large or high-risk firms. Real-time anomaly detection can flag irregularities in transactions, ownership patterns and inter-company dealings, the earliest signs of fraud.

Some notable developments give hope that the authorities are going in the right direction. In June 2025, SEBI and the Institute of Chartered Accountants of India (ICAI) entered into a partnership to boost corporate fraud detection.

This initiative will develop a new framework for forensic accounting in capital markets, strengthen auditor skillsets and improve red-flag identification using advanced analytics. This is a crucial step in aligning professional oversight with regulatory needs.

SEBI’s “SEBI Check” tool and mandatory validated UPI IDs are set to roll out by October 2025. These will help curb fraud in the retail investor space.

But such measures must extend beyond trading to cover corporate filings, financial statements and high-risk lending activities.

For more effective curbing of corporate irregularities and fraudulent activities, the powers that be must make way for smarter surveillance, empowered whistleblowers, stronger audits and seamless coordination between regulators. Only then can we build a system that keeps a strong net preventing both small and big corporate fishes from slipping through.

Ayush Aslaliya

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